Don’t mess around with Jim. Don’t spit into the wind. Don’t pull the mask off the old Lone Ranger. And don’t bet on individual stocks to fund your retirement. All of these statements are true. There are many risk areas associated with individual stocks. Here are just some: the strength of the competition, international events, innovation, the general economy, the competency of management. But the biggest and most misunderstood risk is “institutional money managers”. Billions of dollars flow through thousands of money managers daily. When they buy, stock prices usually increase depending on everything else being equal (and it seldom is). When they sell, just the opposite happens. Computer programs automatically generate “sell orders” when a specific price target is achieved. If managers bought at $20/share and their target sell price is $40/share they will abandon the stock at $40/share regardless of its general price movement. Unfortunately, the individual investor uses this very same price movement as the basis for buying the stock. You know–if it’s been going up for a while this is the time to buy–right? Wrong! We won’t suggest what to invest in but we want to make you aware of the institutional buyers and sellers. They can destroy well-thought out investment strategies. Think at least twice before leaping.
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