Why You Should Think For Yourself When Investing

 

Do you know who Tomaz Cajner, Rebecca Zarutskie, or Marco Macchiavelli are?  They’re Ph.D.s employed by the Federal Reserve using your tax dollars.  Bet you didn’t think you were paying someone named Macchiavelli to influence economic policy!

The Fed employs more than 300 Ph.D. economists, yet with all that brainpower, they’re still unable to predict accurately what should be done with the economy.  Back in September, before the election, they were unsure if economic growth factors deemed it appropriate for an interest rate hike.

Now, in this afternoon’s announcement, they’re expected to raise interest rates, and according to yesterday’s Wall Street Journal, “have largely maintained a cautionary tone even as joblessness sits at a nine-year low and economic growth is accelerating…in September, they cut their outlook for growth and inflation this year, and predicted slightly higher unemployment by the end of 2016.  The unemployment rate has since fallen to 4.6% – the lowest level since 2007 – and economic growth accelerated in the third quarter.”

This comes on the heels of Donald Trump’s victory in last month’s election, and the ensuing stock market rally that NO ONE saw coming.  Pundits in the financial news were fighting amongst themselves about how steep the market crash would be should Trump win, while most members of the media and the majority of polls not only predicted that Hillary Clinton would win, but would defeat Trump in an historic landslide.

This all proves a point: how essential it is to do your own careful analysis and your own independent thinking.  You can’t believe everything you see and read in the media.  Facebook has come under fire for the incredible amount of fake news that’s spreading on their service, formerly objective publications have shifted to biased opinion – who can you trust as a reliable source of information?

The reality is that you can’t blindly trust any one source.

It’s easy to take what you read online or see on CNBC at face value — what’s more difficult is the careful analysis of a company’s fundamentals and the long-term growth prospects for that organization.  All the information you need is right at your fingerprints, but there’s an art and a science to processing it and deciding whether that company is a worthwhile investment.

When you’re trying to come to your own conclusion and do your research about a company, there are many questions you should try to answer.  Who is their management team?  Do they consistently raise their dividend?  What kind of economic moat do they have over their competition?  Think about the long-term challenges and opportunities the company faces.

At American Dream Investing, we do a lot of that research and careful analysis for you, and you can see what it is we’re investing in with our premium membership.  But you still need to think for yourself and come to your own conclusions.

The people with the best credentials in the world still manage to get this all wrong.  An analyst at a major bank can downgrade a company based on short-term challenges, and the stock goes into a temporary free-fall.  These are the perfect times to buy, provided you believe in the company’s fundamentals and long-term prospects.  Groupthink and herd mentality contribute to lackluster results; unconventional thinking leads to unconventional results.

Stand out from the herd.  The view’s a lot better when there’s not a lot of people blocking it.