One of the hardest things to learn about investing, even for income investors, is that the examples only work on the past.
Books and Articles are About the Past
That is, when you're reading the books by investment and trading authors and they print those graphs and put in little arrows pointing to where the market made a top or bottom . . . that's not real life.
I'm not saying they faked their data, I'm just saying it's easy to find tops, bottoms, and trends in the past.
It's not so easy to figure them out in real time, while the markets are still moving.
Figuring out where they are now, where they're headed -- and why -- is a tough job.
The truth is, nobody really knows.
Market Traders Have to Understand This Principle -- or Go Broke
I recall the feeling of a light bulb going off in my head when I first read a commodities trader write on this issue. He mentioned a particular chart pattern in a particular commodity trading book, being used to illustrate a typical top -- and therefore encouraging readers of the book to selling a commodities contract at that point.
The trader mentioned he'd often seen such chart patterns. True, the commodity might go down in price, but quite often they then turned around and headed up again. What had seemed like a top indicator turned into just a bump in the trend a few days later.
In short, you followed the commodities guru author's advice at your own financial peril.
Nobody Really Knows Why the Market Goes Where It Goes, Either
Listening to the mainstream financial media and the investment news segments of the mainstream media is useless.
The market goes down, so it's blamed on "profit taking." Small wonder most people think everybody except them is making money in the stock market, because the worse the bear market, the more profits everybody is taking.
If the market goes up, it's because of some supposedly good news.
More likely both explanations are sheer baloney. The market went down because more people -- and to a very large extent that means mutual fund managers, hedge fund managers and other institutional traders -- put in buy orders than sell orders.
If they put in more buy orders than sell orders, the market goes up.
But their reasons probably have a lot more to do with how they want their funds invested than anything obvious in the news. They may have also been "loss taking" by selling off their losers.
Ignore the Chatter and Noise
You can't predict where the market is going -- next week, next year or next decade.
When the Dow Jones hit 14,000 in October 2007 you would have looked crazy if you'd told me it would ever break below 7,000 again.
But in March 2009, there it was -- below 7,000. And many expected it to go even lower.
And we have no guarantee it won't. I don't know. You don't know. Neither does anybody on TV.
So, You Have No Choice -- Accept It and Make the Best of It
Since you can't control or predict the market's direction, why not just invest for income, collect your checks and let the Dow goes where it will?
Income investors don't need to know where the bear market bottom or bull market tops are. They just need to keep on investing for income, and reinvesting for even more income in the future.
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