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How to understand the stock market

Technical analysis, balance sheets and income statements, research reports, CNBC and BNN and the latest news. Many believe these are the ingredients for managing real money in the stock market. But is it?

You'd think with the amount of information on the internet alone everybody would be doing great with their stock portfolios. But who's actually getting ahead of the crowd?

There are literally thousands of books on how to invest in the stock market. However, most books are designed to sell by giving people what they want to hear, not what they need. They inherently make people feel better so they may justify the shortcomings with their stock strategies.

What does it take to succeed in the stock market?

In our investment workshops we typically arrive at a point in the session(s) when something happens. As participants dig in with the content there is an increasing amount of energy, openness, questioning and ultimately resistance. It is critical resistance emerges as without it learning can be cut off. Here's what happens next.

How do you know what works?

Consider this hypothetical scenario as we do in classroom workshops and online webinars; "What if you were presenting your investment decisions(s) to Warren Buffet? How would you back up your reasoning?"

Now we arrive at the ultimate question underpinning everything in the investment process. "How do you know"? What is the evidence that supports a methodology, a strategy and ultimately the buy and sell transactions?

If we put bias aside we can see the stock market may be analyzed with science utilizing analytics or metrics that translate into a decision making matrix for every situation. But there's more.

Connecting an investment portfolio to the markets

The stock market is driven by people, not machines, not earnings, the news or some other variable. All of these factors may be part of what somebody uses to make a decision but ultimately the market is about investor behavior. Accordingly, there are patterns and recognizing the patterns is the key to superior strategy and trade execution. It works.

Here are some keys to investment success that we'd like to see everybody work with.

  • Timing matters. If it didn't everybody would be rich already.

  • It's all about math. It's not subjective, it's not personal.

  • Risk management is the most important strategy at all times. Our observation is many retail investors (individuals) are taking far too much unnecessary risk and often don't realize it.

You can do it too. See how.

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