How to Manage Investment Advice

This column was originally published on RealMoney on Nov. 14, 2007 at 2:45 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

When it comes to financial commentary and investing advice, sites like RealMoney can serve as a catalyst for new ideas and solid market commentary. However, investors still need to have their own set discipline for managing money in their own accounts. Then they will be able to use our commentary as a guide but ultimately make their own independent decisions.

Let's discuss investing advice, what to do with it and individual responsibility for a bit, then take a look at what this market is up to.

How to Read the Pros

I have been amused by the columns that I've been reading on RealMoney where Jim Cramer has been talking about the criticism that he has been receiving about his calls on the market and stocks. Then there was a very good column by Helene Meisler where she talked about her readers being annoyed with her because her timing for a rally was off by a few days.

Jim made a good point about the difference between professionals and amateurs and how the thought process is often completely different when it comes to buying and selling stocks. This analysis is very accurate, because we know from studies that the average investor buys stocks when they are being pumped by the financial media and sells them when the same stocks often hit their lows.

The reason for this is psychological, and it falls back upon our greed/fear response. Investors do not want to miss out on a hot stock when all of their friends are making a ton of money. So as they continue to hear about how a certain stock continues to rocket upward, they often make their buying decision right at the top. Then, when the market corrects and those stocks start spiraling downward, they often sell right at the bottom.

That is why Jim made the point that buying when things feel like they are absolutely at their worst often turns out to be a brilliant decision. As I said, non-professional investors have to view advice like his as advice alone. And as stated above, they must take responsibility for their actions.