Dumb Investors: Dumb Ideas

Sometimes when I am at work, ideas come across my mind that I want to post about. Often times, an incident occurs that is so ridiculously silly or unprecedented (maybe) that deserves mentioning, it cannot be ignored.

But alas, at the end of the day, I drive home and the thought goes away. If it is a late night, I look up at the sky and quickly realize that there are far more worthwhile things that have been written about than the filth I ponder.

I work with some of the most interesting people on the planet, and I wonder if some of them are from another planet!

I was up late reading Joe McGinniss' novel, Never Enough about an investment banker who gets murdered by his wife while living in Hong Kong. In the book, you won't find any investment tips etc., but you will learn how stupid people can be and how greedy folks in our industry are at times.

Something else (cats) woke up me up, so I decided that it would be a good time to post. I will sleep in very late this morning and then head to the gym.

Over the past several days, the stock market has thrown investors around, without giving them any clue as to what direction it will go. As soon as the amateur jumps in to buy, the market falls a couple hundred points; as soon as he sells, it goes up another hundred. The individual investor - who basically does not rely on professional advice - is getting mauled! He is trading in and out of his account, with no regard for commissions, trying to find a way to make up for losses that he incurred a few days ago.

As soon as he hears that the market "closed up 200pts...", he is on the phone or on the internet buying his shares. He has no strategy. And if he tells you that he does, it is based solely on what the market does. Again, he has no strategy. He is an irredeemable gambler.

If greed is good, then volatility is better, I believe.

Why? Because it weeds out the stupid investors, wiping out their wealth so that we can have more efficiency in prices within the market. I am glad that millions of people are losing millions and billions of dollars. Why? Because they do not have discipline, nor do they want to learn the fundamental laws of investing. Instead, they sell when the market is tanking and rush to buy when the Dow is trading up 300 points!

I know what I am talking about here, because I see and hear it all day long.

I imagine when most Americans get their rebate checks in a few months, they will be happy to buy their penny stocks, hoping for some miraculous run-up - "a 1000% return overnight" so they can brag to their buddies at the local pub. Maybe. Probably not.