And so, the most basic lesson of all is that you must do your homework rather than simply listen to the advice of others. The marketplace offers a cornucopia, but sometimes a few bad apples get mixed in.
It shouldn't be necessary to stress the point, since even range-free chickens use their inner resources to tell what is good and what is bad for them. But in investing, it still seems necessary to do so.
Most obviously, millions of small investors during the great expansion accepted the view that "experts" would tell them what to do, forsaking their own instincts, reasoning powers and willingness to do hard work.
The experts turned an old adage on its head. A good investment need not be in profitable companies filling an existing need, they advised, but can be in profitless concerns that aim to create new needs.
That can be good advice for shrewed professional investors willing to take an entrepreneurial risk, but in retrospect it is questionable whether such advice should be swallowed by small investors. But it was.
And, tragically for many small investors, it was accepted wholesale.
As the stock market advanced during the 1990s, the fortunes of ordinary Americans swelled the portfolios of professional investors, in large part through 401 (k) plans and pension plans.
During this time, direct investment in stocks by American households declined. Large numbers of competent individuals deferred to the wisdom of intermediaries -- professionals running huge institutional portfolios.
Various advisory services also multiplied, and rare was the investment letter writer who resisted the temptation to suggest that he or she could expose the guts of Wall Street and reveal its inner secrets.
There might be secrets there, and perhaps even treachery, but a very large percentage of what the "insiders" and the letter writers knew came right off the Internet, the same source that any small investor could use.
The Internet's factual information, and often worthwhile advice as well, was bountifully available and free to investors. And free public libraries offered classic investment tomes and other fine materials.
All this was there for the viewing, decision-making and potential profit of small individual investors willing to do their homework and, if they chose, develop an intellectual framework for listening to the pros.
What happened in the stock market's downturn is an old, old story of the amateur consumer versus the professional marketer. That realization, in fact, was the inspiration for the postwar consumer movement.
Back then, however, consumers knew relatively little about the marketing skills employed by the professionals. Now they do, the result of a proliferation of consumer books and magazines, and now the Internet.
It's a massive amount of information, and its available to anyone willing to do their homework. To their credit, the promoters and sellers do theirs, and the consumers can emulate rather than simply rely on them.(c) 2001 Associated Press
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