The Stock Market Industry Is A Hype Machine

I bought my first stock in the late 1980’s. There was no Internet then. I went downtown to a broker’s office, sat down with him, explained my investing situation, watched him take my personal information, and then wrote him a check for the amount of money I wanted to open my first broker account with.

From that point on, every time I wanted to either buy or sell a stock, I would have to pick up the phone, call my broker, and tell him (or an assistant) what trade I wanted to make. He would then put me on hold and come back in a minute or two (assuming the stock market was open) and tell me what price I got. The cost for each trade was somewhere in the ballpark of $39 and those were 1980’s dollars so they were worth more then than they are now. 

The Internet Changed The Stock Market Industry Forever

At $39 dollars a trade combined with the time it took to make the phone call, most investors were buying stocks with the intention of holding them for years. Full service brokers where more prevalent then and they charged even more per trade because they gave investing advice from their professionals as part of the service. Buying stocks was something a person did very carefully because it was expensive and making a lot of trades could really bleed your account.

Then the Internet came into being and that completely changed the stock market industry.

Online stock broker companies sprung up and what the Internet allowed them to do was to let people make trades much more cheaply and easily. You could now trade a stock for under $5 and open an account online from your home. Buying stocks suddenly required only a few clicks on your desktop computer keyboard and that, combined with the low costs, led to the popularity of day trading. 

Even if you weren’t a day trader, buying and selling stock shares was so easy and cheap that it naturally led people to make trades more often. Its more exciting to be actively buying and selling rather than buying and waiting for a stock to go up. THAT was something the industry absolutely loved. 

The Cable Media Also Transformed The Way We Think About Stocks

Cable business shows sprung up around the same time. You suddenly had CNBC and Bloomberg putting out business and stock market news 12 hours a day. Reporters reporting live from the floor of the NYSE and NASDAQ combined with good looking anchors beamed the market into everyone’s living room and made it mainstream.

Along with the new television coverage came the emergence of the pundits, analysts, experts, or whatever you want to call them. With so many television hours to fill, what could be better than “experts” giving their stock picks? That led to the charismatic analysts getting more airtime and becoming minor celebrities, at least in the world of stocks.

Jim Cramer then burst on to the scene with Mad Money, a show that still lives today. Cramer tries to make the market seem fun and initially targeted the young crowd with his over the top antics. His Lightening Round segment makes it seem that a stock can be a “buy” today and a “sell” tomorrow. How can any one person really have enough information to recommend for or against that many stocks on a daily basis? The answer is they can’t.

Internet + Media = HYPE!

Today, investors need to understand that there is a high level of hype surrounding the stock market. Everywhere you look, you will find stock picks and opinions. They are on television, radio, newspapers, magazines, and absolutely all over the Internet.

Additionally, many Internet stock IPO’s get a ridiculous amount of coverage and hype. Just think about Facebook, Twitter, and the inevitable Pinterest stock IPO that will most likely take place in late 2014 or early 2015. The media whips up a buying frenzy in those situations whenever it can.

The whole system is set up to try to get you to trade now and trade often. Analysts and pundits are always talking about next week or next month or right now when they analyze a stock. You hardly ever hear about how a stock might do a year from now or longer. Its not cool to be thinking long term anymore. You’ve got to be actively buying and selling stock to be a good investor they would have you believe. Dow Chart Do you see all the red and green lines on the bottom part of the graph? Those are the volume numbers of shares traded and you can see those started spiking up around 1999 which is about the time the Internet and online trading kicked in. Before that, trading was slow and steady but with all the hype surrounding the market starting with the Internet, trading volume went through the roof. People switched from being investors to active traders. 

In 2014, the whole industry around the stock market is now set up to get you to become an active trader. The more you trade stocks, the more money goes out of your pocket and into the Wall Street machine. Resist that urge as best you can because your chances of making money increase if you look for stocks you can hold for longer periods of time. Find stocks that have good balance sheets, good management, good products, and then buy those stocks with the intention of holding for at least a year. 

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