Friday, September 28, 2007

Why I don't like the stock market

To me, the stock market is like a soap opera for business people. People are glued to their TV watching and waiting to find out what the next big merger is, or which company has been upgraded to a buy. People watch like hawks experiencing the ups and downs emotionally, even though they're not even going to start taking money out for at least 10 more years.

Some people put so much energy into following the stock market I sometimes wonder - why not start your own part-time business and focus your energy on that? Surly if you attack your business with the same vigor as following the stock market, you must be successful.

Besides the fact that I think spending inordinate amounts of time in front of the TV wrong - no matter what the content - I do have some, what I think to be, valid reasons for disliking the stock market.

My biggest dislike stems from a lack of control. Stocks go up and down too often based on the whims of the masses. For example, if the Fed lowers rates and the masses wanted them to, stocks go soaring. Why is this? The Fed cutting the rate won't be felt by the economy by at least 4 months, yet there is an instant pick up based on the expectations of the rate cut. This is called gambling. What really gets me is that you could genuinely pick a good company, but the stock may not perform well because the whole market goes down. Why are individual stocks tied so heavily to the "rest of the market"? In the end, a stock goes up or down based on people's expectations and then later we find out if those bets were correct. Personally, I want my money on a sure thing.

A very close second is how companies are rewarded (what the expectations are based on). Why is it that Microsoft makes billions each year, but their stock is flat? Since when did it become not good enough to simply be uber profitable year after year? Instead, companies get rewarded for growth, and really only faster growth at that. These expectations are too high of a bar to sustain and eventually each company flattens out, and then it's stock drops a little and rarely recovers to those "glory days". Then, as an investor you have to run to the next potential up and comer instead of simpling enjoying the fruits of a successful company. It's almost like someone wants you to keep guessing.

Finally, I wouldn't mind the stock market so much if I could do more research. I want to learn about the leadership. What are they thinking? What are their plans for the future and how to do they plan to meet the market's ridiculous expectations? Alas, this isn't allowed because then I would be doing insider trading... So, since I can't get to know a company as well as I would like, to decrease my uncertainty, I am going to restrain myself from investing any more than I have to into the stock market.

What will I do instead you ask? Good question. I will focus my resources on areas where I have more control. I have a small business of my own and I'm invested in other smaller business. I will also invest in real estate. My goal is to create a cash flow stream that will pay my bills instead of having a huge nest egg somewhere in the clouds that I'll slowly eat away at later in life.

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