There’s Always Money in the Banana Stand

Can anyone say pump and dump faster than he made $1.5 billion? I find it interesting that we idolize Warren Buffet because of how successful he has been. Of course we love him. He has billions of dollars in assets and is as stingy as Tiger and Lebron (LeBron James: America Will Now Hate James for Not Tipping). What’s not to love?

I’m going to write something that I’ll probably get torn apart for. Warren Buffet got lucky. There is no such thing as timing the market. There is no get rich quick scheme. There may be some technical analysis to market trends, but there is also such thing as luck. According to William O’Neill (google him if you dont know who he is), no investor ever has been able to produce a consistent long term strategy to beat the market. Over the course of your lifetime as an investor it is impossible to beat the market quarter after quarter for the rest of your life.

around 1:50, “never tell me the odds.”

Let me reiterate. The odds: impossible. You will lose money. You will make money. What determines your success is not how much you make. It’s about how much you lose. The ability to minimize one’s losses is a trait not carried by many. I have always learned the first rule of investing is cut your losses early, and ride your winners. However, there is a giant gap between the things we learn and the things we execute.

The market moves on trends based around sentiment. How people feel is reflected onto the market. Much of day trading, finance, and investment banking is psychology. It seems like numbers run the market, but really it’s feelings. I’ll give you an example with Apple (AAPL). A market truly based on fundamentals would send AAPL sky high. On July 19th, 2011, Apple Reported Third Quarter Results. During market after-hours, the stock rose accordingly and on July 20th opened at 396. Poor economic news and outlook continued to pound our market, and the price dropped although the projected earnings for Apple continued to soar. Today, AAPL is hovering around 370.

I like to call this a delay, when in reality it might as well be called market failure. Terrorism, unemployment, and negative news in general can be a great hindrance to the market. In this way, the short term market becomes extremely unpredictable. As Apple may continue to grow at a ridiculous rate, the stock price may not compensate for this growth simply due to bad news.

Of course bad news may affect the consumer, then affecting sales and earnings. But even with a company as proven as Apple, that has survived and proven success in a time of recession, bad news still carries a great weight.

Another example of this is the week after 9/11/2001. Despite the economy remaining more or less the same, the market fell over 7% after reopening, and fell a total of 14% through the week, losing investors roughly 1.5 trillion dollars.

But don’t despair!! Long term investment strategies may not beat the market every year, but they have proven themselves to earn you enough to retire sooner rather than later! Fundamentals such as earnings, projected growth, and new products still drive market prices in the appropriate direction. Companies that consistently lose money will eventually fall, and companies that have great fundamentals will eventually grow.

And finally, I’ll leave you with a much brighter note:

Arrested Development is one of the best shows ever written. Period.