Once you’ve handed over your money to Wall Street they need you to swallow two lies so that you don’t withdraw the money, and so that you accept their poor performance and high fees.
Here are those two lies…
LIE #1: Buy and Hold
“You just have to ride the bad times like 2008. Ups and downs are inevitable, but long term is what matters. Leave your money with us.”
LIE #2: Diversify
“By diversifying the funds over different types of stocks we reduce risk. Oh, and by the way, this is quite complicated so you should leave it to us professionals…”
‘Buy and hold’ and ‘diversify’. I bet you’ve had those two ‘pearls of wisdom’ thrown at you plenty of times, right? You would be forgiven for admitting that you thought those two ‘rules’ were the only keys to making money from the stock market. After all, this propaganda is widely spread because it’s so crucial for the survival of the banks, and hence governments.
Let me now show you why these two widely accepted axioms are lies. Here’s how the S+P 500 did from 2006 through 2008…
That chart above is why ‘buy and hold’ is nonsense. A more appropriate phrase would be ‘buy and pray’. The S+P 500 starts this chart at the 1,250 level, and ends it at 903, thus losing around 25%- three years of investment for that. You’d have been better off with cash.
Now let’s look at why the necessity for diversification is a lie. On the surface it sounds clever to ‘hedge your bets’ by spreading the money between different types of stocks. In this example here’s what happened over the last three years if you spread your money between retail stocks and coal mining stocks; in other words if you ‘bought and held’ and ‘diversified’.
First, here’s the three-year chart for retail stocks:
Great- a gain of 78%. And now let’s look at our equal investment in coal mining stocks…
A LOSS of 61%, so that almost cancels out the good performance of the retail stocks investment. 78% – 61% = a lousy 17% over three years. You see the trouble with diversifying and buying and holding?
‘Buy and hold’ doesn’t work because the stock market moves in distinct cycles that the trained eye can spot (and I will train your eyes). Diversification doesn’t work because stocks and industries move in distinct cycles that the trained eye can spot, and one stock moving up while the other moves down is a net effect of zero profit (and in a bear market everything goes down, diversified or not!)
By the way, the S+P 500 gained 60% in this same three-year period as those charts, so you’d have been better off just buying that, going to sleep, and saving all the fuss. Remember, investment professionals are simply trying to ‘beat the market’… and mostly failing. But they can’t just go and buy the S+P 500 or how would they justify their existence? They have to look busy by analyzing things like retail stocks and coal mining stocks…
If you’re not already on one of our home study programs to help you fire the banks and run things the RIGHT way, you need to so now.
Best
Jim.
The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com
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