Saturday, June 25, 2011

Paying money to lose money in Stock Market

Losing money in stock market is a no brainer. After all these days it looks more like a giant casino and you don’t even have to leave home to gamble. It is rigged and the house always wins. But the dumbest way to lose is to follow the market gurus like Charles Nenner, Prechter of Elliot Wave, and many other forecasters of their ilk.

Before you say that I have no idea about what I am saying, I want to say loud and clear that yes I do have the idea.  Because I have been dumb enough to learn it 1st hand.

When you are new in the game of investment, you want to try out everything and find out what works. I was no exception. In-spite of having a professional degree in Finance & Accounting, in-spite of working at the highest level of corporate management, there is still that desire to be on the correct side of the market without efforts . It is the same reason people go to faith healers who tell them that cancer can be cured with their magic touch or villagers go to fortune tellers and palmist who then predict the future and give them the way out.  I suppose I was naïve and stupid to put my belief on these people instead of doing more rational and analytical thinking and research. At some level professional education is no match to the primal insecurity of human being which has created a class of people called god-man.

Let me share my own experience so that those who are reading this, be forewarned.

Prechter of Elliot wave is a very good salesman. He prays on the fear of the people and is always predicting a doom. Now a broken clock is also right twice a day. Because the memory of 2008 crash is so fresh in the minds of the people, people are fearful of another looming disaster and the economic news has not made things easy either. The whole of 2009 and 2010 Prechter and his company went on to predict a crash, month after month, he went on TV predicting Dow at 1000 and all sorts of doomsday scenarios. And every month, the goal posts would be moved. In between there were few corrections in the stock market and he got further boost from those corrections.

Stock markets corrections are a natural phenomenon and are necessary. But he would come and say “I told you so” and a big one is coming. People like me, who invested on the short side of the market, based on his advice, lost money head over heels. We missed out on the great Bull Run and it did not do us any good. Prechter‘s favorite saying was that he called the 2008 bottom correctly and predicted the start of the new bull market. Again, it was one of those fluke things, when lots of people were calling the bottom, like they are doing now. No way Elliot Wave did predict the bottom or call out the new bull market. Because the Elliot wave theory is basically charting the history after the events have taken place. There are many interpretations of the so called wave, major, minor, still born, unborn and every one of the wave experts have their own theory. The internet is flooded with them. The long and short of it, after losing money by following this gentleman, I quit and went for another clairvoyant.
And there was Charles Nenner, the cycle forecaster. His reputation ran ahead of him. Ex-Goldman Sachs and the man who had called the top sometimes in the past. I should have known better.  It is alleged that GS and other primary dealers have 1st hand knowledge of the market movement and possibly a hotline or two with Fed. Otherwise how come they have only one losing trading day in the entire quarter and sometime they never have a losing trading day in the whole quarter at all. It defies the law of probability and the chances of that happening to you and me are one in a billion. That someone has access to that hotline and made a correct call in the past is no wonder. May be he was set up by them to make that call. Who knows?

 But then when I started reading Nenner, I found that it is an exercise in double talk and confusion. For e.g. “The cycle bottoms next week but it can come earlier”, what do you make of such statement? Once again, the blame is put on the reader because of the wrong interpretation. Personally I have never made money following Nenner; in fact I lost money whenever I acted upon his advice. My bad luck! Nenner’s newsletter is like the astrology columns in the news papers. Vague, general and applies to some people at some time but is never accurate.

I challenge both these gentlemen to publish their short term market call (things that will happen in the next 15 days), in clear, unambiguous language and we shall monitor their call for a year. I am ready to stand corrected but till they take up this challenge, I will be a skeptic.

Today, after many years of trial and error, I have found that we can also make the market call, as well, if not better than Nenner or Prechter. Now I study many things like sentiments, demography, money flow in the market, many other technical indicators and try to think like a criminal to beat the criminals in their own game. And I think I am successful. I am winning consistently and if you read my blog, you will see that I am getting good at calling the turns.

Tons of free stuff is available on the net, so we don’t need to pay money to lose money.