If you trade stocks must reads for every participant are Extraordinary Popular Delusions and the Madness of Crowds and Reminiscences of a Stock Operator.
These books talk about how delusional and foolish investors have been through history. It is important to read these books if you are serious about investing, because momentum stock trading is a strategy for large money managers, and it is intended to suck the public into the scheme.
I had a moment of clarity in early 1999 when I took a taxi back to my office from the airport in San Francisco, and the cab driver was telling me that he had maxed his credit cards to buy portal stocks, and he was working his last shift as a taxi driver to take it up full time. I knew the end was near, but it didn't register with Wall Street (or me) when the head of the Federal Reserve Alan Greenspan called the moves in equities 'irrational exuberance." While the markets shook it off and continued to the final blow off top at the end of the century...it took that cab driver to get my attention before I shifted the portfolio. Today, there are some portfolio managers looking at Apple shifting the portfolio.
Does the iEmperor Have no Clothes?
I look at shares of Apple Inc. (AAPL) today, and see that shares were trading $55 one year ago. With the close yesterday of $132 being as widely held as it is (it is the largest market capitalization in history), I realize that if you are a portfolio manager and you did not, or do not, have Apple in your portfolio you cannot perform, and this feeds on itself.
Apple is a momentum stock, and to some extent it doesn't matter how many iPhones they sell. As valuations exceed reality, analysts who cover Apple have the future valuations and multiples and metrics so extended that it has become the Tulip Craze of this millennium. Every manager loves the idea of baby boomers adding Apple in 2014, but it tells me that Apple is due for a healthy pullback. Just as that cab driver jumped on the bandwagon and had visions of early retirement, owners of Apple will get shaken out during the coming furious selloff. In 2015, shares cannot possibly continue the returns for investors that they did in 2014.
Markets spend 85% of the time preparing to move, and 15% of the time moving. If you look at historical prices in stocks you own, you will see that they have periods of high volatility and periods of small ranges and sideways movement. Do research on historical pricing, find out when stocks move and why they move. Do they move on quarterly earnings? Do they move when other stocks in the sector move? Do they move when the index they are in goes higher? These are questions you need to answer before you put up any of your money, and I would also go to Amazon.com Inc. (AMZN) or your local library and read both of the books mentioned above - this will save you some pain and keep you from driving a cab.
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