Page 89 - THE MARKET WHISPERER

THE MARKET WHISPERER 87

“Go in! Go in!”… When Does the Public Buy?

Sunrays are peeping through the window of Average Investor’s home. Good
morning! Mr. Average heads for the kitchen, makes coffee, and pulls a few
cookies from the box. Heading toward the family room, Average detours to
pick up the newspaper tossed at his doorstep earlier and eyes the headline:
“Hot Stock Exchange: The Five Top Stocks.” Actually, that’s a good reason to
move away from the stocks, but we’ll explain that later. For now, Average
is sipping his coffee, turns on the television and watches a morning show.
The word from the sponsors ends, and the emcee asks, “And how did our
money do this week?” We’re shown an investment house. The presenter
sums up the week’s events, ending with the statement: “The stock market
is boiling. The public is streaming in.” That’s actually another good reason
to take caution, but more on that later.

SMART The public buys stocks at their peak price. Sometimes the
MONEY stocks continue to rise, but mostly the public holds onto
them long enough for them to begin dropping, and the
public absorbs the loss.

An hour passes. The insufferable thought runs through Average’s mind:
everyone’s in and making millions in profit and he’s the only sucker still
on the outside. That’s when the decision comes: “It’s about time my money
worked for me, too!” says Average to himself, and decides to buy. He puts
the cookies back in the box and calls his investment consultant.

Why is Mr. Average Investor buying? Is it because someone recommended
that action, or because it’s “in the media?” Does Mr. Average know what
to buy? When to sell? Which stocks to be wary of? Would you buy a
refrigerator or car in the same frivolous way? Perhaps your investment
advisor knows what and when to buy? From my acquaintanceship with
investment advisors, I’d say that 99% of them have no idea what to buy.
In fact, the person has yet to be born who knows with certainty whether a
stock will go up or down in the longterm. I don’t know, either.

The public tends to buy because of social pressure: others are buying,
or a friend suggested it, or for fear of being the only one left out. The public
will never be the first one in to buy a stock that has only just begun going
up. A stock’s potential to rise in the short term is usually identified only
by the professionals. The public observes the stock which has already
risen and promises to buy if it “proves” itself as strong, and continues
rising. Usually the public is only convinced when the stock has already