What you vs. the professionals know about Investing

Essay by GIgirlmelUniversity, Master's October 2006

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"Our performance has never been stronger; our business model has never been more robust..."

-----Kenneth Lay, CEO Enron

(Meanwhile, all the directors of the company were selling their stocks. Two months later, on December 4, 2001 Enron filed for bankruptcy, the largest Chapter 11 bankruptcy case in U.S. history. At the same time as the bankruptcy announcement, Enron declared that it was laying off 4,000 employees from its Houston, Texas, headquarters. By that time many employees had lost up to 90 percent of their retirement savings as Enron's shares plunged and millions of unsuspecting individuals who were advised to invest in a sure stock were completely wiped out without warning.)

So, you want to invest and don't where to begin? The majority of Americans know little to nothing about investing in the stock market. We don't know what the difference is between the NASDAQ or the S&P 500. And what the heck is an index fund? How much is a share? A share of stock is the smallest unit of ownership in a company.

But if you are like me, a low risk investor, you put a small investment in mutual funds where you are less likely to lose everything if a company falls in the red.

So what do professional investment analysts have to offer us when it comes to picking stocks to buy and sell? These "subject matter experts" usually have one thing in common. They pitch (recommend) stocks that they themselves have an investment in...so of course they stand to gain from this "hot tip". "For example, some analysts work for firms that underwrite or own the securities of the companies the analysts cover. Analysts themselves sometimes own stocks in the companies they cover--either directly or indirectly, such as through employee stock-purchase pools in which they and...