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The Alchemist (11/21/2007)
By Al Thomas

IGNORANCE ISN'T BLISS

IT'S POVERTY

The old saying, 'Ignorance is bliss', does not apply to any successful venture or adventure. It especially does not apply to investing in the stock market.

Many investors believing they are not capable of putting their money to work profitably turn their finds over to an "expert" who is supposed to make correct decisions regarding when to buy and sell. They leave everything up to him.

If history is any guide this has not been a wise choice for the investor. From 2000 to 2003 the NASDAQ lost 78% and the S&P500 index dropped about 40%. It has taken 7 years for the

S&P to get back to ‘even' and the NASDAQ is still 50% below the 2000 level. The monkey with the dart board could have done as well as 90% of brokers and financial planners. Almost every managed account lost money.

Why has the performance of money managers (better called money manglers) been so dismal? It is very simple. Non have been taught how to protect client's money. The use of loss protection is frowned upon by Wall Street.

The Wall Street doctrine secretly says we want to make money on their money and don't worry if they make any money or not. Customer profits are not their objective.

How do they do this? They only half train the brokers and then again give them only half the information they need to protect customer funds. When a broker becomes licensed he is given two manuals. The first is SEC regulations which he must follow or be fired. The second is the sales manual on how to open new accounts. There is no third manual on how to trade or protect customer assets. The broker is kept ignorant and the customer always loses his money during a bear market or a badly declining stock.

History as far back as a researcher goes will find bear markets (losses of 20% to 40% and more) have occurred on a regular schedule. Recently we have had an upward move since 2003. There should have been a break within that time period, but the Federal Reserve has intervened flooding the economy with money to prevent it. The longer this is done the worse will be the next bear market. It is being done now. Again your broker will not know what to do when the market starts down. He is taught - again - to "buy and Hold" which will be a huge loss for the investor accounts.

THEREFORE, you must not remain ignorant. You, Mr. Investor, must start your education immediately. No one knows when the next bear will escape from his den to ravage the land. Investors who wish to have any money after the next bear must learn the techniques of loss protection, primarily stop loss orders. To become more aggressive they may learn the use of bear funds, both mutual funds and ETFs (Exchange Traded Funds).

No one looks forward to being poor. Ignorance is not bliss, it is poverty.

 

 

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