Ever since I started writing for Benzinga, they’ve kept me pretty busy. It’s good in a way because I’ve had plenty of content for Trading Common Sense, but those of you who have been visitors of the site since way back when I was writing for Motley Fool must have noticed an obvious change of writing style.
I love all the cool analyst reports and breaking news that I have access to via my position at Benzinga. But the 250-word, keep-your-opinion-to-yourself style that my Benzinga editors like so much is not really my preferred writing style. Those of you that have read my book already know this, but the stock market isn’t about analyst reports. It’s not about earnings per share or revenue. It’s not about iPhones or subscriber numbers or net interest margin.
Sure, all of those things play a role in the stock market, but at the end of the day, the stock market is about people. And I don’t mean that in some cheesy, abstract way. The price of a stock is 100% determined by what investors think it is worth. It doesn’t matter how many iPhones Apple Inc (NASDAQ: AAPL) sells or how many monthly active users Twitter Inc (NYSE: TWTR) reports; if nobody wants to buy those stocks, the share price will go down.The reality of the stock market is that understanding the numbers in analyst reports and earnings reports and 10-K filings is important, but not nearly as important as understanding the behavior of people.
Think about it this way: if you have been a homeowner over the past decade you know exactly what moves markets. If your house cost $100,000 at the beginning of 2005, maybe it cost $115,000 by mid-2006. That same house likely cost about $85,000 by the beginning of 2012 and is now priced at about $100,000 again. The exact same house. As nice as those gutters look now after you cleaned them back in 2009, it’s the same house.
The boom and bust of the housing bubble had nothing to do with the houses themselves or even “traditional” supply and demand for places to live. It had to do with huge, unnatural demand for houses created by investors buying up every house in sight and banks approving mortgages to anything that moved. At the heart of the housing bubble was greed, pure and simple. The houses didn’t change, people’s attitudes changed.
On Benzinga, I’m only mostly allowed to talk about the numbers in the analysts reports because Benzinga is a financial news site. But here on Trading Common Sense, I can talk about anything I want to. On Benzinga, I can tell you about the square footage of the houses and what the crime rate is in the neighborhood, but I can’t tell you if I think the price of the house is a good deal or a bad deal. I have to stick to the numbers. I can’t make stock picks or give my take on world events. I just have to report the facts.
Here on Trading Common Sense, on the other hand, I can do whatever the hell I want, such as use foul language. I’ve made a lot of money over the years in the stock market by understanding people. It’s great to read a company’s 10-K report, or at least read my articles about 10-K reports. But if you want to make money in the long-run, you need to understand your fellow traders. What are they thinking and why? That’s the only way you will be able to profit off of their predictable behavior.
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
