Apprenticed Investor: Prepare for Battle

Want to know how fast these guys are? In his recent book, Running Money, Andy Kessler recalls a story about the run-up to the first Gulf War. Then-U.S. Secretary of State James Baker had flown to Geneva to meet with Tariq Aziz, his counterpart from Iraq, to see if a peaceable solution could be worked out: "Baker stepped out of the meeting and said, 'Regrettably...' Before he finished his sentence, oil prices spiked 30% and stock markets sold off," Kessler writes.

That's what you are up against.

Despite this daunting opposition, too many individuals step onto the field of battle with the pros with too little preparation. To carry the sports metaphor further, they end up receiving season-ending injuries to their investment and retirement accounts.

I frequently review these sorts of accounts. What I see causing most of the losses is simply an inadequate skill set. Some of the foolishness I see from the alleged pros is as bad as what the market "dabblers" have done. In the coming weeks, we will look at several things you can do to avoid the most common injuries.

Lawyers, Docs & Money

Consider this: If you have anything more than the simplest of tax forms, what do you do? You pay a professional to do your taxes. If you are accused of a felony, you get the best lawyer you can. Need heart surgery? You go to the very best hospital you can afford.

I put financial management right up there as a profession with medicine, law and accounting. Yet many people never even hesitate to take their hard-earned money, open an account and start trading.

Worse still is how nonchalantly these accounts get treated. Do you ask your friends at cocktail parties what's the best way to crack open a chest cavity, or which rib spreader they like best? No, you find the best heart man you can, and let him try to save your life.

It should be the same in the market, but it's not. People have committed months -- if not years -- of hard-earned income to investments based on cocktail party chatter, chat board rumors or astrologers. That's not what you call extensive due diligence. Idle rumor mongering in an online chat room is not the equivalent of hardcore, in-depth research.