Who Cares What That Billionaire is Buying

In regards to Wall Street, there is no other place that rumors run wild with abandon. Only a novice trades on rumors. Real professionals trade on fact. Successful traders only take trades that fit within their own strict criteria of risk vs reward. In the news that one billionaire guy just bought $10,000,000 worth of XYZ stock says your buddy. Your buddy follows suit and buys all he can of XYZ company only to watch his investment go to zero. This is a classic sucker play.

This is a scenario that has repeated itself since the beginning of Wall Street’s history. So many things are wrong here. Do you know when Mr. Billionaire is going to sell? Probably not. The news will not tell you. How large is that position relative to Mr. Billionaire’s net worth? Probably very little.

Often times the wealthy can afford to take these positions that are news worthy. While it may seem they have conviction in their investment, this may not be entirely true. $10 million dollars can be a drop in the bucket for some billionaires. $10 million might be only a risk of less then 1% of their total portfolio value. Once thing is for sure, the wealthy can afford to take risks like this because it’s insignificant to them. What looks to us like conviction, is most likely caution.

It’s easy to interpret things in the wrong context. News media often fails to disclose some of the more important factors when it comes to stocks trading. Media’s purpose is to get you to read their article, and many of these media outlets are less that experts in the the field of investing. Don’t fall for the hype. Do your own homework.

Following rumors is not a trading strategy. It never was. Develop your own system of investing and you will be in the game longer that 90% of the population. Always keep in mind the what you are willing to lose, and make it a hard number. Make it a rule, and never deviate from it. New traders have a tendency to stray down this destructive path, and usually they never recover. Don’t be a noob.

Some of these headlines are hard to ignore. They are designed that way, to draw you in. It’s your duty to investigate further about the situation. There are plenty of resources on the internet that are free. Research the company’s well being. In the end you will do the right thing. Only do what makes logical sense. Just because a billionaire invest $10 million in a particular stock does not mean you should bet your whole bankroll in the situation. When reading those headlines part of the battle is separating fact from fiction. ¬†Always do your homework, and manage your own risk levels according to your criteria. Wall Street is the greatest game out there. If you want to keep playing, survival is the key goal.

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