Wednesday, May 9, 2007

scary stock beliefs

Recently I met someone at a conference that was actively investing in stocks and believed the following to be true (which literally frightened me so much I couldn't stop thinking about it):

1. A stock splitting, basically means that you need to buy in quick because it is going up, and fast.

2. The price of a stock is indicative of it's worth. (for example: JNJ is $64 so why the heck would I buy that over PFE which is $27, JNJ is far too expensive)

3. Since a stock has gone up significantly in the recent past, then that, and that alone indicates that the stock will rise much further, and thus it is a great time to buy now.

4 comments:

FinancialJungle said...

LOL. I get that a lot too. The annoying part is it takes a long time to explain the right methods of valuing stocks.

moneygardener (AKA investor99) said...

I know, I found it a little frustrating.

Middle Class Millionaire said...

Although it's a little scary that people like that do handle their own money it does have some benefits for the rest of us, as it is partly people like that who cause the market to react irrationally in the short term...thus causing a buying opportunity for the rest of us.

Cheers,
MCM

Mr. Cheap said...

*grin* All of those are quite frightening! I have an uncle who wholeheartedly believes that "units" of currency determine the price of things (so if 1 pound in England is worth $2 Canadian, all of the prices will be the same and therefore in England things cost them twice as much).

I've tried explaining to him that currency conversions are a little more complicated than that and prices involve costs of production, transportation and marketting but he won't believe me.

Clearly in his crazy world we should do all our buying in Yen or Pesos.