Economics in One Lesson
by Alexander Green, Chairman, Investment U; Investment Director, The Oxford Club
Thursday, October 25, 2007: Issue # 723
Twenty years ago, economist and libertarian Henry Hazlitt did something no one had done before.
He took dreary subjects like wages, profits, savings, taxes, tariffs, unemployment, unions and monetary policy and discussed them in a short, highly-readable book that was easily accessible to the layman.
The book was “Economics In One Lesson.” And it remains a classic, one perhaps especially appreciated by those of us without the time or inclination to read a boring, stuffy economics text.
Now my good friend and Investment U colleague Mark Skousen has done the same thing for investors. It’s called “Investing In One Lesson.” It, too, is destined to become a classic. In fact, I can’t imagine an investor who wouldn’t benefit from reading it.
Why?
During my 16 years on Wall Street, I quickly learned that many investors have an implacable enemy standing between them and investment success: themselves.
They lack a thorough understanding of important investment principles. This causes them to cast about, trying (and abandoning) one investment system after another. Or buying hot tips from friends and colleagues. Or reacting emotionally – and usually regrettably – to rapid changes that regularly occur in financial markets.
Skousen’s new book provides a much-needed antidote.
Especially important, he reveals why a company’s share price generally fluctuates much more dramatically than the prospects for the underlying business.These fluctuations – often unjustified – create enormous opportunities. But you can’t capitalize on them if you don’t understand what’s happening or why.
In “Investing In One Lesson,” Skousen makes it plain. Stock prices are determined at the margin.
What does this mean, exactly?
It means that on any given day, only a fraction of 1% of the shareholders of a company are actually selling their shares. Yet that tiny fraction determines the value of the entire company – at least temporarily.
A sudden imbalance in buy or sell orders can quickly push a stock dramatically higher of lower. Sometimes these changes are triggered by a change in the company’s fundamentals.
But more often, a company’s share price can skyrocket or collapse for reasons that have nothing to do with the outlook for the company or for the economy.
Skousen correctly notes that stock prices can be pushed around by, for example, rumors, official buy or sell recommendations by major wire houses, short selling, computerized technical strategies, tax selling, good or bad publicity, insider buying or selling, fads, takeover speculation, bad news elsewhere in the sector, or a mindless herd mentality.
Short-term momentum traders often pile on too, creating even more havoc. But for investors who understand what is happening and why, tremendous opportunities are being created.
I’m talking about opportunities to buy at fire-sale prices – and opportunities to unload at extremely generous prices. Who can afford to pass on these?
It’s a shame, really, that you can graduate with honors from one of the nation’s top institutions of higher learning with only the foggiest understanding of what the stock market is, how it operates, or how you can use it to achieve financial freedom.
As a result, many potential investors shy away from the market, afraid that it is a massive casino and nothing more. (Those folks, especially, would benefit from reading his chapter on “Why Wall Street Is Not Las Vegas.”)
Others don’t realize that the stock market is the essence of capitalism, allowing even those of modest means to take an ownership stake in many of the world’s most profitable businesses.
(Compare those odds with the well-known fact that 4 out of 5 new businesses fail in the first five years.)
In short, “Investing In One Lesson” is written for:
- Investors who want a quick understanding of how Wall Street works, and a simple, successful formula to build wealth in the stock market.
- Businesspeople and other professionals who have been successful in their careers but need a solid foundation for investment success.
- Investors who are unhappy with the performance of their brokers and money managers and want to understand how Wall Street really works.
- Investors who are overwhelmed with too many investment choices and want an uncomplicated approach to the market.
If you want to become a better investor, pick up a copy of Mark’s new book “Investing In One Lesson” at your local bookstore.
Or, better yet, pick it up now at Amazon for 34% off.
Good Investing,
Alex
Today’s Investment U Crib Sheet
- Our philosophy of investing is simple: You can’t go too far wrong if you get the big questions right. And here’s the thing: The big questions are not “When will the economy recover?” or “Where will the market go next?” Yet most investors obsess over them, and it’s a misallocation of time. Our free report, How to Build Wealth, shows you where to focus most of your effort and how to truly amass a fortune.
- Many of the best-performing stocks of the past-the ones that have turned $10,000 into more than $1,000,000 for hundreds of investors-are businesses you’ve been patronizing for years. Wal-Mart shares, for example rose 40,232% during the last bull market. That’s enough to turn $10,000 into more than $4 million. And there’s nothing mysterious about companies like these. They simply lead virtually all other companies in a few key metrics. Here’s how to spot momentum stocks early on all on your own.
- Our special report, Secrets of the Masters, details the approaches of the world’s most successful investors. Sir John Templeton, Benjamin Graham, Jim Rogers, “Bond King” Bill Gross, Dennis Gartman You’ll learn how 28 premier money managers consistently make a killing in the markets. In all, there are more than two dozen opportunities. Here’s a rundown.
- Stock Market Investment Advice: Beware Wall Street’s “Tower of Babble”
- Recommended Investment Books: Nine Invaluable Resources For Every Investor
- Investment Risk: How to Avoid the 4 Most Dangerous Pitfalls of Investing
|
Could you use an extra $600 - or more - each month?
If so, you’ll want to check out the details of an overlooked government-backed program in THIS REPORT.
It shows you why the government is set to distribute $457 million to a small group of recipients, how to get your name on the list and the exact deadline you must meet in order to qualify.
Comments
**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.Check out our selection of daily Investment Research:
 |
 |
Investment U RSS Feed