The Insiders: Experience Teaches You How to Recognize a Mistake When You've Made it Again

Experience Teaches You to Recognize a Mistake When You've Made It ...Again Most stock traders, hereinafter referenced as the "Trivial Many", the "Herd", the "80" of 80/20 fame and others, tend to make two fundamental mistakes when trading stocks and options. They buy heavily at the top of the market, right before it turns over. And...they sell at the bottoms of markets, right before they turn up. Hum...not a good way to make money in the markets. But, there's a bright side. The "experts" blew it too. You see, most stock traders tend to listen to the analysts, their brokers, and their friends for stock tips. Of course, their brokers are listening to the analysts, their friends and other brokers (who are listening to the same analysts, etc.)... So, as the Titanic is rolling over, we're all still raising our glasses. The problem is recurrent. Nobody (stock traders) really checks to see what the track records of these analysts really are. Studies going back as far as 50 years have shown that only a small fraction of what is recommended by the analysts makes money. The bright side is that IF you decide to use the analysts as Insiders and others do, you will use their advice as a contrarian signal. After all, they're WRONG most of the time! I don't mean any single one. I mean the chorus of all of them will be slanted ...So, you can learn to use that as a contrarian indicator. Let me illustrate. Back in 2002, the Insiders were selling small and mid-sized companies at record rates. Now, if you were a stock trader then, you were probably tempted to get in on the action. But, you probably were tempted to BUY more stock in these companies. After all, who is going to be selling stocks when they are still going up? Insiders that's who. But, stock traders, a.k.a. "the herd", "the trivial many", "the majority of stock traders", were buying heavily. Unlike drinking heavily, such stock traders do NOT recover easily from their exuberance the next morning. Granted the Dow was struggling even though these stocks were reaching new highs. And, the analysts were ecstatic. One stock analyst after another was paraded across the screen each with his or her own version of the refrain, "Buy." But, the Insiders weren't buying. The Insiders were selling. Within just a few short months (three months to be exact), those stock traders had lost upwards of 50% of their investment. But, the Insiders had not lost due to their stock selling. They were out long before the market turned over, having kept their profits intact. So, time and again, there is market exuberance close to the top of the markets. The chorus of analyst "experts" are all singing the refrain "buy!" The "herd" kicks into gear and revs up the buying spree. And the market turns over... and hurdles downward, leaving a trail of shirts along the way. But, the Insiders didn't lose their shirts. So... who are these Insiders? And who is this Insiders expert George Muzea? We're coming to that. ...Again... So... The new TV analysts are paraded before an adoring public. They present an impressive display on the Tube. Just ask them. They set before us stock tips which will "do wonders for your portfolio." Just ask them. And, in stock after stock, as they speed their way to the top, greed and irrational exuberance empties more wallets as stock traders and investors buy what they're told to buy. And predictably...in stock after stock, the market turns over...again. What is it about stock traders which makes us learn from our experience at least a dozen or so times before it dawns on us, "This ain't workin'?" I know what it is. We don't know what we're doing... But, instead of admitting it, we say things like: