Grow Your Nest Egg Even With Contrarian Markets

What Makes Stock Markets APPEAR Contrarian?

If you look at the stock markets, I mean really study them and compare them to what people around you are saying, they appear to do almost exactly the opposite of what people think they will do. When everyone is talking about how the market will ignore this bit of bad news because Company A had a great quarter and Company B announced a larger dividend, the non-farms payroll number is looking good and most everyone who wants a job can get one, so things are pretty good and the markets will go up more. But the market starts to drop. Why is that?

The Market and The Economy

First of all it is important to know that the market has nothing whatsoever to do with the economy. The market has to do with the buyers and sellers. When there are lots of buyers the market goes up and when there are more sellers than buyers the market goes down. So it would seem that when the economy is doing well then there should be more buyers. What you may not realize is that there is a finite pool of money to go into the stock market. It is large but it is still finite. When almost all of that money is in the market, there are no more buyers.

Now that is simplistic as there are always buyers and sellers, unless some sort of panic sets in, or euphoria. I am sure we all remember 2007 the housing bubble had obviously burst. Pundits, that is those who talk about things, were telling us that would not affect the stock market. Then Lehman failed and suddenly all the banks started failing. Panic set in and everyone wanted out of the market and right now. There were no buyers and even big institutions like Hedge 'funds and Mutual Funds had to sell in order to meet redemption's. Suddenly it was a rush to the bottom and it was not until the end of 2008, early 2009 that the market's blood letting began to slow.

What Insiders Know

But in 2007 when this began, the economy looked like it was doing fine. Everyone was euphoric as market has done nothing but go up and up. But everyone was fully invested. There were no large pools of money sitting quietly on the sideline waiting to come into the market. If you had been looking, some of the smart money had started to pull out. Insiders were selling. You see people at the top of these huge public companies have to be able to predict what their companies are going to do 6-12 months out, at least. So they see data unknown to the average investor, in the lingo these average folks are called "amateur" investors. The sophisticated investor knows enough to look and see what the insiders are doing. He also knows enough to see what the amateur investors are doing as they invest predictably. They are always late to the party. So they get into the stock market after most of the big moves upward have been made. So when you don't find much money in term deposits or government bonds, you know the amateurs are in the market. So who is going to come and buy at the next rung up in the price ladder? Perhaps there is no one, so you know that it is time to get your money out. Everyone is talking about how great the economy is and how well the companies are doing, but maybe the troubles just have not shown up on the balance sheets yet. (This has nothing to do with insider trading which is illegal. This is just specific knowledge about the economy and how it is going to affect their industry, and while it is available to everyone, it is not understood by everyone. Illegal insider trading is done when people trade based on knowledge that is not known to the public and which if known would be likely to affect the price of that stock.)

So when things are looking terrific and no one sees a cloud, head for the exits. Markets always cycle and when you are running out of buyers, as everyone has already bought, there really is no where to go but down. You just have to know what to look at.

Then in 2008, after the market had tanked, and long before anyone was even suggesting out loud that it might be time to go bargain hunting,as there are always good companies with strong balance sheets that get hurt in panic moves down, the insiders started to buy again. The sophisticated buyers were saying it was time to put on ladders of good until cancelled orders so they started to accumulate some of the quality stocks that had been pushed down with the herd. It was about March, 2009, before the rest of the market players started to catch on that the worst was over for the time being, So you hear people talking about March as being the turn around but there were lots of stocks, and ETFs (Exchange Traded Funds that often represent sectors of the economy) that had turned back upwards in November and December 2008.

Certainly the economy had not started to pick up at all, unemployment was rising and continued to rise through most of 2009. So if you really want to be successful at stock trading, you want to grow your nest egg and not get wiped out by the crashes, follow the smart money. You can check on insider trades by going to J3SG (dot) com Don't just check on the stock you might be interested in but check all the related stocks. If you are looking at ETF's find out which stocks are included and check all of them.

Never mind what the talking heads are saying. Their job is to entertain you, not to advise you on growing your retirement account. Find out what the insiders are doing with their money, and follow their lead. When they buy, consider buying and when they sell for heavens sakes do likewise. Your nest egg will grow larger if you just do this one thing, follow the insider's lead.

Jason Mansfield is a stock trader who wants people to be able to safely grow their nest eggs regardless of the stock market's behavior.