| When I broke into the stock market more than forty | | | | following they know nothing. Indeed they regard their |
| years ago in 1961 it was a radically different beast | | | | ignorance as a badge of honor. They are totally |
| than it is today. It was a market overwhelmingly | | | | clueless that their might be a real business behind the |
| dominated by long-term, conviction investors who | | | | lottery tickets that they own. They are interested in |
| believed that they were buying or owned a real | | | | only two things as they track their stocks across |
| business rather than a stock certificate. The belief | | | | their charts, price and volume. They will be happy to |
| then was that the stock certificate was nothing | | | | inform you that the only reason to buy a stock is |
| more than proof of ownership. It was not a lottery | | | | that it is rising in price and if it is not rising in price it is |
| ticket. Investors then were committed owners who | | | | a bad investment no matter how great the |
| religiously bought the goods and services of the | | | | fundamentals are. |
| companies that they owned. What was important | | | | Their other great fixation is their unalterable |
| was that the stock that they purchased paid a good | | | | conviction that paper losses and real losses are the |
| dividend and in those days, it usually did. It was then | | | | same thing. They have total scorn for anyone who |
| common for blue chip stocks to pay a dividend of | | | | does not share this belief. A paper loss is a loss that |
| five or six percent. | | | | would be realized if the holding was sold at its current |
| It would never have dawned on investors then that | | | | price. Therefore, since a paper loss and a real loss is |
| they were supposed to rush to sell their holdings | | | | the same thing their secret weapon for investment |
| even if their stocks fell as much as ten or fifteen | | | | success is the " stop-loss order." The stop-loss order |
| percent. In fact it was quit probable that they would | | | | is an order to your broker to automatically sell your |
| not even be aware of a ten or fifteen percent | | | | stock if it falls to a predetermined price. Which is |
| move. The way it worked in those days is that | | | | almost always set at between five and ten percent |
| about every six months it dawned on you that you | | | | below the current price. |
| should look in the paper to see what your stocks | | | | Trend chasers are adamant that all paper losses |
| were selling for. Then you would throw away the | | | | greater than five or ten percent must be sold |
| newspaper and not look at your holdings for another | | | | immediately because all such stocks are destined to |
| six months. It was common to think of holding | | | | go to zero. Nothing can dissuade them from this |
| periods of five or ten years and in many cases | | | | insanity. The brutal result is that every time they turn |
| people expected to retire owning the stock. The | | | | around they are being blown out of their positions by |
| dividend was going to be an important supplement to | | | | their stop-loss orders being executed. Stock declines |
| their social security. | | | | of five to ten percent are as common as dirt in the |
| This of course assumes that your newspaper even | | | | stock market. The trend chasers refuse to recognize |
| carried the stock tables. In those days, many | | | | this reality. The brutal result is that all their paper |
| newspapers did not. When I was growing up the | | | | losses become real losses. |
| Cortland Standard, our local newspaper did not carry | | | | As a conviction investor I have made a career out of |
| the stock tables. In fact it did not even have a | | | | Turning paper losses into profits. The trend chasers |
| financial section. | | | | make a career out of turning paper losses into real |
| When I started investing in the 60s, I refused to look | | | | losses with devastating consequences. If you have a |
| at my stocks during the week. I didn't want to get | | | | good opinion on stocks and just hold on most of the |
| caught up in the weekly cattle stampedes. I always | | | | time the stocks will reverse their decline and your |
| knew that stampeding with the herd was not the | | | | losses will turn into profits. Their insistence in believing |
| answer to successful investing. I subscribed to | | | | that all stock declines greater than five or ten |
| Barron's Financial Weekly, which arrived every | | | | percent is proof that the stock is headed for zero is |
| Saturday. I could then leisurely review my holdings | | | | insanity. |
| over the weekend. This strategy served me well for | | | | Very few investors who practice this strategy |
| decades. However, eventually I had to go on line like | | | | survive over the long term in spite of its tremendous |
| everyone else. The decades of discipline served me | | | | popularity. The way it usually works is that the trend |
| well. My investment strategy of long-term conviction | | | | chaser is blown out of his position at or near the |
| investing remained unchanged. | | | | bottom. They then sit around in a stunned stupor as |
| Today the stock market as I knew it is dead. The | | | | the stocks that they sold at a loss reverse their |
| long-term conviction investors who understood that | | | | trend and make back all that they have lost and |
| they were buying a business and not a lottery ticket | | | | more. Often much more. |
| is now a shrinking minority group. The stock market | | | | What is truly astonishing is that no matter how often |
| today is dominated by the trend chasers, a category | | | | they have seen how this film ends. They never |
| that barely existed in the 60s. it makes little | | | | change their tactics. The losses keep piling up until |
| difference if you call this dominate group day traders | | | | they are so shattered by their losses that they end |
| or momentum players. They are united by their | | | | their investing career. They can then embark on their |
| steely conviction that what they are buying is a | | | | new career of contemplating how much they wold |
| lottery ticket. Regrettably, they are too stupid to | | | | have today if they only had the courage to hold on |
| realize that if you treat the stock market like a | | | | to their losers. |
| casino then the stock market will treat you like a | | | | Those who have found this article of interest will also |
| gambler. | | | | find my related articles on the stop-loss order and |
| The world of the trend chasers is to a great extent | | | | technical analysis which are on this site to also be of |
| dominated by technicians or chartists. About the | | | | interest. |
| fundamentals of the corporations that they are | | | | |