When it comes to investing, there are two basic ways of thinking. The opportunistic thought process and the strategic thought process.

Opportunistic vs. Strategic Investors. Which one are you?

Opportunistic investors are always on the lookout for the next hot stock hoping to make lots of money from the current big thing. If they think they can make money from it, they jump in. If they hear some “guru” or investment “expert” talk about it, they buy. They let their emotions, specifically greed, rule their actions and the only question going through their minds is, “can I make money quickly with this stock?”

So they end up jumping in and out of different stocks based on hearsay and little else. They generally don’t know much, if anything, about the company in which they just purchased shares and certainly don’t do any research on whether the company has a solid future based on its earnings history or whether it’s overpriced, underpriced or fairly priced.

At the slightest whiff of another hot stock, they dump the old one to make room for the new. They’re always asking themselves, “what’s the easiest way for me to make money right now?”

Strategic investors, on the other hand, are completely different. These investors have a defined goal of what they want their portfolios to achieve. They have a clear vision of whether they will need the proceeds in 5 years, 10 years, 25 years or longer. And because they have defined their goals and a have a specific timeframe, they can implement the correct strategies for achieving their goals.

After analyzing each strategy and reviewing the upside and downside risks, they select the strategies with the highest probability of allowing them to reach their goals. The strategic investors know their biggest advantage is to consistently follow their plan, regardless of what the markets are doing, rather than mindlessly chasing the latest hot stock everyone is currently touting.

And therein lies the rub. Strategic investors are orders of magnitude more likely to make money in the stock market than their opportunistic counterparts. Why? Because opportunistic investors have no plan. They have no set buying or selling criteria – if they hear about, “the next big thing,” they buy it. When they get scared, they sell – usually at a much lower price.

Strategic investors, on the other hand, only purchase a stock if it will help them reach their goal – will this stock make their portfolios safer? Will it work synergistically to increase returns? Will adding it produce a portfolio superior to what they currently hold?

And here’s a fact. The overwhelming majority of people in the stock market are nothing more than opportunistic investors. They have no strategy, they hop from one stock or mutual fund to another and they have no overall goals or plans.

And since they don’t have a clear vision or any plans to follow, they end up buying into just about anything they hear on TV or on the Internet from anyone whose name they’ve heard before (can you say, “James Cramer,” or, “Henry Bloget?”) hoping that this will be their big chance to cash in on a stock that goes to the moon.

For some reason they ignore the fact there are millions of others listening to the exact TV channel or reading the same Internet article and doing exactly what they’re doing.

And they especially love the promise of the untold riches they can obtain in the stock market trading for a few hours a week while sitting around their homes in their pajamas. In essence they buy into the false promise of making loads of money with little or no effort.

Unfortunately, they will most likely fail to make any money and probably lose whatever money they put into the stock market in short order.

Think about it this way. If you were planning a trip to a strange city, would you simply walk into the city without a goal or plan and fumble your way around? Or would you put a plan into place, read about the best places to visit, the best places to eat, ensure it’s safe and look at a map of the city so you can plan your route in an efficient manner before arriving?

Most people would choose the latter and end up with a far better experience and lots less wasted time.

It’s the same idea when it comes to investing. So if you’re going to invest in the stock market, make sure you spend some time learning how to do it correctly and put an excellent, proven plan into place. And, whatever you do, don’t take advice from the so-called, “experts,” on TV. They’re there to entertain the masses and sell advertising space, not to make you wealthy in the stock market.

 

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