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Conventional Wisdom

conventional_wisdom_2Conventional wisdom is defined as: the generally accepted belief, opinion, judgment, or prediction about a particular matter.

Conventional wisdom is almost universally agreed upon by everyone that it rarely gets questioned, even if sometimes the belief isn’t really true.

The conventional wisdom with regards to investing is to buy and hold great companies for long periods of time so that your portfolio compounds with capital appreciation and dividend re-investment.  This approach has strong validity and is best exemplified by Warren Buffett.  He has the long term returns to prove it.

But it may not be for everybody, or else everyone would have invested like Warren Buffett.  Very few have the right skill set to buy-and-hold and be successful like Buffett, or be successful for decades.

In short term trading, the conventional wisdom is enter stocks at pivot points, trade small and cut your losses and let your gains run, and use risk and money management.  Very few can succeed with the short term trading approach, due to lack of skillset or lack of discipline.  Also, in the short term, the market fluctuates too much so that stoplosses get frequently hit.  Even if successful, it is doubtful many can beat the returns of buy-and-hold investors in the long run.

Another conventional wisdom is that in order to get bigger returns, one has to dramatically increase risk.  Like getting into leverage instruments such as options, futures and penny stocks.  Very few can succeed long term via this route, mainly due to the extreme risk factor.  

One can go through a lifetime or even several lifetimes and still cannot get through the stock market dilemma and confusion.  For many people, only through a paradigm shift in thinking and approach can they increase their chances of  market success.

A paradigm shift is a change in accepted theories, opinions or approaches, a step above and beyond, and is almost always better than the conventional wisdom.  That’s why it’s called a paradigm shift.
 
The question is:

Is there such a paradigm-shifting stock market approach out there?

17 stupid statements bulls make to deny a bear recession

March 1999: Harry S. Dent, author of “The Roaring 2000s.” “There has been a paradigm shift.” The New Economy arrived, this time really is different.

October 1999: James Glassman, author, “Dow 36,000.” “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced … it’s not a bubble … The stock market is undervalued.”

August 1999: Charles Kadlec, author, “Dow 100,000.” “The DJIA will reach 100,000 in 2020 after “two decades of above-average economic growth with price stability.”

December 1999: Joseph Battipaglia, market analyst. “Some fear a burst Internet bubble, but our analysis shows that Internet companies … carry expected long-term growth rates twice other rapidly growing segments within tech.”

December 1999: Larry Wachtel, Prudential. “Most of these stocks are reasonably priced. There’s no reason for them to correct violently in the year 2000.” Nasdaq lost over 50%.

December 1999: Ralph Acampora, Prudential Securities. “I’m not saying this is a straight line up. … I’m saying any kind of declines, buy them!”

February 2000: Larry Kudlow, CNBC host. “This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy.” He’s still hosting his own cable show. (more…)