My husband is a financial planner (much better than a broker) and he generally tells everyone to leave their stocks pretty much alone unless there's good reason to do otherwise (Bad managment in the company, it's going down the tubes, fund management isn't good, etc) because you're pretty much right about everything you've said. You don't do anything to recoup losses if the fund or stock is solid because the market will correct itself and the law of averages says that they will all end up in pretty much the same place even if they don't do it in quite the same ways - it's the same principle that tells you that there really aren't any faster moving lines in the grocery store, even though momentarily it might look as though there are. Changing funds all the time gains you little or nothing in returns and just eats away at your principle because you end up paying so many commissions. Unethical brokers advise clients to buy and sell frequently so that they can collect more commissions, a practice known as "churning." Beware of a broker who tells you to do anything other than put your money in a good, diverse mutual fund and leave it there! (I CAN"T BELIEVE I ACTUALLY KNOW ALL THIS!) Anyone who has more questions about this can email my spousal unit (Matt) at [EMAIL PROTECTED] He can easily link all this to psychology because I think that there's alot going on here that relates. I think there is a lot of magical thinking that goes on when people talk about the stock market. Also, I think there is much to be learned about the differences between people's attitudes and behaviors where their money and investment practices are concerned. You can also use stock prices to talk about statistics - significant differences, variability, covariance, etc. My husband knows almost as much about statistics as I do. Interesting. -Cindy M.
At 12:00 AM 1/14/2002 -0500, you wrote: >TIPS Digest for Sunday, January 13, 2002. > >1. Re: Any stock advice? > >---------------------------------------------------------------------- > >Subject: Re: Any stock advice? >From: Stephen Black <[EMAIL PROTECTED]> >Date: Sun, 13 Jan 2002 23:53:30 -0500 (EST) >X-Message-Number: 1 > >On Sat, 12 Jan 2002, Richard Pisacreta, Ph.D. wrote: > > > > > Any of you Tipsters study the stock market? Can you off the > > rest of us any advice for next year to offset the terrible > > returns of the last two years? Any of you in TIAA-CREFT > > pension plans have any advice on how to distribute future > > allocations? > >Perhaps we can justify this question on TIPS by suggesting it >raises an important psychological question. This is why people >allow themselves to be guided by experts who have no expertise. I >speak of brokers and "financial advisors". If no one goes for >this, I say, what the heck, it's a slow week-end on TIPS, and >it's a fun question. > >My understanding is that the stock market is "efficient", which >means that the price of a stock fairly represents all information >available about the company and its prospects. Consequently, >there are no bargains and no dogs. Aside from degree of risk, it >doesn't matter which stock you choose. Forget analysis. I did a >web search to confirm the above, and came up with an apparently >authoritative analysis of the efficient market hypothesis at >http://www.investorhome.com/emh.htm. Bottom line: > >"If markets are efficient and current prices fully reflect all >information, then buying and selling securities in an attempt to >outperform the market will effectively be a game of chance rather >than skill." > >and > >"Many novice investors are surprised to learn that a tremendous >amount of evidence supports the efficient market hypothesis" > >Corollaries: > >1) A monkey throwing darts at a page of stock listings will, on >average, do just as well as the finest financial advisors money >can buy. In fact, the Wall Street Journal runs such a contest >yearly (using reporters rather than monkeys, about the same >thing), This year, the dart method outperformed the experts (see >http://www.onegroup.com/ReadingRoom/stockpick.asp) > >2) Never listen to a broker's recommendation. As they have no >more ability to predict stock movement than anyone else, their >recommendations will be based on how your choice can earn them >the most money. Brokers are always conflicted. Consider why they >prefer to earn commissions off you rather than putting their >alleged expertise to work on their own behalf. > >3) With the exception of the above, never listen to >anyone's advice on the stock market. They know as much as you, >which is to say, nothing. > >4) Since stock-picking is futile, choose stocks that are fun to >hold. I like high-tech genetics companies. Not only is the >science amazing, but the potential health benefits are >staggering. The fact that they're all money-losing and likely to >go bankrupt should only be mildly discouraging. > >-Stephen >------------------------------------------------------------------------ >Stephen Black, Ph.D. tel: (819) 822-9600 ext 2470 >Department of Psychology fax: (819) 822-9661 >Bishop's University e-mail: [EMAIL PROTECTED] >Lennoxville, QC >J1M 1Z7 >Canada Department web page at http://www.ubishops.ca/ccc/div/soc/psy > Check out TIPS listserv for teachers of psychology at: > http://www.frostburg.edu/dept/psyc/southerly/tips/ >------------------------------------------------------------------------ > > > > > >--- > >END OF DIGEST > >--- >You are currently subscribed to tips as: [EMAIL PROTECTED] >To unsubscribe send a blank email to [EMAIL PROTECTED] Cynthia Bainbridge Mullis, Ph.D. Asstistant Professor of Psychology University of Wisconsin - Whitewater 800 West Main Street Whitewater, WI 53190 (262) 472-3037 Office (262) 472-1863 Office Hours - Fall 2001 MWF 11-12:00 Thurs 2:00-4:00 --- You are currently subscribed to tips as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED]
