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What my 2 year old taught me about investing

March 17th, 2006 at 10:17 pm

Why are the actions of institutional investors so important? Because they conduct about 75% of the transaction volume on the market. With that kind of clout, what the little guy does is of little consequence.

Look at it this way: When my oldest child was 2 years old, he would turn his sippy cup over and then smile at me and say, "drip, drip". Then a little bit of milk would come out and the "maid and butler", my wife and I, would get the honor of cleaning up the little messy trail left behind. One day at dinner, this happened and I was not paying attention, just thinking about another one of those little puddles to clean up when I knocked over my own glass of milk, making a huge mess everywhere. Then he giggled and said "flood".

Thatís what it is like when thinking in the institutional mindset. The big players can make a huge mess out of things when they start selling and flood the market with their large transactions. The little guy just has his milk cup like portfolio.

The easiest way to tell what is going on with the institutional investors is: focus on the dialy volume on the major indexes. High volume means the institutions were busy that day. The volume reading is also a great way to gauge the strength of the market when it is on its way up.

1 Responses to “What my 2 year old taught me about investing”

  1. Carla Says:

    Children always are able to teach us much more than we teach them if we take the time to look at their lessons. Loved the post. Thanks!

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