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Benjamin Graham and a market myth

Benjamin Graham, father of value investing

Benjamin Graham

Benjamin Graham, the father of value investing, had a firm handle on the market and market behavior.

Today in, Benjamin Graham and a market myth, we discuss one of his observations and a great stock market myth and how together they can affect your wealth.

Benjamin Graham and a market myth

Volatility can startle new investors

Stock market volatility can startle investors and cause fear. When you know and understand the stock market, you can confidently watch without  worry.

Stock market volatility can startle investors and cause fear. However saying, ‘small investor behavior causes market panics’ is self-righteous, self-serving nonsense promoted by some stock market professionals.

Learn to know and understand the stock market, then you can confidently watch markets without worry.

Some financial professionals use fear tactics to suggest only professional managers be involved in the market. The stock market and financial service industry has no shortage of dinosaurs and outdated thinking. We have to be wise enough not to listen to their noise.

Investors voting or weighing?

Benjamin Graham referred to the short-term market as a voting machine that tracked popularity. However, in the long-term when the facts are known and prevail, he referred to the market as a weighing machine. That weight was the intrinsic value of the investment.

Short term, emotions of a popularity contest are the biggest factor in pricing. Long-term the weight of real value and facts, not emotions, becomes clear and determines the real price.

Investors, real investors, want weight, not short-term popularity. Choose the investing approach for your portfolio and in time you will grow a portfolio that tips the scale with a very nice heavy weight!

Traders and investors behave differently

Every day in the stock market you can see the battle between emotions voting for price movement or the weight of stabilizing facts. Short term, votes win and thus are very important to trading and traders. Traders are short-term players profiting from the price swings and volatility. Long term, weight wins and thus becomes most important to investing, investors, and the growth of value.

Without doubt, amateurs including many mom and pop investors, can and do panic in market swings. However they are not alone. The professional herd, who control most market volume, keep them in good company. So called pros panic every bit as much.

My purpose is not to debate who panics and when. Rather I want to point out the reality that is present in the stock market. To invest well and understand the markets you must understand market behavior. If you are investing, invest, don’t behave like a short-term trader. Traders don’t invest, they seek to profit by trading market swings.

Understanding market behavior depends on your perspective. Short term the market is a noisy emotion dominated cauldron of roiling action. Long term only the cold hard truth of facts and logic matter. You can choose to play or not to play, either game. The short-term volatile trading game or simply and calmly learn to invest for far greater long-term profits.

Amateurs and professionals

Professionals in the market, and self-serving insiders, regularly like to suggest amateur small investors cause the volatility and emotional market swings. The implication being that out of ignorance these poor uninformed beings panic sell and buy. That is absolute nonsense.

Certainly daily trading reflects some effects of immature and imprudent market behavior by amateurs. However, the volume traded by such amateurs accounts for a small percentage of the total market volume. Most market volume remains in the hands of professionals. Those, according to market myth, that know what they are doing.

There are plenty of well seasoned professional players every bit as guilty of panic trades and ill-advised behavior. They both profit and suffer losses from bad short-term behavior as much as everyone else does in the market.

Market Mind Games by Denise Shull educates traders

Knowing how the market works helped me avoid selling in a panic!

Knowing how the market works helped me avoid selling in a panic!

Market Mind Games is an excellent book that points out that this behavior is not a problem but an opportunity for traders. Denise Shull, authored Market Mind Games. This astute woman turned such observations and far more trading psychology research into an applied neuroscience practice. She trains traders and decision makers in risk-taking prowess. Anyone serious about trading for a living must consider this powerful training.

Available at:

That big league stuff gives serious full-time professional traders a powerful edge. This is not a suggestion that the typical small investor needs such training. You do not.

Trading drives short-term market action

Trading, not investing, drives the market short-term. Price movement, any price movement, drives trading. So the volatile trading behavior feeds on itself. You, I and millions of small investors have little to do with it.

However when we see it, it certainly affects us. So we need to know what it means and what to do about it. There is far more to life than money; but in the market there is only one thing – money! The pursuit of money drives all market behavior.

Big traders have big market influence

Just as you give more attention to the biggest customer or client in your work, stock markets pay most attention to those who trade most. Those trading thousands of times a month get far more attention than investors trading no more than a few dozens of times a year.

The more active traders certainly generate far more fees and trading revenue for markets. So professional traders can and do get things their way. They do pay far more in fees for their high volumes of trading.

Knowing, thinking and a few calculations will help you base portfolio decisions on facts.

Knowing, thinking and a few calculations will help you base portfolio decisions on facts.

Don’t bother complaining that the playing field is not level. It tilts to favor traders. It is not going to change. Those who pay and profit most, like it the way it is. So get used to it.

This is nothing new. Just accept it and learn how to play in this environment and you will be fine.

Learn and play the small investor advantages

Don’t waste time and energy getting angry or put off about the tilted market table. Rather learn and play the huge advantages of the small investor!

We will discuss these huge advantages in the following blog posts.

For today, your takeaway: know the market tilts to the big players. It is not an evil plot. Rather normal human behavior. Knowing this lets you avoid losses and can open the doors to profit.

That knowledge makes you a more formidable investor. Used well it can make you a more profitable investor. Knowing you can turn common market behavior to your advantage gives you one more way to grow your financial security and enjoy retirement comfort.

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Have a prosperous day!


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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact © 2014 Bryan Kelly

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