They're Just Pieces of Paper

For those who are new to the market, and trying to pick stocks, one of the most difficult things to grasp is the separation between a company and it's stock. People generally think that stocks trade in tandem (more or less) with the way the company moves: the comany's doing well, and it's stock goes up (and vice versa).

But for those of us who spend our days staring at those quote screens, and researching the next big trade, we know this is far from the truth. Those stocks are just pieces of paper, and nothing more. Their value is loosely based on a fractional percentage of what the milions and millions of people out there providing liquidity in the market feel the underlying company will be worth in a few years.

And that is one of the things we must always remember when trading stocks. They are literally pieces of paper. Their value is far from being etched in stone, and can change at any minute at the whim of the masses. Stocks can be broken while companies prosper, and stocks can rise while a company falls. And unless you are taking a position on the order of hundreds of millions of dollars, don't ever say that you 'own a piece of the company.' Sure you do, in literal terms, but in reality, there is nothing you will ever get for that few hundred-share position if the company goes bankrupt. And no decision you ever make in a proxy statement will matter. It's always the big dogs running that show.

Keep emotion and devotion out of the game. You don't own a piece of the company, you just bought a few pieces of paper that you think should be worth more than the other few million people buying and selling it think it is. And even if it should be worth more than it's current pricing, it doesn't mean it ever will be. The market can stay irrational longer than you can stay solvent.