Understanding it.

As you will find out, much of my time is spent dealing with the stock market. I thoroughly enjoy trading and furthermore see it as a requirement to achieve my retirement goals. I started watching the stock market in the late ninties when the tech stock mania was in full force. I can remember buying a little superconductor tech company and watching the price go from $5 to $30 in a week. At that time you could buy anything and just wait. Sure enough it would be your turn to catch the wave. Like most i lost all of the gains and then some. Ever since i have traded, invested, and studied the markets.

I have gone through different "understandings" of how the markets work or how i thought they worked. I believe now i am finally starting to get it. To really "get it" you have to tune out most financial advice given on radio, tv, and print. Here are a few things i finally understand about the stock market and more importantly the advice you get about it.

The first thing to understand is most advisors are not advisors but salespeople. They really are only interested in selling you a product. That product being stocks in some form. It could be a solicitation to manage your money for a fee, to sell you a mutual fund, or to give you a stock pick. The real goal of any of these products is not to help you retire, but to make the seller and various associates money.

The second thing to understand is that most pundits you see or read consider themselves spokesmen. As such they feel they must always promote the market even when doing so will lose you money. Look at most of the shows on cnbc for examples of this. Also understand as well that all government officials from the president to the the chairman of the Fed will always lie to you and say everything is fine when they know it is not. This stimulus package is not happening because everything is fine. It is happening because they already have the preliminary numbers and know we are in a recession.

Third you must understand that stocks and the stock markets have cycles. These can run over very long periods, these cycles include periods of serious decline, and as such only buying is seriously restricting your potential gains and furthermore even threatening your ability to retire. If you think about it. It is nonsensical to think you should always ride out declines.

Fourth understand the truth about riding out declines. It is simple math to understand that if you lose 20% you need to earn 25% to get back to where you started (see chart below). This is because your increase is on a smaller amount of money. If you lose 50% you need to earn a 100% to get back to even. The question. Is it more important to make money or not lose money? Obviously it's more important to NOT lose money.

So what to do? When i hear advice i only pay attention to people who go both ways. What do i mean? If the person espousing advice is always short or always long i know they are dangerous. I only pay attention to those who are recemmending to go long and short, depending on what is happening in the markets. I only listen to people using technical analysis to make decisions. What i have found is that charts don't lie, people do. A great story will not stop a stock from imploding.

I have learned that most things in life do not come easy. It offends me that the entire financial investment community is telling you that it is easy. Just give us your money, keep giving it and everything will be fine. Everytime i see someone in their 60s or older working at a burger joint, i know the lie is exposed. My retirement and financial future is too important to blindly hand over to others.

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