Investing Made Simple by Will The Geek

Proven Solutions

Investment methods used by some of the most successful investors in the history of the stock market, Made Easy.

7 Pieces of Really Stupid Investing Advice

(Or maybe 6)

We have all heard these bits of ‘wisdom’ from so-called gurus, investment advisors and even the evening news. They mean well, but the advice is so vague and senseless that it is totally useless. There are probably more, but these are my favorites.

Invest in Solid, Well Managed Companies

Uh. OK, so just what makes a solid company? How do you know it is well managed? That is the part they don’t tell you. They also don’t tell you where or how to find these companies. So what do they really mean? Big? Maybe investing in big companies will make you rich. Probably not. Enron was a big company. It was a fraud. Many people lost their entire savings. How about American Airlines? It went bankrupt. Kodak used to be one of the Dow Jones Industrial’s darling stocks. It didn’t keep up with technology and soon became a penny stock. It is now trying to rebound. Good luck with that. No, size does not make it a good investment.

My point here is that you as an individual investor until now had no way to know if a company is well managed or not. You also have had no way to find one other than picking a company from the news or guessing and then analyzing the financial statements

So here is a short summary:

A well managed company will have increasing sales, increasing profits, increasing cash reserves and falling or no debt. If they have a history, a couple of years or so, with that pattern, they are most likely well managed. Add to that the fact that they are in a new or growing industry and you have a formula for success.

Invest in Companies with Low PEs

Now this is one of my favorites. If you were to ask me “What’s their PE?” and I said “15” (or any other number), what would that mean? Absolutely nothing. If I said “9”, would that be better? Who knows? The response is useless information. Why? Because the PE, (The price of a share compared to the Earnings per Share) is supposed to tell you if the stock is expensive or cheap. But this depends on two factors. The first is how it compares to other companies in the same industry. If everyone else has a PE around 10 and your company has a PE of 7, then you can say that your target company is probably a better value. But that still doesn’t mean it is a better investment.

But you are still not done yet. You also need to know if the PE is increasing or decreasing over time. An increasing PE means that the price of the stock is getting more and more expensive, whereas a decreasing PE means the stock is getting to be more of a bargain.

So you need to know two things: How the PE compares to other companies of the same kind and in the same industry and how the PE has changed over time.

You Need a Professional Money Manager

The truth: 95% of all money managers underperform the market itself. Add to that the fees they charge and you have a surefire guarantee you will lose your money. As a rich old geezer once told me, “A money manager will manage your money ‘til it is all gone”.

So how do you avoid that? Two ways. First, do it yourself. It is not as hard as you think, but I will deal with that in detail in another article. Second, find one of the 5% who have outperformed the market, make sure they have low fees and most importantly, make sure they are a fiduciary. What’s that? It is someone who will guarantee in writing that your interests will come first. In other words, if they have a choice of earning a bigger fee or giving you a better deal, they will give you the better deal.

Pay Off All Your Debts

This, along with having 6 months of your salary in a savings account for emergencies is probably the worst advice you can give the average person – like you (and me). If you wait until that happens, you will only need enough money for funeral expenses. And I’m sure the check will bounce.

Most people have little or nothing left at the end of the month. You need to do a combination of things to remove the debt and invest at the same time. You need the mental and emotional boost of seeing your money increase as your debt goes down. I have a whole article on how to do this here [link]. It is not enough to just see your debt go down. You will still feel hopeless and it takes too long. But with even a little money in your investment account, it makes you a winner. Seeing it grow makes you a star.

Oh Yes, Savings Accounts

These are a total waste of your time and money. Some banks even charge a monthly fee for using one. Get that! I give the bank my money and they charge me for the privilege. Instead, open an investment account and keep your cash there. They pay a better interest rate and you are ready to invest at any time. If you have an emergency, the money is there for you.

Don’t Lose Money!

Thank Bill Gates and Warren Buffett for this gem. Any idea how I should do that guys? I didn’t think so.

But there are a couple of things you can do to minimize the risk. One is to only allow yourself to lose a small percentage of your investment. You set a point, say 8% and if the stock price drops below your buy point by that amount, you sell. No emotion, no hoping it will recover, no panic. Just sell. If the price goes back up, you can always buy back in.

Never buy when the market is going down. It is tempting to grab a bargain, but that is the surest way to lose. Just be patient and wait until it is going back up. Then jump in. You won’t buy at the bottom, but you will still achieve great gains without the losses.

It’s Complicated

No it’s not. But all the money managers and brokers want you to think it is. That’s what keeps them in business. These people are not rocket scientists and brain surgeons. They are just people like you and me. They claim they are experienced and knowledgeable, but that only means that they are still guessing. The proof is in their performance. 95% of them fail to even match the market average. What does that tell you?

As Mark Twain once said, “My guess is just as good as their guess”.

As stated before, you only need to see a few things to know if you have a great company. A well managed company will have increasing sales, increasing profits, increasing cash reserves and falling or no debt. If they have a history, a couple of years or so, with that pattern, they are most likely well managed. Add to that the fact that they are in a growing industry and you have a formula for success.

It is that simple. You can see just how simple by checking out this article: How to Analyze a Company in 30 Seconds Flat.


Related

Will The Geek - What's it all about?

It's all about keeping it simple. It is all about providing information no one else will give you. I put massive computing power to work to do the job analysts do and then select stocks that meet the requirements for each investing strategy. Learn more...

Will The Geek and the Non-Geeky Walkthrough

Take a step by step tour and learn how simple successful investing and stock selection can be.

How to Analyze a Company in 7 Seconds Flat

We are told that it takes hours every day and a financial degree to analyze a company's financial statements. Wrong! Here is how to do it with just a quick glance.
Read How to Analyze a Company in 7 Seconds Flat

The Power of Undervalued Stocks

Undervalued stocks have proven to be the most profitable and reliable of all investing strategies. Find out how spot these bargains the simple way: with just one click of the mouse.
Read The Power of Undervalued Stocks

Get Out of Jail Free

Oh, you're not in jail? That's what you think. Here is your step by step escape plan.
Get Out of Jail Free

Seven Pieces of Really Stupid Investing Advice

These bits of "wisdon" will lead you astray or leave you frustrated and broke. Here are 7 pieces of stupid advice - and 7 ways to profit from them.
7 Pieces of Really Stupid Investing Advice

The Secret Place That Makes 100 Times More Profit than any Other

Yes, there is such a place. Large hedge funds use it, but they certainly don't tell their investors. Now you can use the same strategy for big gains with little risk.
Trade The Invisible Market