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Wednesday, May 17, 2006

Stock Tips

John Stossel discusses the uselessness of purchasing stocks based upon recommendation made by TV touts. While the stock market will generally rise over time, the "get rich quick" claims of stock brokers and analysts are no better than throwing darts at the stock listings in the news paper.

Back in 1985 I did just that. I followed a number of stocks that I chose by closing my eyes and pointing to various sections of the NYSE listings. I combined those with the intentional "purchase" of some famous blue chip stocks (like GE and IBM). I followed the ups and downs and tracked my mythical purchases of 100 shares of each company. Over 6 months my stocks rose in value by an aggregate of 13%. I was a Wall Street genius!

Meanwhile, just out of law school and needing to pay off school loans for both undergraduate and law degrees, I invested no money in the stock market. I paid off the loans, paid rent, saved and went out to dinner a lot (mostly slices of NYC pizza). Later, I was at an insurance company where I could have invested in a 401K plan. I abstained as I needed to continue paying off those school loans and save for a house. Smart move? Very.

The retirement investment plan required you to purchase the Company's own stock with a matching purchase by the Company. Many of my cohorts placed 5-10% of their salary into the company stock. When the stock's value dropped to below 3 cents per share, I had many unhappy co-workers. I had been given 18 shares along the way. I told my new wife she was marrying me for my stock portfolio. It was worth almost 50 cents.

Now, I am invested in a 401K with a diversified stock mutual fund. I am gung-ho about the future of the stock market. With all legal waivers that I am no financial manager and blah, blah, blah, my guess is that the Dow will hit 13,000 within a year or so. Long-term it will reach that and go higher over the next 20 years of my working and investing life.

But here is real solid advise without the legal waiver: By the time someone on a cable business show touts a stock, everyone on Wall Street has already reviewed the data and the stock has probably reached its height or nadir for the time being. What they are telling you is yesterday's news.


Within 1 hour of publishing the above prediction, the Dow dropped 100 points.

Does that make my point?


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