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Are you “momo”?

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Most novice investors look at only stock prices when determining whether to buy or sell a stock.  “The stock was at 350 last week and now it’s down to 300.  Since it used to be 350, it’s an easy $50/share to make.”

I started off the same during the dotcom craze of 1999/2000.  I bought a stock for 200, it went to 160 and I bought more.  It jumped up to 290, and I thought, “I will sell when it hits 300”, and it never did.  I rode it all the way down to 8/share.

I remember how little I knew in reading income statements and balance sheets, and evaluating companies in terms of a cash generator.

When someone talks to me now like this, I instantly know how little they really know about investing.  They see the stock market as a casino to exploit.  As article below calls them, they are “momo investors”…basically, looking to ride a trend in price movement.  You really might as well bet on the guy playing craps, who has won 7 rolls in a row, despite the fact that the next roll is completely random from the last roll.

I will warn them to stay away and learn more, but usually, such people are more interesting in impressing me rather than actually believing they could lose money.  Anybody could have made money in the last 7 years of a raging bull market, fueled by zero-cost money from the Federal Reserve.

This has been the longest boom market in history, behind the one from 1923-1929.  All markets always correct.  Paying 26X earnings for CLX (a low growth company) is nonsense.

There are always good stocks available, if you hunt correctly.  This “retail slowdown” may have already been priced into TGT and that is one stock that I have been eyeing.

Tread carefully.

Retail sales and inflation reveal a weakening economy and, possibly, corporate profits, says Nigam Arora.

Source: ‘Momentum’ investors buy stocks even though gold and bonds are warning them – MarketWatch