The lessons of Wall Street rarely change. What does change are the memories of investors, which are notoriously short-term and seem to easily discard sound advice when a market mania takes hold.
Investors trying to make their way through the stock market’s thickets today could find much of what they need to know from “How to Make Money in Wall Street” by George Frederick, a 50-page pamphlet published by Little Blue Books in 1926.
It’s not easy
Despite the convenience of online trading, instant stock quotes, and cheap commissions, investors today need to remember that individual stock investing isn’t easy.
Buying and selling individual stocks requires personal qualities that include “courage, coolness, caution, judgment.” It is not a business designed for “people of very small means or lack of analytical powers”, Frederick wrote in 1926.
Investors won’t get ahead by heeding easily-available tips, whether from brokers in 1926 or talking heads on MSNBC in the current day:
“Tips and advice are worthless in exact proportion to their wide scattering,” he wrote. In addition, “Tips, if valuable, are usually stale when they reach the ordinary trader or the public.”
This advice predates the academic research which demonstrates that the market is information-efficient, meaning that any publicly available information is probably already processed into current prices.
Brokers, Frederick reminded his readers, are not market geniuses: “If he was so extremely able a trader he would not be a broker.” In other words, he would be off making his own millions through investing.
Buy at the bottoms
The same crowd psychology that worked through the bear market last year was in force back in 1926. Greed and fear are nothing new, and Frederick reminds us that we can use them to our advantage. “The time to beware is when there is a peak of optimism, and the time to open your purse is when everybody is imbued with pessimism.”
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.