The stock market is supposed to account for all of the things going on in the world. I am amazed at how many times a deal pops up and people say "Oh the market already accounted for that." The truth is the market is crowd psychology at it's finest. If you have ever watched a Sheepdog Herding Trial competition, this will make a lot of sense. If you haven’t, take this with you and watch one.
The gist of it is, a shepherd and his dog are timed for how quickly they can get a small flock of sheep into a pen
This is how I view the stock market. The “guru analysts” are like the shepherd. They make the calls and the dog reacts. The dogs just want to please the shepherd so they blindly follow the commands.
The dogs run around and “steer” the sheep into the pen. These are like all of those newsletters and subscription services that advise about stocks.
The sheep are the readers of those newsletters that buy the “pick of the week”. Read any of those newsletters and they always miss a few, many miss a lot. Some just miss it, and yet the sheep keep following the dogs. Very rarely do the sheep ignore the dogs and do their own thing.
I can hear you asking “Ok then how come some people get rich in the stock and commodities markets, and others don’t?”
Occasionally some sheep don't go in the pen. If you look at Facebook, you can see a lot of sheep getting slaughtered. Look at Netflix, one day it is over $320 a share, the next morning it is under $80. How can the market be perfect and make leaps like this?
Some shepherds get rich because they buy the stock, make the call and bail out when it goes up. Not all of them though. In fact over time how many great stock pickers can you name? If you follow the markets I bet you have less than a handful who have been successful for more than 10 years running.
There was a story many years ago someone thought they could beat the system by stealing a financial magazine off the presses before the sheep jumped in. The funny part was, the guy lost money doing it.
Some dogs get rich for the same reason.
But the truly rich are the observers in the stands. They don’t care what stock is in the pen, they watch to see what phone the shepherds use, what food the sheep dogs eat, what kind of fence the pen is built with. The shepherd, dogs and sheep are simply entertainment.
Some of the super famous long term successful people like Warren Buffet are the guys that moved from the stands to the observation booth so they could see more than one competition at once. In Mr. Buffet’s case he goes as far as buying the entire feed company (Dairy Queen), Big Chunks of the beverage company (Coca-Cola), The transportation company (Net Jets) and more while sitting up in the comfort of the big booth being entertained by the sheep, the dogs and the shepherd.
Who is managing your stock portfolio?
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Thank you for your insights.