What Do Stock Investors Know That We Don’t?
I am not a stock broker or a financial analyst. I would never expect anyone to take that kind of financial advice from me. I have looked at the stock ticker in the newspaper and online, and I sometimes think I know what’s going on, but I would never tell anyone how they should invest their money.
However, Jim Cramer of Mad Money is. Not only was he a stock investor, but he was also a former hedge fund manager. Those guys make a lot of money by speculating on the market and trying to get the best deals for a select number of well-heeled clientele. And he had a great track record, earning around $10 million a year while managing this fund.
On his show, which is actually more “show” than substance, he gives people a lot of advice as to how they should invest their money and makes some pretty bold predictions. He’s had some successes, but he’s also had some major failures. The most crucial came when recommended that people buy shares in Wachovia Bank that, two weeks later, crashed and burned and was purchased by Wells Fargo, dropping around 88% of its value in that short a period of time.
It begs the question; what do these stock investors know that we don’t know? Often it seems the answer to that one is “nothing”. I know many people who have left their jobs to become stock traders and have done very well for themselves. I know others who have lost all their money. For that matter I know financial investors who said one thing to a client and did another for themselves, and I’ve also known some financial investors whose portfolios flamed out like mine did in 2009.
What do they know that we don’t know? Actually, most of them know a lot. The main thing these folks do on a regular basis is track information. There’s a plethora of information they obtain about the company, the industry, technology, associates, competitors, etc. Most of the day it’s tracking trends and making quick decisions on how to act on those trends. Some of it is information that the rest of us could get, but we have other things to do so we don’t get into it.
Of course something else they have is access to people that we would never get to talk to. Insider trading is illegal, but that doesn’t mean they don’t have contacts that they don’t talk to from time to time just to ask what’s going on or what’s new. And every once in awhile, they find that those contacts lie to them, and sometimes it’s too late; that’s what Cramer stated with his bad call on Wachovia.
Also, a question I’ve had, which I’ve written about in the past, that I’m finding many others are also asking, is how the stock market has grown so high when the economy really hasn’t shown that it deserves it. In the last few days stock prices have tumbled because the price of oil has risen; wasn’t it just 4 years ago that the stock market was rising because oil prices were rising? And, for that matter, shouldn’t the stock market be tumbling even faster than before because of the crisis in Japan, which the country is estimating could impact their economy negatively by around $5 trillion dollars? Can you see trillions?
This is why I’m one of those people that recommends hiring a financial adviser that will diversify your funds so you can’t get hurt too much by one company, even though you might not grow as fast. Safety first; what good does it do to sacrifice your money when even top investors don’t seem to know when the next financial crisis is coming?