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Dumb Money

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By wench500
December 11, 2001

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"Dumb Money: Adventures of A Day-Trader" by Joey Anuff and Gary Wolf, published in 2000 by Random House Books. This book deals with day trading, market media hype, so-called "financial gurus" (also part of media hype), and loneliness from the basement-dwelling, home office, twitchy, sweaty, Internet experience.... like the highs and lows of drug addiction, only the drug is the electronic real-time quote readout.

There is a chapter in it that deals with something Raggs and I occasionally bring up: media hype and "talking heads"...someone or a group with the newest, latest gimmick for picking stocks, only it doesn't seem to work in down markets like the current one. Some TV gurus even go so far as to recommend stocks, and they usually suggest the stocks they ALREADY OWN!! And what do you suppose happens when TV-mesmerized investors see the specific stocks touted on a TV stock show? They march over and place an order--no questions, no research. "But Lou Dobbs of Moneyline says it's a good one, and Lou Dobbs owns it himself, so it MUST be good!" Little do they know they just made Lou Dobbs some money by buying into the stock, or worse yet, made Lou Dobbs' broker a little richer. All hail Lou Dobbs.

With so many people venturing into the stock market do-it-yourself land, there's bound to be a lot of what I'll call "mindless purchasing" going on...they seem to think their only sources for stock info are the TV, WSJ articles, Money magazine, financial site chatrooms, or somebody's expensive hack-rag newsletter. Trouble is, by the time this info DOES filter down to the consumer level, it's way old news--everybody's already bought into it, made the gains, and moved on. And worse, the people writing the very articles and making talk show rounds, spewing forth inaccurate and/or severely-biased info...directly at the media-mesmerized, and here they go again--heading toward their terminals for yet another mindless purchase. I love it when the Guest Du Jour shows a chart of his stock picks and tries to explain his way out of a lousy chart when making his case for purchase.

This book pulls the curtain back on day trading as an industry (the Wizard of Oz movie comes to mind--the little man behind the curtain), the different classifications of traders, and what ultimately leads some DIYers  to make their decisions. It also has some historical info on what our very own Motley Fool was up to before it, too, became a media force to be reckoned with.

I feel I should add this tidbit: there is no substitute for doing your homework, i.e., thoroughly research a financial instrument before buying, and keep updating your research to know when to sell--you WILL sell it sometime. Use reputable sources for your research, such as Value Line Investment Survey, Investor's Business Daily, WSJ (and not just the articles), Moody's, and others. Try not to fall for gimmicks like wave theories, oscillators, etc.--it's just someone else's hype for his/her own method for picking stocks, and it probably isn't tested in good AND bad markets, let alone history. A wave theory is just that--a theory. An oscillator is something that moves back and forth, nothing more. A dictionary might be a very useful tool when deciphering the names of personal methods of picking will reveal more than the method itself will.

My take on our current Dumb Money (written about 2 months ago):
Yeah, right! But anyway, I think the bulls and bears are stuck in elevators and just pushing buttons at random trying to get the doors to open...they go up, they go down, they sound the alarm, but they can't get the doors to open. Watching the market for a little bit today, coupled with IBD's "big money movement" musings (they bought WHAT?!?), I'm firmly convinced that more than just the small investor doesn't know he missed his stop. You wouldn't believe the crap ratings on the companies they're buying, but they're buying nonetheless...and I thank God I ain't in a mutual fund right now. And the same goes for their selling--the ratings are sometimes quite good on what they're shedding. I wonder what it is that they know, but I don't...must be that "crystal ball" effect. They got Nostradamus in the pits with them.


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