Why Wall Street Might Not Be Smarter Than The Average Investor

wall street

If you tune into any financial news program, you’ll immediately find yourself inundated with complex predictions based on mathematical algorithms, analytical breakdowns and speculation on what the economy will do next. These experts have decades of experience trading stocks, manage billions in assets and hold degrees from prestigious universities like Harvard and Yale. That’s why it’s easy to not actually manage your own investments and just listen to what these experts advise you to do.

But watch closely and you’ll notice something interesting – they never seem to agree with each other. For all the knowledge and tools at their disposal, no one really knows what’s going to happen next in the market. It’s like the quote form The Wolf of Wall Street, “Nobody, I don’t care if you’re Warren Buffet or Jimmy Buffet, nobody knows if the stock market is going to go up, down, sideways, or in circles, least of all stockbrokers.”

But don’t panic just yet. There’s a way to play right alongside the trading elite without drowning in the Wall Street cacophony.

Learning to Follow Your Own Rules

If you’re trying to invest on your own, you might find the whole experience a bit overwhelming. There’s a lot of information to absorb and, while you might have a plethora of tools at your disposal, understanding how to use them and what they mean takes time and patience.

But some of the most important tools you have available come from within, like maintaining discipline when you trade. There’s a lot of noise out there and you have to be able to filter out the nonsense and focus on the basics. Why are you buying the stock? Why is it at that price? And when will you sell it? If you can answer these questions, you’re already doing better than many institutional traders who trade by computer models and other quantitative measures.

Successful trading boils down to following the fundamentals. When you buy a stock, you’re buying a partial ownership into that company, so understanding how it makes a profit is key to knowing why you’re buying it in the first place.

Finally, Wall Street’s weakness is that they control other people’s money, making them more reckless and more likely to rely on software rather than their own analysis. When you manage your own money, it tends to make you a bit more cautious and sober-minded. Think back to the sub-prime mortgage crisis in 2008. If anyone had thought to stop and question how values were being determined, they might have been able to avoid a crash.

The stock market is a dynamic organism that ebbs and flows over time. Even the professionals make wrong calls – more often than you might realize. When you know what you own and why, you’re already one step ahead of them. The trading tools for charting patterns and following buy/sell signals are helpful, but they’re secondary to having trade discipline.

As you become a veteran trader, you’ll understand how to use more sophisticated analytical software. In time, you’ll be able to do your own analysis just like the institutional investors. The only difference between you and Wall Street will be the amount of money you control. Even then, you might find yourself beating the pros by doing it yourself.