Learn to Invest Money: More Corporate Investment Myths Debunked

Learn to Invest Money: More Corporate Investment Myths Debunked

Have you ever questioned if investing in stocks yourself or working with a small, independent financial advisor would be more beneficial than working with a large investment firm? You must first be able to distinguish between investing fact and investment fiction in order to comprehend the solution to this question.

Being able to dispel the falsehoods spread by financial advisors and investment businesses is essential to sifting through all the "noise" they throw at you. Working with large investment firms may be very perplexing because, in order to persuade you to give them your money, they craft a highly persuasive marketing strategy that blends fact and fantasy.

Let us take the frequently used investment firm strategy, for instance, of always having 100% of your money invested in the market, regardless of market direction. I support this notion because, even in a bear market for the U.S. stock market, put options and international investments can consistently yield profitable returns. But I do object to Wall Street businesses' use of fear to do this. Let's review the often cited information that:

"From 1963 to 1993, if you had missed the market's top 90 performance days, your average annual return would have dropped sharply from 11.83% to 3.28% annually." (Source: Michigan University)

Analyzing the assumptions underlying this statement makes sense if we were to examine it as a statement. Even if someone opted to enter and exit the market at specific periods, is it really possible that their luck would be so terrible that they would miss the best ninety days out of thirty years? How likely is it that they would overlook each of the ninety top-performing days? A single out of a million? Look at how seriously wrong this reasoning is. Financial advisors will always use this justification to persuade you to maintain your entire investment. In actuality, this selling pitch is frequently paired with Modern Portfolio Theory—a moniker that is misleading in and of itself. When "modern" portfolio theory was first created, in the early 1950s, it was groundbreaking.

To put it simply, contemporary portfolio theory suggests spreading your stock holdings over a number of businesses and sectors in order to reduce the risk of a sector that performs poorly. Stated differently, if you own stock in shipping and trucking companies, you may also want to own oil companies. This is because lower fuel costs for trucking and shipping companies translate into lower oil company performance, which should offset the oil industry's lagging performance. The only issue with this notion is that, with your stock portfolio, you are attempting to regularly uncover winners rather than to establish a zero sum game.

The large corporations will tell you that Modern Portfolio Theory is required since it is impossible to forecast which industries will grow and which will decline over a given period of time. Once more, in my opinion, this is a fallacy created to create smoke screens that will deceive the typical investor. With the advancement of information technology, it is now feasible to forecast which industries will grow in a given year and, occasionally, even which subsector within those industries will grow. However, as I have already stated, this requires time, and in large investing businesses, time equals money.

Today's financial consultants can obtain information so easily that, rather than forcing antiquated ideas into their heads, firms should train their financial consultants to use blogs, government websites, corporate websites, and technology and political websites in order to stay ahead of the investment curve. The reason independent financial consultants have made 20% returns for their clients during periods when the S&P has down more than 20% is the information technology revolution.

Large investment companies will tell you that investing in the proper sectors will have a greater impact on your success than picking individual stocks. This is an additional myth. Does this make any sense if you actually think about it for longer than two seconds?

Do you really think that the stock prices of these two firms won't be affected if you own a mining company in Canada and one in the US that might have drilling rights in very different regions of the world? Is it truly believed that the performance of your portfolio will be unaffected by the markedly different stages in the industry's growth cycle between India and Japan if you own internet companies in both countries? Do you really think that investing in Russian nanotechnology companies is the same as investing in U.S. nanotechnology companies, as a global leader in the field? I could ramble on and on about how absurd this statement is.

The key to your stock portfolio's performance is choosing the appropriate stocks in the appropriate sectors in the appropriate countries at the appropriate times. Why then do investment firms go to such lengths to persuade you otherwise? mostly because they don't train their financial advisors on how to be excellent stock advisors and how to spot chances in international markets that will optimize your portfolio's results. They train them to become excellent marketers, salespeople, and salespeople. Honestly, if your goal is to optimize the returns on your stock portfolio, you should probably avoid working with mainstream companies as much as possible. Find a financial advisor who will do it for you, or discover how to leverage easily accessible information to generate greater results on your own. If you follow through on that, I can assure you that you will start to see improvements in your stock returns right away.

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