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Taking Control of Your Investing Fate Is Biggest Threat to Wall Street

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Individual investors possess strengths that huge fund managers don't have; their ability to protect capital when conditions break down sets them apart.

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It's that time of year again when we have the occasion to take a moment to reflect on the many good things we have in our lives. Personally, I am most thankful for the blessing of having my best friend as my wife and partner, my three wonderful children, and (knock on wood) good health. Another thing that I feel immensely luck to have is the ability to make a living doing something I truly love.

It would be easy for me to make a long list of the things that I like about my job, but that probably wouldn't make for very good reading. However, the one thing that I find most alluring about what I do on a day-to-day basis is learning.

I've always been interested in taking on some new ability or subject, and the opportunity trade and write about the market offers me the chance to continually learn something new, not only about stocks, but about myself -- my fears, my strengths, my ego, my character. I also learn about people around me. How do market players change their behavior under a constantly changing set of circumstances? History, as Mark Twain once said, does not repeat, it rhymes, and it's the observation of the behavior of prices under varying conditions that allows us to better our craft.

Probably the most important takeaway from the action that we've seen over the past few years, and over the past 19 months in particular, is that no one approach "works" all of the time. I can't tell you how many times I've heard from veteran traders who say that the market has been virtually untradable since the lows of 2009.

There's been a lot of effort spent on figuring out we've been driven by the huge amount of liquidity that's been pumped into the system, high-frequency trading programs, or a real understanding that the economy might really be able to emerge from the most threatening financial crises that any of us will (hopefully) ever have to endure. Chartists, meanwhile, have scratched their heads in wonder as they try to interpret various measures of the market's internals that have moved from overbought to oversold and back again in the blink of an eye.

Those are some important questions to ask, but they only serve to reinforce the very important notion that there is no Holy Grail when it comes to trading. Sometimes the tools at our disposal don't work very well, which in turn is why it's so important to focus primarily on the pricing action and not try to spend too much time worrying about the whys and wherefores behind the market's behavior.

Having an understanding of those macroeconomic factors that might eventually have a longer-term influence is important, but what's more important is avoiding becoming so enamored with your own personal views that you ignore, or even bet against, the prevailing trend.

The other opportunity I am afforded is helping others learn those same lessons. I'll never cease to be amazed, especially after what happened toward the end of 2007 and into the beginning of 2009, at how pervasive the traditional approach to the market remains. I constantly talk to folks in the "real world" who still believe the same tired lines from their brokers and advisors about being "in it for the long-haul" and how the "fact" that they're in "quality" companies will keep their life savings protected.

However, we as individual investors possess strengths that huge fund managers don't have, yet all we hear in the mainstream media is how we need to invest our money as if we were putting billions of dollars to work. Yet it's our ability to move quickly to protect our capital when conditions begin to break down that sets us apart. The point here is that taking control of our own investing fate is the biggest threat to traditional Wall Street, and it's our best advantage as small investors. That's the lesson that I've found to be most valuable, and I am immensely thankful for having the opportunity to share it with others.

Have a safe and happy Thanksgiving.


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No positions in stocks mentioned.
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