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How to think about the stock market

Up one day, down the next, but is this really the way the stock market works? The answer is yes … and no! But here is one simple trick to understanding how the market works.

If we break down the investor types who operate in the stock market, you'll see mutual funds and pension funds are by far the dominant players. Institutions make up at least 75% of the volume. That makes sense since approx. two billion shares are traded every day on each of the Nasdaq and the N.Y.S.E.

Mutual funds and pension funds have hundreds of billions of dollars under management in a family of funds. That’s a lot of money for one organization and there are thousands of fund companies conducting analysis and executing transactions routinely. Many of them take a longer term approach, taking a big picture view in the management of their portfolios. Since they typically hold 150 stocks in an equity fund portfolio, the decisions they make apply to the entire portfolio encompassing nearly every sector in the market at the same time. If, for example, a fund manager thinks the economy is deteriorating, they will undertake selling a portion of nearly every stock.  

Mutual funds do not nibble away on buys and sells. Even a small fund won’t consider a buy in a stock unless they can acquire at least $250 million of the stock. Obviously, a position of any size requires buying in incremental purchases, sometimes over a period of years.

The reality is, stocks that are heavily owned by many mutual funds can go through a long period of selling, but never effectively bring their position to zero.  

Stocks that are the most desirable will outperform nearly every other stock in the market by a wide margin as bigger positions are acquired at a faster rate. In fact, the difference in performance amongst the top 10% of all stocks in the market versus the other 90% is huge.

Thornton Wealth Strategies and Investor Boot Camp Online spend countless hours screening the top indicators to produce a short list of the most likely big winners in the stock market.

When a stock blasts higher, is it hitting a new high in heavy volume? This is a tip off big money is piling into it. They’re not day traders, so even a modest decline over a period of months is acceptable to them. There’s a good chance they’re going to start adding to their position at a time they deem strategic based on their analysis.


Unbiased independent market analysis for investors who want to know what works. For free discussion about the market or your portfolio please contact to set up a time.

More on how to lose money in the stock market

Letting a stock fall further below your purchase price is the number one way to lose money in the stock market. That’s obvious, but there’s more to this, challenging investors who pick their own stocks.

At Thornton Wealth Strategies and Investor Boot Camp Online, the number one rule for investment success is sell losers before the loss gets large. However we have another number one rule. Buy right!

Buy Right!

Executing sells on stocks falling below the purchase price is a practice that separates the great investors from everyone else. But this won’t keep the portfolio from potentially losing a lot of money, if buys fail one after another.  

Our observation of investors, including investment industry professionals is the decision making on stock selection is essentially all over the place. It’s also surprisingly speculative given the level of work some investors put into their research process.  

We didn’t invent the winning investment process, but we have organized it to empower investors to manage their own portfolios like a business. We also continue to study and refine analysis, strategy and communications, matching decision making to a higher level of reliability in buying, selling and holding stocks. Long term studies show, the most significant component in buying stocks is the location within the price trend. Here’s what it looks like.

In the chart below, the single session event referred to as the "break out", is the surge from the range. A range that features a decline of at least 20% from the high to the low is called a base (a price base). The break out marks the beginning, or resumption, of the uptrend following a period of base building that started with a downtrend.

The challenge for many investors is to get their head around buying a stock that is not only significantly higher than it was, but may in fact be at a new high. Much can be said about this, but consider big investors are loading up on a stock during a break out. Those big investors aren't day traders, and history shows they add to their position over time. If they like it, why wouldn't you?


Investors may travel the road of success by studying the online resource at their convenience. An entire section is devoted to the analysis and interpretation of bases. The most successful investors continue their learning over the long term, even if it’s just five minutes once in a while.

Here are other entries in the series on how to lose money in the stock market.

How to Lose Money in the Stock Market.


Unbiased independent market analysis for investors who want to know what works.

How to lose money in the stock market

If you want to lose your shirt in the stock market, it’s easy. There are many ways you can do it and whichever way you might choose, you won’t be alone.  

#1 Cause for losing money in the stock market: Riding Losers Lower

The obvious way to lose money is to hold a stock that is below your purchase price and continues to fall. Clearly that will erode your capital. The affect is compounded when the entire portfolio rides the stock market lower in a correction, or worse, the dreaded bear market. Mutual fund investors will remember the credit crisis in 2008-2009 when mutual funds suffered their worst performance in history. But wait, there’s more!  

It’s true the stock market goes down sometimes, but ultimately what underlies the damage to investor portfolios are the decisions investors make. Consider this;

The ability to change your mind, is one of the best traits a successful investor has!

Easy to say, but it’s another story to actually sell a stock you have a loss on. Here’s a strategy I developed to assist investors in this situation. Here’s how it works;

Sell the stock and immediately place an order at a lower price to buy the stock back. Subscribers use a template for determining what the buyback price is. The process may be repeated in the event of a deeper decline.  

Rather than attempt to erase the attachment to the stock, an investor stays focused on the stock, keeping it in play for them psychologically.

This strategy is quite effective for building profit from our screens for the stock market’s highest ranked stocks. By selling them early in pullbacks, the top ranked stocks are targeted for buys at a lower price. Using the template for establishing the new buy price, the number of shares in the buy order is increased by the percentage spread between the sell and buy price.  

Other tactics that don’t work in the financial markets will be addressed at another date.


Unbiased independent market analysis for investors who want to know what works in good and bad markets. Email for a promo code to set up a free subscription to the premier online investor research resource.

Market action to ponder

Here is the latest on the markets.

  • U.S. and Canadian stock markets have had a good run. How long will it last? The end is likely closer than farther away.
  • Mutual funds have done well in 2014. In fact, the relative performance of mutual funds has been better than normal versus alternatives such as stock picking. Many inferior equity market sector E.T.F.'s have also done well. Sometimes investors get lucky, but unfortunately luck doesn't last long in the financial markets, especially the stock market. Mutual funds are on the verge of entering a period of lackluster performance.
  • When will big investors who made seed investments during the credit crisis cash in?

Stock Action

Bigger and boring companies have been the leading performers in the stock market's current rally. Many of the hot growth stocks remain entrenched in deep corrections with bearish longer term implications.

Commodity Markets

  • Nickel is the best performing commodity market. It is currently in a consolidation after a surge from the February low. iPath Dow Jones-AIG Nickel ETN (symbol JJN) is how investors may participate in the nickel market.  
  • Gold and silver broke down recently with implications for trading in a range, at best, in the near term. Most commodity markets remain in 3.5 year bearish declines.


Unbiased independent market analysis for investors who want to know what works in good and bad markets. Email for a promo code to set up a free subscription to the premier online investor research resource.


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Commentary including ideas, historical and other market indications are not investment advice. Statistics and other data may be from other sources and may be inaccurate or incomplete. See Full Disclaimer.

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