The Third Pig

http://www.brickfinancial.com/thethirdpig/archive/2011/10/please_do_your_own_homework.html

Posted by Ben Taylor on October 25, 2011 05:00 PM

I am writing today just to vent about a pet peeve of mine, two in fact. One of my pet peeves is when folks make uninformed declarations about any topic. I mean folks who take a position, an important position, with no qualified information, research or experimentation to back up their claim or position.

We see this all the time, especially when taking political positions. Someone takes the position that they don’t like or don’t care for the President (whomever the Prez happens to be at the time). When asked why they don’t like the President, the person lists so-called actions the President or his administration has taken. But many times the information they have is completely erroneous. What we find is that often times, the person had no idea what they were talking about and resorted to pulling so-called information out of the air.

The other pet peeve I have is when someone takes a position or makes a declaration based on very little information. This person, unlike the previous, has actually done some study. But that so-called study is so lacking thoroughness and depth, no rational person should or would ever draw any serious conclusion from it.

When it comes to investing both these approaches are not only bothersome to someone with my inclination for checking and cross-checking, it can be dangerous to the investor himself. Today I was perusing the CNBC website and noticed two articles about technical analysis. According to Investopedia, technical analysis is “A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.” However, anyone who has ever seriously studied the record of technical analysis knows it is of little value.

source: CNBC. Click picture to enlarge.

But that’s not what caught my attention on the CNBC site. Notice the headlines of the two articles circled in red. Each gives a totally opposing outlook of the future and both credit technical analysis as the method used to make the conclusion. Now an amateur investor, who is confident (falsely) but who isn’t necessarily vigilant in his research, might read either article and take a stance on the market that’s really ill-informed. Thus dangerous to his portfolio.

Venting over.

But here’s an approach I think is sound when it comes to investing on your own:

1. Don’t pay attention to the talking heads in the financial media.


2. Have some grounding in basic accounting.


3. Exercise a “lazy” approach.


4. Do your own research and make a habit of cross-checking your sources.