Originality Is Overrated

When trading the stock market, it is critical that you have a good reason for every trade you make. There must be something about a stock that makes it worth buying and selling, or else your trades are just random. Buying a stock without a good reason is akin to guessing on a true/false test question. Sure, the stock price might go up. In fact, there’s a 50% chance that your stock will eventually go up. But if you continue to buy and sell stock simply because you are guessing, over time you will likely end up being right about half the time. On a true/false test, that means you will score a 50. In a trading account, that means your return will be zero, minus all of your trading fees. Not a good strategy.

Obviously the best solution to making a good score on a test is to study, understand the material, and answer the test questions based on your own personal, thoughtful interpretation of the question. And, of course, you could cheat off of your smart friend, which would produce similar results. While cheating off of others is frowned upon in the academic world, there is absolutely nothing wrong with cheating off of others in the trading world. I recently discussed my position in WFC, and I would be a total liar if I said that Warren Buffett’s stake in WFC didn’t influence my decision to buy it. And there’s nothing wrong with that.

Your portfolio is not like an invention. It doesn’t have to be new and different than everyone else’s. Warren Buffett is a smart investor, and there’s no shame in adopting some of his ideas.  And the same goes for Jim Cramer, Carl Icahn, Karen Finerman, or anybody else you believe has good trading ideas. At the end of the day, your job is to own stocks that will make you money. You have to decide which stocks will do just that, and you have to use all of the tools at your disposal to make this determination. One of the best tools is the opinions of others.

A word of caution before I conclude: if you do not understand or agree with the opinion or advice of another trader, by all means do not make trades based on his or her opinion. Sure, maybe they actually know what they are talking about and you are the one that isn’t understanding their logic, but that’s ok. My 400% return hasn’t come because I am smarter than other traders. It has come because I haven’t made as many mistakes as other traders. I would rather be right one time and wrong zero times in a month than be right four times and wrong one time in a month. So if you love Jim Cramer but something he says about a particular company doesn’t make sense, just wait! It seems like Cramer picks about 500 stocks he likes each and every day, so you probably won’t have too long of a wait until one of his arguments makes perfect sense to you.

The absolute worst-case scenario is blindly following the advice of someone else and losing money because of it. And if you think that just because someone is more educated and experienced than you that they should be trusted with your money, just ask Bernie Madoff’s investors or Bear Stearns’ shareholders if that is the case. Agreeing with someone because they see things the same way you to is a lot different than agreeing with someone because you assume they know what they are talking about.

The bottom line is this: copyright infringement doesn’t exist in the trading world. Why do you I include so many links in my posts? Every day I read the opinions of lots of other traders and analysts. I agree with some of them, I disagree with some of them, and some of them express my personal opinions better than I even can! In the modern world, there is so much information available out there for traders to consider. Use it! And don’t worry; it’s not cheating!

I have an entire chapter in my book, Beating Wall Street with Common Sense: How I Achieved a 400% Return from my Dorm Room, devoted to the pros and cons of listening to the opinions of so called stock picking “experts.” I love Jim Cramer, but my portfolio has done a lot better than his charitable trust has over the past few years. Is that because I am a better stock picker than he is? Not necessarily. To see the real reason, you’ll have to buy my book. Details coming soon!