Stock Market Stratagem

Why What You Think You Know Is Probably WrongIn recent years, investors have gotten used to hearing some pretty shopworn advice. Financial planners, admittedly basing their advice on research by Nobel laureates and other solid scholarship, have recommended that individuals should not try to pick stocks. The argument against picking stocks is simple. Many studies indicate that stock price movements are random. This is the cornerstone of the "efficient market" theory, which says that the market is pretty good at processing all the available information about a stock. This means you’re probably not going to find information about a company that everyone else has ignored, although most stock picking approaches depend on investors noticing something about a company before the rest of the market discovers it. The idea behind most stock picking is that once you notice something positive about a company — strong management, good cash flow or a book value higher than its market value — you should buy the stock cheap, then wait for the rest of the market to notice what you noticed. At that point, the stock price should go up and you should sell. If the market is efficient, this won’t ...