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PERHAPS THE BIGGEST MISTAKE ALL NOVICES MAKE WHEN BETTING ON STOCKS. A REVIEW OF THE VISUAL CAPITALISTS' "SIX BIGGEST MISTAKES"






Today, the Visual Capitalist published a work, The 6 Biggest Mistakes Ordinary Investors Make. If you do not know the site, the Visual Capitalist publishes free infographics, presumably as a way to showcase their skills for corporate reports and the like.


In their infographic story telling way, the Visual Capitalist folks posited an often parroted thesis:

The biggest threat to achieving financial independence is one's brain.

To suporting the thesis, the Visual Capitalist people present a few studied psychological biases as the culprits:




But their thesis and graphic put the cart before the horse. While one's brain is a hindrance to financial independence, it is so because most are unlearned about the commercial world.

First, before spending one dollar, someone should learn the difference between speculating and investing. 

Speculating is a bet on a change in price. People who buy long in hopes of a price rise or who short in hopes of a price fall are speculating. They are not investing. Investing is when one buys an income stream. Most are speculators who call themselves investors.

A stock that pays no dividend is a speculation. A stock bought for its dividend is an investment.

Second, someone should learn how prices form if one intends to speculate.

Daily prices are pushed and pulled by day traders. It is their learned opinions, which fight over whether a firm's stock should be higher or lower given all kinds of intel, such as general conditions of the economy, of the products sold, of whether many more will enter into stock markets in the coming months or vacate said markets.

In this age, if people would like to speculate in stock markets, most should simply buy ETFs after a stock market crash, say the 2008 crash and sell when prosperity is everywhere, such as peak credit 2007.

My own work shows that stock prices show huge biases that reflect stock buyers not valuing a dollar of revenue as the same between firms. Some stocks get undo premiums over a baseline of valuation and other stocks are discounted relative to a benchmark of valuation of a dollar of revenue.

So in theory, one strategy would be to bet on those discounted stocks, which one expects to have surprise positive news or short premium stocks, which one expects to have surprise negative news.

See the live updated table which shows how almost all stocks of the S&P 500 are either overpriced or underpriced and by large errors precisely because many speculators believe a dollar of revenue earned by some firms is worth more than a dollar of revenue earned by other firms.


To comment about this story or work of the True Dollar Journal, you can @ me through the Fediverse. You can find me @johngritt@freespeechextremist.com

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