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Avoid These 3 Pitfalls to Book Fall Trading Gains

A scorching August helped push the S&P 500 to new all-time highs.

Yet as we kick off the fall trading season today, I suspect more than a few bears will creep out of the woodwork. They’ll happily remind us that September is historically one of the more difficult trading months of the year. A market shock might be waiting right around the corner…

It’s true. The S&P 500 has finished September trading in the red more than any other month, MarketWatch notes, posting an average loss of more than 1% over its lifetime.

Does this mean we should close out our trading portfolio and head for the bomb shelter? Absolutely not. In fact, that’s a terrible idea.

Remember, the market pundits they drag out in front of the camera on the financial news don’t have your best interest in mind. Most people have no idea what they’re talking about.

That’s why I’ve identified three stock market forces that are screwing you out of winning trades — and how to steer clear of them:

1. The Financial Media

Nothing’s better than a finance reporter if you want to make some money. Just do the opposite of whatever he says.

Don’t get me wrong, there are some great columnists and bloggers out there. But finance reporters — whose main job is to make up reasons why stocks are up or down on any given day — have no idea what’s actually driving the market. Don’t buy or sell based on what they say.

Think about it. By the time a major investment theme hits the newsroom, it’s probably too late to hop onboard. Plus, reporters are susceptible to prevailing investor emotions. If the herd is worried, the media’s worried. If investors are crazy bullish, so are the journalists.

Oh, and did I mention they’re mostly clueless when it comes to trends, the main drivers behind Wall Street’s winners and losers?

Don’t believe me? Just check out this Barron’s cover from 2012:

mag-cover

If the headlines attract eyeballs, they’ll print it. Doesn’t matter if it’s good advice, bad advice, or no advice at all.

2. Analysts

Yes, you read that correctly. Analysts, the professionals who rate stocks as buy, sell, hold, overweight, underweight, neutral, and a ton of other nebulous designations, aren’t going to help you pick winning trades or investments.

Why?

Because analyst ratings don’t mean jack, especially when it comes to bigger stocks that command a ton of coverage. These analysts have only one task: don’t stray too far from the pack. Don’t make any bold statements. And certainly don’t swim against the current. Analysts can lose their jobs if they stick their necks out.

Whenever you see a popular stock begin to crash, analysts start popping up out of the woodwork defending their bullish price targets.

Ignore them!

While they’re trying to save face, the stocks will probably continue to drop. Whenever you see analysts mount a staunch defense of any company, it usually means it’s a good time to cut and run. When they finally capitulate and lower their price targets or tell you to sell, you could (eventually) have a nice buying opportunity.

3. Fund Managers

According to a recent study, active fund managers who outperform their benchmark in one year usually don’t post similar gains in the following years.

“If you have an active manager who beats the index one year, the chance is less than a coin flip that the manager will beat the index again next year,” a senior analyst at S&P Dow Jones Indices writes in the report.

That’s why you should never scoop up a stock because some “smart money” fund manager is talking it up on television. Most of the time, when a money manager is talking up a stock, it’s because it’s one of his worst performing positions. They call it “talking your book” for a reason.

Again (and I can’t emphasize this enough) these guys are in it for themselves. They don’t give a damn if you make money or not. They just want their holdings to go up so they can keep their rich clients happy.

Investing is a war. These are the forces that want to pillage your brokerage account for every cent you have. Ignore them and you’ll have a fighting chance at banking some serious gains.

Sincerely,

Greg Guenthner

[Ed. Note: Send your feedback here: askgreg@sevenfigurepublishing.com – and follow me on Twitter: @GregGuenthner]

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO and Seven Figure Signals. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association and holds the Chartered...

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