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The Stock Market’s Dirty Little Secret

Enjoy this post today about investing by blogger and Chartered Financial Analyst Joseph Hogue.

I have built my career around investing and analysis of investments. I’ve done a good job and am proud of the advice I’ve offered clients but there is a dirty little secret that most analysts will not talk about.

The secret…many investors may not even need us.

Analysts are able to provide valuable information on stocks that helps keep the market so efficient and running smoothly. While it is difficult for anyone to “beat” the market consistently year-over-year, research shows that some analysts have been able to earn higher returns after adjusting for risk.

But the problem is that many investors just don’t need the few extra percentage points in returns that stock market analysis can provide.

Why would anyone pass up extra investment returns?

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The Difference Between a Dumb and Smart Money Investor

Well, we’ve reached that point again in the stock market where indices are at high levels again. The NASDAQ composite index touched 5,000 the other day, its highest level since the year 2000. It’s just a stone’s throw away from its all time high, making it the last of the three major indices to reach an all time high at some point during the current bull market.

So, right on cue, out come the headlines warning investors of an impending major pullback in the market. One in particular caught my eye the other day. It read:

Why the Smart Money is Bailing Out of the Bull Market

As an investor, how does that headline make you feel? Does it encourage you in any way? Are you feeling good about your investment strategy and how its playing out in the market right now? Getting the urge to go sell a few stocks?

I guess the answer to that question depends on whether or not you consider yourself a smart money investor.

What is a Smart Money Investor?

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Do You Want to Beat the Market for 60 Cents Per Hour?

The following is a guest post from Graham Clark at Moneystepper.com

Pennies falling out of a tipped over jarWhy do we invest? Presumably, we all invest money to obtain the best returns we can to improve our financial future. Effectively, this means that we are investing to earn money.

We invest in the stock market because we think it “pays well”. Investing in the stock market (assuming we can earn the market returns of the S&P 500 since 1970) can earn us 15.79%. Alternatively, holding money in cash returns approximately 5%.

Investing in the stock market is therefore the equivalent of working at a legal firm instead of McDonalds – the wages are better.

Hourly wage of investing

Let’s say you have $10,000 invested in the Vanguard S&P 500 (with an annual TER of 0.1%). Therefore, your average annual return, after costs, is equal to $1,569. How much work did this take? To set up your Vanguard account and buy the fund, and then to completely forget about it for the year, probably takes about one hour.

So, you are earning an hourly basic wage of $1,569 per hour. Not bad. Well done you!

Now, I’m going to give you the opportunity to earn another 60 cents per hour. Would you like to do that?

You probably wouldn’t. Moreover, you would probably report me to the authorities for exploiting my employees!! But, millions of people are doing this when they are trying to beat the market.

Can you beat the market?

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How Are Various Investing Markets Related to Each Other?

The following is a guest post by Troy Bombardia.

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Commodities: An oil refinery at dusk

In the world of investing we have something that is known as correlation. The basic definition of correlation is simple: how do changes in variable X affect changes in variable Y (oh no, more math!)?

Correlation and relations exist in the financial markets. Changes in the price of certain markets (i.e. stocks) will have impacts on prices in other markets (i.e. bonds, currencies, commodities). In this post, I’m going to examine how various markets are related to each other (their correlation).

Why is it important to understand the relationships between various markets? Because if you know how one market is reacting and what relationship other markets have to this market, you can predict what the future price of other markets will be (which equals more profits!).

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Global Shares Plunge! OMG…The World’s Coming to An End!

ID-100178554It’s another typical early morning. With a busy day ahead, I’m getting a bit of writing done before the kids drag themselves out of bed and downstairs for breakfast. I’m clicking around the Internet and wiping the sleep from my eyes when I’m greeted with this headline from Yahoo Finance:

“Global Shares Plunge as U.S. Slowdown Adds to Emerging Markets Woes”

I quickly pulled up a stock chart and noticed the financial markets have been in a free fall since the start of January. As of this writing (the morning of 2/4/14), the Dow Jones Industrial Average has fallen over 1,200 points (about 7%) since Jan. 1st. Many are calling for another 3-5% drop from here. Yikes!

Well, faced with that news what could I do? I grabbed my shotgun, some bottled water and my case of Ritz Crackers ‘n Cheese and headed for the bunker I’ve built in the basement. It’s fully stocked for Armageddon. The wife and kids will have to fend for themselves.

Clearly the world is coming to an end.

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