Wall Street: Chasing After Stocks

Wealthy, Successful Investor

Warren Buffett, chairman, Berkshire Hathaway
Warren Buffett, chairman, Berkshire Hathaway

Traders at NY Stock Exchange

Source

Sometimes a friend or acquaintance will bring up the subject of Wall Street with an eye toward taking a plunge in the stock market.

While I am not a stockbroker, I never hesitate to share my thoughts on the subject with anyone who asks.

When the stock market was showing jitters over the North American Free Trade Agreement just before the U.S. House of Representatives voted to approve it recently, my advice was "buy, buy, buy!"

It wasn't until the day after the vote, when the market was taking a dive, that someone told me I should have known better: Everyone knows you buy on the rumor, sell on the news. Now they tell me!

A very attractive stock, not long ago, made millionaires out of dozens of its employees and big bucks for hundreds of wise investors. Everybody liked the stock, and I suggested that anyone who wants to make a killing should get on the bandwagon right away. The stock dive-bombed to less than 20 percent of its high, and a lot of folks lost their shirts.

It wasn't until the stock hit bottom that I learned the age-old philosophy of clever market watchers: When the average guy is buying, you sell; when the average guy is selling, you buy. Too late now!

There was one stock that I knew I couldn't lose on. When I found out that the company's earnings had quadrupled, I advised the stock should be bought immediately. Everyone knows it's a company's earnings that drive up the price of a stock. But, alas, the stock tumbled the day the earnings report came out. Despite the incredible improvement, earnings came in below the estimates of Wall Street analysts. Now I know: Improved earnings aren't everything!

One of the world's biggest companies was obviously in deep trouble earlier this year when it announced record losses and divestiture of its most important and profitable subsidiaries. Naturally, my advice was: Get rid of this lemon posthaste. You guessed it, after only a brief interlude, the stock moved substantially higher, bringing lucrative profits to those who are made of sturdier stuff.

A longtime market leader was selling near its all-time high some months ago, and I read in U.S. News and World Report that this traditionally strong company, with a good dividend, had excellent prospects for improved earnings. The company's balance sheet was solid as a rock, and its management was good. Naturally, I told friends that this was a good buy for anyone looking for capital gains.

Believe it or not, I was wrong because not long after I offered this free advice the company announced it was having trouble with its competition; things didn't look so good, so it would have to make dramatic price cuts -- a big drag on profits. That's how I learned that you can't believe what you read in the magazines -- and you can't go only by the balance sheet either.

Over the last couple of years, and particularly over the last few months, almost everyone has been talking about how good an investment the technology stocks are. The future of stocks dealing with computers, telephones and cable television is sure to be a bright one. I advised buying a top stock in the field, and only a few weeks later that dog took a nosedive.

My advice? Try the horses!

This is a column I penned as a "My View" for The Hour newspaper of Norwalk, Conn., on Nov. 17,1993. I now write my views on a wide variety of topics on HubPages. To view my HubPages Profile Click Here


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Comments 6 comments

Ralph Deeds profile image

Ralph Deeds 9 years ago

My advice: don't buy individual stocks. Stick to no-load, low cost, tax efficient index mutual funds. Read Charlie Ellis's "Winning the Loser's Game," the losers game being playing the stock market.


Bob 9 years ago

If you try horse racing , just don't let the Commander pick your horse. Me, I've been lucky in the Market. The stuff I've bought all have more then doubled , but there not the glamor stocks that shoot up fast. I like CSX , BNI , NSC , DE & CAT. All winners , however with your luck.........Stay away from them...... Good Column Bill , I really enjoyed it.


anonymous 8 years ago

Follow the money!!!!! money is not lost, wealth is. These days wealth is evaporating due to leverage, not cash. Why is the USD appreciating while america has the largest debt in history? Because the US debt is only 11% of the US GDP!!!! While the largest is it's history, it is so much less leveraged than the EU, Russia, Brazil, ect. Investors are flooding into the US treasuries because they believe they are the safest. Safest because they are the least leverage to their gross domestic product and they will come out of this credit crisis first. I post the www.financialswami.com regularily. I think I need to post this. I guess you inspired my tomorrows post.


William F. Torpey profile image

William F. Torpey 8 years ago from South Valley Stream, N.Y. Author

Thanks, anonymous, for the interesting and informed comment. Even the big guys can lose their shirts when they get too greedy and go too far. The national debt can make wide swings, but when it does so as the result of a political strategy you can be sure trouble will follow.


wannabwestern profile image

wannabwestern 7 years ago from The Land of Tractors

I love that you originally wrote this article in 93'. It is still relevant today. Personally, I think it is ok for small investors to buy stocks as long as they know they are assuming a significant risk. I love Warren Buffet, too. Another great article.


William F. Torpey profile image

William F. Torpey 7 years ago from South Valley Stream, N.Y. Author

Thank you very much, wannabwestern. I've written seven articles relating to the stock market, which has interested me ever since my NYU days (long, long ago.) I think Buffet is one of the good guys. I've been kind of busy in the real world recently, but I expect to get back to reading and writing hubs again soon -- and your hubs are one of my priorities.

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