A Few Observations I've Made Along The Way
Don't get lost in the herd.
There's a very common misperception that's been floating around for quite some time, first proclaimed by the great egg-head Eugene Fama, that the market behaves as if it's some sort of all-seeing, all-knowing, super-efficient intelligence, and that market prices 'fully reflect' available information.
This theory sounds a lot like a religion and could only have been dreamt up by someone like an academic. It predicates the belief that the whole is greater than the sum of it's parts (the parts being stupid individual investors).
[As an aside, this happened to be Alan Greenspan's philosophy and explains why he never saw the banking crisis coming. As I heard him say on television (with this dumbfounded look in his eye), "I made a mistake in believing banks and others would protect their shareholders and own firms’ equity."]
If you have board rooms full of idiots, Mr. Greenspan, or mobs on the street (even if it's Wall Street), then all you have are board rooms full of idiots and mobs on they street. Nothing more. They don't magically transform into a super-efficient and rational "market". Quite the opposite. Mobs tend to magnify everything that is irrational, stupid, and moronic in each one of it's members.
This leads me to my first basic and extremely important axiom for the individual investor:
THE MARKET, CONTRARY TO POPULAR OPINION, IS NOT
RATIONAL. IT IS A MINDLESS GREEDY MOB.
But how could so many intelligent analysts and economists have believed such garbage for so long?
The answer to this question naturally leads to my second basic and important axiom:
'SMART PEOPLE' ARE STUPID PEOPLE WITH GOOD PR.
This axiom naturally leads to my third basic and important axiom:
DON'T BE LED ASTRAY BY THE ADVICE OF EXPERTS.
Recessions Make Excellent Opportunities
The best time to invest is one in which everyone else is afraid to invest. In fact, the last 15 years suggest that the ONLY time to invest is during recessions and during the recovery from recessions. When investors are driven out of the market by fear, and stock prices are depressed, then it logically follows that you are nearer the bottom of the cycle. It's the time of greatest optimism and hope in the future.
Once a recovery has more or less run it's course, and bulls are solidly in control of the market, this is a good time to move your money into treasuries, bonds (i.e. OUT OF EQUITIES) until the next recession.
Track Few Stocks
It's best to track only a handful of stocks. Get to know them really well. Read their earnings reports and balance sheets. Read everything you can find about them from press releases, their website, analyst opinions, blogs, news sites, etc. Know them so well that you know exactly what future earnings reports, pr, and news articles means as soon as they are released.
From my experience, most investors invest for obscure or trivial reasons. They approach the market as if they were going to the casino. It's not a crapshoot unless you want it to be.