Page 360 - How to Make Money in Stocks Trilogy

M = Market Direction: How You Can Determine It 235

We’ve all now witnessed firsthand the severe damage that supposedly
bright, intelligent, and highly educated people in New York and Washing-
ton, D.C., caused this country in 2008. U.S. senators, heads of congressional
committees, political types working for government-sponsored entities
such as Fannie Mae and Freddie Mac, plus heads of top New York–based
brokerage firms, lending banks, and mortgage brokers all thought they
knew what they were doing, with many of them using absurd leverage of
50 to 1, and even higher, to invest in subprime real estate loans.
They created sophisticated derivatives and insurance to justify such
incredible risks. No one group was solely to blame, since both Democrats
and Republicans were involved. However, it all began as a well-intended
government program that top politicians accelerated in 1995, 1997, and
1998, when Glass-Steagall was rescinded, and things kept escalating out of
control. Politicians accept no blame, just blame others.
So maybe it’s time for you to take more control of your investing and
make up your mind that you’re going to learn how to save and invest your
hard-earned money more safely and wisely than Washington and Wall
Street have done since the late 1990s. If you really want to do it, you cer-
tainly can. Anyone can.
The few people I’ve known over the years who’ve been unquestionably
successful investing in America were decisive individuals without huge
egos. The market has a simple way of whittling all excessive pride and
overblown egos down to size. After all, the whole idea is to be completely
objective and recognize what the marketplace is telling you, rather than try-
ing to prove that what you said or did yesterday or six weeks ago was right.
The fastest way to take a bath in the stock market is to try to prove that you
are right and the market is wrong. Humility and common sense provide
essential balance.
Sometimes, listening to quoted and accepted experts can get you into
trouble. In the spring and summer of 1982, a well-known expert insisted
that government borrowing was going to crowd out the private sector and
that interest rates and inflation would soar back to new highs. Things turned
out exactly the opposite: inflation broke and interest rates came crashing
down. Another expert’s bear market call in the summer of 1996 came only
one day before the market bottom.
Week after week during the 2000 bear market, one expert after another
kept saying on CNBC that it was time to buy high-tech stocks—only to
watch the techs continue to plummet further. Many high-profile analysts
and strategists kept telling investors to capitalize on these once-in-a-lifetime
“buying opportunities” on the way down! Buying on the way down can be a
very dangerous pastime.