Investing

Read This Before You Invest Another Dime

In the business of journalism there is no avoiding the fact the sensationalism sells. The competition for eyeballs on both television and the internet requires blaring and provocative headlines to attract attention.

This is the case when it comes to politics, sports, entertainment, etc. but it is in business journalism where it can be most harmful. Editors want drama that will attract viewers and readers but that is seldom the basis for good trading and investing decisions.

Headlines such as “Flat Market Action and Limited Movement’ just don’t create much emotion. What captures attention is strong opinions, dramatic predictions and promises of spectacular riches. Headlines predicting the DJIA will hit 25,000 or that there is a huge bubble that will lead to a giant crash attract eyeballs, but the problem is that what is good for journalism typically is not that good for investors and traders.

Most market players would be far better off if they did not have strong opinions. The way to navigate the market isn’t to make big bold predictions and then to wait for them to occur. The best way to navigate the market is to have a general thesis and to modify as conditions change. The most successful investors and traders go big and bold when they feel they have an edge but they are quick to change their opinions and modify their approach when conditions change. They may look wishy-washy at times but that works well in this business.

Unfortunately, “Bullish Today but Maybe Not Tomorrow’ is not a headline that sells very well. Not being sure what will happen next may be the best approach to the market, but strong opinions are far more attractive than an open mind if you are trying to write something will receive attention.

Because so much of what we hear about the stock market is based on strong opinions, market players think that is what they must do as well. They are either highly bullish or bearish without any middle ground. Being labelled one way or the other is not advantageous. It is far better to simply be an opportunist who is ready to shift as conditions shift.

There always are market pundits who make major predictions and end up timing it well. They will receive attention in the press for their prescience and may live off one good call for many years, but no one, and I mean no one, has ever consistently called major market turns with any precisions. Almost every pundit who took credit for calling the 1987 crash, never made another big call and most were later regarded very poorly by the investing community.

Grandiose predictions, big market calls and strong opinions get attention and drive ratings, but uncertainty, flexibility and open-mindedness better serve market players who are trying to navigate the market and produce exceptional results over the long term.

I know of many traders who have been wiped out because they embraced a big market call. The traders that stay aware of risk, stay in the game and that is the most important thing we can accomplish.

The blaring market predictions are fun to read and give us some things to think about but it is a suboptimal mindset for traders and investors. Avoid dogma and embrace the unknown.

Join Jim Cramer, CNBC’s Jon Najarian and Other Experts Oct. 28 in New York

Jim Cramer will host CNBC’s Jon Najarian, TD Ameritrade’s JJ Kinahan, famed analytics expert Marc Chaikin and other market mavens on Oct. 28 in New York City to share successful strategies for active investors.

You can join them as they discuss how smart investors can make the most of options trading, futures contracts, fundamental and quantitative analysis and great ETFs to buy right now. Participants will also get a chance to meet Jim and other panelists and take photos.

When: Saturday, Oct. 28, 8 a.m.-3 p.m.

Where: The Harvard Club of New York, 35 West 44th St., New York, N.Y.

Cost: Special sale price: $95 per person if you book by midnight ET on Monday, Oct. 2. (Normal price: $250 per person)

Click here for the full conference agenda or to reserve your seat now.

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