Stock Market and Investing Myths Part 1 – Five Investing Myths EXPOSED!

The recent stock market crash of 2008 has left millions of investors questioning their conventional investment reasoning. Financial advisors are finding it more and more difficult to convince their clients of sound financial plans — and rightfully so. Americans are wising up to the reality that investing may be more complicated then they originally thought. Or maybe investing is not more complicated. Maybe investors have simply been miseducated.

Miseducation can come in many different forms. Television stories, uneducated advisors, propaganda pieces, not to mention just good ol’ fashion uninformed word of mouth. In fact word of mouth is probably the biggest proponent of miseducation. But just because Uncle Jimmy says it, doesn’t mean it is true. In this multi-part article series I’m going to expose several myths commonly associated with the stock market and investing. If these myths are deeply held beliefs of your own I guarantee you can improve your financial performance by simply re-educating your investment mindset.

1. The Stock Market Must Go Up To Make Money

In my years of trading and education I have found this myth to be the most common mis-understanding of all. It makes perfect sense. When it comes to investing no single message is preached more clearly than this one. “Good news on Wall St. today, the stock market rose 79 points.” Or “Tough day on Wall St as stocks fell a staggering 87 points”. These headlines and messages are literally seared into the subconscious minds of virtually all Americans. Even well educated people like myself who understand how the market works find it hard to not smile when we hear of huge gains on Wall St.

However just because the market goes up it doesn’t mean people made money. And just because the market goes down it does not mean people lost money. The truth is there are three directions the stock market can, and does move: Up, Down, and sideways. And you better believe if there are multiple ways the market can move there are also multiple ways to make money with each directional move. Myth: BUSTED.

2. Stock Market Investing Is Risky

This is an equally popular myth yet one which can also be debunked. I already stated that there are three ways the market can move: up, down, and sideways. And I’ve already established that most people think when the market goes up you can make money. But that is only 1/3 of the choices since the market can move three directions. That means the odds are stacked against you 2/3 of the time. With that math the risk associated with this myth may appear true. However I also said there are different strategies to make money with each of the directions the market may move. That means with a little education you can learn to make money in each of those three directions.

The risk here is not in the market itself but rather in the lack of education. For people who do not have a proper education of the stock market these investments can absolutely be risky. In fact if you do not have an education the odds are 2/3 against you that you will receive an education the hard way – losing money! However with a little education and a little knowledge you can make money in 3/3 market directions. Myth: BUSTED.

3. Over 20 Years The Stock Market Always Goes Up

This myth is a favorite of financial advisors and to be honest it is kind of true. During the last 100 years (which I expect encompasses your lifetime) we’ve had an interesting series of events. Let’s look at that for a moment: If you invested $10,000 in 1909 for 20 years by 1929 that money would have been worth over $30,000! Not bad. But if you had started in 1911 and invested $10,000 20 years later in 1931 you would have just right around $10,000. Oops. Wrong 20 years. If you had invested $10,000 in 1919 for 20 years it would have been worth roughly $10,000 in 1939. Oops. Wrong 20 years. If you had invested $10,000 in 1929 (God Forbid) getting back to a $10,000 value would have taken until about 1955 (A full 26 years!). Oops, wrong 20 years. $10,000 in 1939 would have been worth about $50,000 in 1959. Not bad. 1949-1969 would have yielded a similar result. 1959-1979 would have made some money, but not nearly enough to keep up with inflation. 1969-1989 would have roughly doubled your money. 1979-99 was great. 1989-2009 worked well too. But what about 1999-2009? uh-oh. If you invested $10,000 in the market in 1999 today that $10,000 would be worth roughly $10,000.

My point is the market doesn’t always go up. And it is really un-cool if you’re one of those people who get stuck in a 20 year down cycle when you’re ready to pull out your money. And is it really worth waiting 20 years to find out if you will get to retire during a market high or a market low? To top that off currently (in 2009) many economists are predicting the next 15 years to be one of those large down cycles. With such a spotted history and so many negative predictions is it really worth risking the next 20 years to be anything like 1911, 1919, 1929, 1939, or any of the other rough 20 year cycles? Truth is the market does NOT always go up over any 20 year period. And as 1909-1911 showed us, only a couple of years can make the difference between a really great 20 return and a downright devastating 20 year period. Myth: BUSTED.

4. The Best Way To Make Money In Stocks Is To Buy And Hold

Buy and hold is traditional wisdom. But it parallels the first three myths we’ve talked about. The idea is you buy a stock and hold it and in a few years it will be worth more. Hopefully a lot more. Since buy and hold doesn’t always work people get the idea that investing is risky. Truth is investment risk is directly proportional to the amount of investing education a person has (or does not have). In the professional investing world we have variation on Buy and Hold – we call it Buy, Hold, and Pray. That’s because with this strategy a person buys a stock, they hold it, and pray it goes up. Of course with three potential market directions, and the reality that markets do not always go higher, the investor may be praying quite a bit only to realize their chances of having that prayer answered are about 1 in 3! Myth: BUSTED.

5. News And Research Groups Have the Hot Stock Tips

This final myth is one of the most popular investment strategies for high paid professionals. Some people make a lot of money selling these hot investment tips to people who want to put their money in the market. However the foundation of Dow Theory actually proves this method to be a myth. Charles Dow wrote around the turn of the 20th century and is the father of the Dow Jones Industrial Average which we often refer to as “the market”. He states in his theories that there are 3 phases to the growth of a trend. The Accumulation phase, the Public Participation phase, and finally the Dispersion phase. The accumulation phase is when major institutions begin to buy. Like the name suggests the public participation phase is when the masses of the public begin to buy. And the dispersion phase is when the major institutions (who started the trend) begin to sell and “disperse” their positions. The interesting thing about this is Dow directly tied news related stories to the dispersion phase. Basically stating by the time it’s in print and the news is high, the move is over and the “smart money” has already begun dispersing their positions.

Using the basis of Dow Theory alone we can assume if it’s in print it’s too late. In fact generally speaking this proves true among printed stock recommendations. I recently analyzed one of these picks with a student. The pick was for the stock to be higher in 12 months yet after a brief analysis we determined there was absolutely zero green signs to push forward with this trade. There were about 8 yellow indications saying this might be a good trade in the future, and there were 3 red flags telling us reasons this stock should go down in the near future.

The reality about hot stock tips is they are usually not that hot. Traditional individual analysis is always more reliable and avoiding these tips will help you avoid losses in your portfolio. Myth: BUSTED.

What to Expect Contacting Family and Friends in Network Marketing

Getting involved in a network marketing company, you often are told to contact family and friends. Some people are fine doing this, but the majority of people in the business dread having to do this. For the seasoned MLM veterans, they dread this because they already know what they will say. As for the newer people in the business, they have absolutely no idea what these people in their lives will say, which is why it is intimidating to do. Knowing what to expect can make the process a little easier, although it will not necessarily change your results.

When you know what your family and friends will say when you approach them about joining your MLM business, you will be able to adjust the approach accordingly. The most common response people in the network marketing world get is that they are not interested. Most family and friends do not even listen to your pitch or your reasons why they would be a good fit into this business. They main reason they brush you off so suddenly is because they figure that, since they know you, they are not offending you. It almost gives them the right to say no without letting you finish.
 
In addition to having them interrupt you to tell you their answer is no, you also will have many family and friends laugh at you or even make fun of you. This is because people not in the business do not understand the need for network marketing or MLM. It is not that they disagree with it. They simply do not understand it. This can be a frustrating response to many people in network marketing. They had thought that they at least would get something out of the people who mean something in their lives. This typically is not the way it is.
 
Every once in a while you will find a family member or friend who is interested in learning more about network marketing. Because this is so rare, many newer MLM companies are not forcing this dreaded task onto you. Can you imagine how much easier your life would be if you did not have to contact your family and friends.

Expired Listing Letter and Real Estate Marketing Tips

The expired listing letter is a valuable asset for real estate marketing plans. Expired realty listings refer to contracts that have expired between homeowners and their agent. Realtor contracts generally last between six and twelve months. If the listed property is not sold during the contract period, sellers can enter into a new listing agreement with their current realtor, hire a new agent, list the property as for sale by owner, or take the home off the market.

Investors use the expired listing letter to solicit business from the seller by offering to buy their home or help them sell it. In order to find expired property listings, investors must subscribe to the Multiple Listing Service (MLS) database; a service that provides lists of nationwide properties for sale to realtors.

Investors who have never used expired listing letters can easily locate sample templates online. Investors will need to adapt marketing letters to suit sellers’ circumstances. A good place to learn and share expired listing marketing ideas is by participating in real estate forums or networking groups.

In addition to using expired listing letters, investors will need to develop a marketing plan and follow-up strategies. Most investors incorporate multiple marketing tools such as postcard marketing, direct mail, referral marketing, realtor flyers or brochures, and cold calling.

The expired listing letter is generally used to solicit sellers, but some investors use these letters to solicit realtors. Working directly with real estate agents can be a profitable niche for investors willing to develop close working relationships. Realtors do the majority of legwork while investors earn profit by closing the deal.

Investors who are unfamiliar with marketing strategies should consider hiring a marketing specialist and copywriter to create expired listing letters and brochures. Real estate investors often use a variety of prospecting tools.

They might start with an introduction letter, followed by a postcard and a phone call. Or they might start with a phone call and send a folder filled with a marketing letter, client testimonials, and a list of successful real estate closings. Regardless of the marketing strategy, the primary goal is to locate motivated sellers, purchase properties below market value, and earn profit on each expired listing transaction.

In today’s competitive market investors must stay on top of changing trends and create marketing campaigns that make them stand out from the crowd. Sellers often receive dozens of expired listing letters once their real estate contract expires. This is where creating unique marketing strategies can really pay off.

Private investors who dedicate their time to locating expired real estate listings often work with sellers that are frustrated their home did not sell during the listing period. The last thing these people want to hear is empty promises. They want to sell their property. Investors who focus on solving this problem can earn the seller’s business by focusing on their needs and explaining how they can help sellers accomplish their goals.

Real estate investing is a competitive industry. In order to become successful in this arena, investors must be committed to finding solutions for sellers. This can be accomplished by building a strong network of realty experts, developing a strong marketing plan, and utilizing strategies that will attract motivated buyers and quickly close real estate deals.