“Ever wonder why fund managers can’t beat the S&P 500? ’Cause they’re sheep, and sheep get slaughtered.” –Gordon Gekko
The “herd-mentality” has been studied throughout human history and is an all-too-common phenomena in modern financial markets. The majority of retail investors and speculators out there today are driven by fear and greed. Their trading and investment decisions are thus often driven by these two powerful emotions and not based on sound objectivity.
It’s no wonder the vast majority of them lose money or fail to “beat” the market…
Fortunately, there are a few steps you can take to avoid falling into this trap:
- Do your own research: It is imperative that you do your own research and work. Simply following the advice of others is not likely to cut it. Conviction in what you are doing is critical, and that conviction cannot be felt if you are following someone else’s advice. Learn to research stock fundamentals on your own, identify chart patterns and use various technical indicators. The time spent educating yourself could potentially pay huge dividends over your trading and investing career.
- Trade your own strategies: Just because stock market guru Bob tells his followers that trend-trading is the best way to go doesn’t necessarily make it so. Many traders, for example, might be more comfortable looking for short-term gains through a counter-trend strategy. Whatever the case may be, it all comes back to conviction in what you are doing. If you don’t have the patience for long-term trend following, a different strategy may be more suitable for you and may be easier for you to stick with.
- Take responsibility: You are in control of your own destiny when it comes to trading and investing. It is your money at stake, not someone else’s. Take responsibility for your money and learn to protect your hard-earned capital. Take the credit for great trades and shoulder the blame for lousy trades. The markets don’t owe you anything and neither does anyone else. Learn to look for good opportunities and above all else, focus on learning to manage your risk.
Don’t be a sheep.
