Two Stock Market Profit Concepts

The Combination Can Make a Difference

Combining Two Colors to Make Yellow
Two colors Held Together to Make Yellow. Andy Ryan/Getty Images

There are two concepts which I share with you here, and when considered in combination will make all the difference with your stock market results. Both of these concepts are logical, yet no one seems to apply them. 

The important point is the way in which these two concepts combine together which has never been explained until now, here in this article. All of the value lies in the combination, and by using both concepts together, you will win.

(Kind of like how much better peanut butter gets, once added to chocolate).

One aspect of investing well, which has remained constant through bull and bear markets, and all types of investing bubbles, upheavals, and activity, has been this:

When you buy a share of a stock, you are buying a share of a business.  

Do not think of stocks as lifeless, disconnected entities, as the majority of investors do. You should not be a stock market trader - you should be an investor in businesses. When the underlying business does well, their shares typically follow suit.

In fact, in my career as a stock market analyst, I have come to realize how closely linked investing and business are. Or perhaps my love of business was what gave rise to my becoming a stock market analyst in the first place!  

Either way, it is a "chicken and the egg" argument, since, in reality, the two cannot exist without one another.

More than complimenting one another, they are directly linked, bound closely together.  

Perhaps this was the impetus behind my side project, "Supercharge Your Small Business," which leans on all the concepts which great stock market investments have with amazing small businesses. Or maybe this was what gave rise to the great successes we've enjoyed with our Peter Leeds financial newsletter.

In terms of investing in stocks, choosing great businesses is easier and more profitable than attempting to understand and anticipate disconnected, random activity and often detached volatility of the underlying shares. Each of the short-term factors influencing the movements of stocks are highly unpredictable and, more importantly, they are temporary and often illogical.  

Investors have no advantage in such a scenario, which is why even the "winners" among professional traders, hedge fund investors, and popular gurus can not maintain their results over long time periods.

Investing in businesses rather than shares will give you the types of returns someone like Warren Buffett will attain. However, with much smaller bankrolls we need to take our returns to the next level. Most people, myself included and probably you as well, don't want to take a Warren Buffett time frame to turn a smaller investment into a tiny fortune. Rather than waiting, let's do it now.

Combining the concept discussed above with the other half of the picture, described below, will make all the difference. As I mentioned, it is actually the merger of using both of these theories together which really magnifies their impact:

Translate the noise, BECAUSE no one else is.

By its very nature, "mass media" must reach almost everyone. And the vast majority believe what the media is telling them. That is why most people still think that the Presidential election is still undecided, or that America will not default on our debts.

The media controls the focus of the masses. A highly simplified example to illustrate the point: If their lead story is about Bitcoin, more people will think about, talk about, and invest in digital currencies. If their lead story is about a missing airliner, fewer people will then focus on Bitcoin.

Keep in mind, media is reactive, not proactive. Any story you hear on the Internet, CNBC, CBS, or the newspaper is talking about what has already happened but presented to the masses as if it is what is happening now.

 

For example, a story about marijuana penny stocks soaring higher is taken by most to mean marijuana stocks ARE soaring higher. But really, the story is that marijuana stocks have ALREADY soared higher. This means they are now highly over-priced, while the media is still pushing thousands more people into them even now.

In this disconnect between events which HAVE happened, and the focus and actions of the masses which believe the media is talking about what IS happening, lies tremendous profits and glaringly obvious pitfalls to easily avoid.

Understanding both philosophies mentioned in this article, you would have avoided (and anticipated) the Dot Com bubble collapse (as just one example of many of the investor stampedes we've seen), and opened yourself up for tremendous profits while thousands lost fortunes. You would have seen the crash coming, and been involved with solid, growing corporations.

This "stock market mania" we see from time to time provided the impetus for my recent article, "Investor Stampedes!" It also made up a lot of the new sections of my revised edition of the international best-seller, "Penny Stocks for Dummies."

Think back to both our points mentioned above. If you were looking at shares of stock as a business, you would never have put a penny into these money-bleeding Dot Com stocks. As well, you would have known to translate what the media was really telling you, while the masses thought the internet stocks were hot. They weren't hot, they were overvalued.

In fact, when we are analyzing penny stocks, the very first place we look is the balance sheet. This simply tells you what a company owns, compared to what it owes, and that alone would have made impulsive internet investors back away from all the technology start-ups (which are bankrupt now, by the way). One quick glimpse at the financial situation of these companies would have saved millions of people billions of dollars. (Yes, billions, that is not a typo).

Perhaps the saddest part of the situation described above is how quick and simple it is to look into the financial position of any company. It can be done in a couple steps and takes (at most) 3 minutes.

Simply by keeping these two concepts in mind with every aspect of investing you apply or learn about, you have dramatic potential to continually come out on top. The media will tell you North Korea has an intercontinental ballistic missile pointed towards Manhattan, people will panic, house prices will decline, and you can scoop up a ridiculous bargain on some real estate. Or perhaps the news says that Sars, or some other outbreak of illness, is sweeping the nation - no one gets on a plane, ticket prices plummet, and you get to a nice vacation on a half-empty flight for a fraction of the typical price. 

Of course, these are extreme examples, but there are plenty of opportunities similar to these. Just watching for them, and being aware that they crop up from time to time, will open up your consciousness to spot them, and profit each time.

For example, Hurricane Katrina blew down my beach house, plus my next 8 closest neighbors. I rebuilt, no one else did (and still haven't), so I'm getting all the increased rental income which comes from a very low supply.

To start benefitting from the ideas explained here, simply turn on your TV. There are opportunities to profit from the space between what they are telling the masses, and what is actually happening.