Let’s not bullshit each other: we all love money, and want as much of it as possible. Deep down inside, we’d like to roll around every day in a gigantic swimming pool filled with gold coins and thousand dollar bills, just like Scrooge McDuck and Bill Gates.
Now, you can actually go to the trouble of building a business and running it in order to make your money. But if you’re anything like me, you’d rather spend your days getting up at 11 AM, watching cartoons ‘til 2 p.m., and having no real responsibilities that don’t involve watching Mama’s Family recordings before your Tivo runs out of space and deletes them.
So what’s your next best option? Stock market investing—as long as you know what you’re doing.
Um—are you actually listening to yourself? We can’t all beat the market—that doesn’t make any sense! If there are people who beat the market, someone has to actually own underperforming stocks and underperforming portfolios.
“But,” you might counter, “the laggers are generally the ones who don’t follow the experts. They simply go about it on their own, and pay the consequences.”
How naïve are you! That’s exactly what Mr. “Buy My Newsletter” and Mrs. “Invest in My Fund” want you to believe. Why? Because they’re not going to be able to afford their Armani suits and Jaguars XJ6s if you think you can do it on your own.
But in reality, they’re not any different than some “psychic” consulting a magic eight ball. In fact, they’re more like a “psychic” using a broken magic eight ball.
Because Madame Stock Wizard might lie, but the numbers don’t. During the 1990s, the average professionally managed stock mutual fund earned an annual return of 13.9%, while the average stock went up 16.3% per year. In other words, millions of people paid 2.4% of their money per year for the privilege of losing that 2.4% of their money per year.
But then why do people keep on coming back to professionals? So they can say, “I can’t believe that fund manager bought that stock,” “I can’t believe that broker told me to buy that stock,” or “I can’t believe that analyst told me to buy that stock,” instead of “I can’t believe that I bought that stock “
But the truth is that 99.978% of professional money managers fail to beat the average blindfolded monkey. I’m not kidding you. A blindfolded monkey pointing to stocks in the Wall Street Journal will usually kick the crap out of a trained, experienced broker, mutual fund manager, hedge fund manager, or stock picking guru.
So what does that mean to you? Simple. You can put yourself ahead of almost all investors simply by getting a monkey and blindfolding him.
However, that strategy does have its disadvantages. For starters, monkeys usually don’t smell that great, and they’re liable to make a mess of your house. Not to mention the fact that even the Warren Buffetts of blindfolded monkeys sometimes have their off years. I should know. My best performing monkey from 1990-1999 advised me to bet half the farm on JDS Uniphase in 2000—and three years later… well, let’s just say that I ate a lot of monkey meat in 2003.
But if you don’t simply listen to your monkeys, how can you gain a market beating edge through some sort of strategy?
By making informed decisions based on PE ratios, price and volume changes, future earnings projections, and SEC Filings?
Get out of here with that crap! Do you think you’re the only one who knows that Company A has a PE ratio of 17, Company B is trading at a 52 week low, and Company C is supposed to earn 87 cents next year? Everyone and their mamma knows that!
As far as I’m concerned, you can take the results of your fundamental and technical analyses and flush them down the toilet—because they’re worth about as much as the other crap that flows through your pipes.
Why? Because there’s only one way to consistently outperform both the market and your monkeys on each and every trade: identifying and following the smart money. And by “smart money,” I more or less mean illegal trades based on inside information.
That’s the only way to beat the market through actual strategy. Everything else is 100% luck.
Now, blindfolded monkeys have an unusual ability to sense the flow of smart money, just like how dogs have an unusual sense of direction. But blindfolded monkeys are more like half dogs, half stubborn-guys-who get-lost-and-refuse-to-ask-for-directions-or-so-much-as-look-at-a-map—and as we all know, guys like that might head out from LA to Disneyland and somehow end up in a Tijuanan prison.
In order to guarantee superior stock market returns year in and year out, it’s necessary to find and follow the smart money. And you can bet your behind that identifying that money isn’t as easy as looking up a PE ratio or staring at a price and volume chart.
Suppose you come across a stock that seems clearly undervalued. Your first instinct might be to buy it. But the right move might actually be to short it. And why? Because there’s a good chance the insiders know something and are selling the hell out of it—and once the information is made public, your so-called Undervalued Company Inc. will look like the most overvalued piece of crap on the entire planet.
But how can you figure out where the smart money is flowing? … How should I know!? If I knew that, don’t you think I’d be rolling around in my own swimming pool of bills and gold, and not sharing the information with anyone who happens to pick up this book?
You really are naïve! Just consider the money you spent on this book to be an education in the ways of the world. And the next time someone says he can show you how to make a fortune doing this or doing that, just check your pocket to see if your wallet is still there.