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Today, I'd like to ingrain in you the importance of adopting the right beliefs about the market.
Now, I know some of you won't be able to hear this ultra-important message.
That's because your belief is that making money in the markets is all about numbers and indicators and that things like mindset and discipline are not important.
But nothing could be further from the truth.
The more I work with great traders and new investors alike out there, the clearer it becomes that market beliefs and trader mindset are what set apart the "thrivers" from the "strugglers."
I've always liked the statement that we don't trade the markets, we trade our beliefs about the market.
But it only covers part of the picture.
Even more important is that you have beliefs that actually reflect how the markets work.
And to illustrate that point, I want to share a fun experiment with you today…
One belief that every investor has to overcome is that market movements are random.
This concept is rooted in the long-held belief that all market participants have perfect information and that they all act rationally – all the time.
Here at The 10-Minute Millionaire, we know that's not true. We know that investors fall prey to their emotions constantly and make irrational decisions that we can then profit from.
But we weren't the first ones to test the theory.
In 1988, The Wall Street Journal began a contest that was inspired by Burton Malkiel's book "A Random Walk Down Wall Street."
In the book, the Princeton professor theorized that "a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts."
The WSJ set out to create an entertaining contest to test Malkiel's theory and give its readers some new investment ideas in the process.
Here's how it worked…
No Monkey Business
WSJ staffers, acting as the monkeys, threw darts at a stock table, while investment experts picked their own stocks.
Interestingly, the WSJ actually considered using real monkeys for the dart-throwing task, but the cost and liability issues nixed the plan.
The rules changed modestly early in the contest, but the bulk of the results fell under rules that are as follows…
Each month four "professionals" were given the opportunity to select one stock (long or short) for the following six months.
The stocks had to meet the following criteria:
- Market capitalization must be at least $50 million
- Daily trading volume must be worth at least $100,000
- Price must be at least $2
- Stocks must be listed on the NYSE, AMEX, or Nasdaq, and any foreign stocks must have an ADR
And after 100 contests, the results were in.
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.