This book is not intended to tell you which individual stocks to buy or sell, but more importantly to suggest some key rules and insights that comprise an investment approach and philosophy which you, the investor, can use for the rest of your investment lifetime. In fact, some of your very own life experiences should come in handy when considering a potential course of investment action. That’s why I chose the title Relationship Investing. By using life experience as the common denominator, I believe that I can assist in simplifying the process of making difficult investment decisions while simultaneously relating to the largest possible pool of investors. Hopefully, you’ll be able to achieve potentially improved investment results while better addressing market risk. Remember, the stock market is both judge and jury, and its verdict is final. Like it or not. Period!
The Greatest Analyst of All
Let me come right out and say it loudly and clearly. The greatest expert on the stock market is not an economist or a professor or a mathematician. It’s not a securities analyst or a fund manager or an engineer. The greatest analyst of all is the stock market itself, and it pays to heed its movements and its message. As a technical analyst (also known as a market technician), my job is to serve as a stock market translator, so to speak. I try to decipher the market’s message by studying a variety of price graphs and other investment gauges to determine whether money is flowing into or out of the shares or indices or markets in question, whether it be on a shorter-term or longer-term basis. I’m basically taking the markets’ supply-demand pulse, and the tools of my trade function like a doctor’s stethoscope, listening for an internal rhythm.
Since the 1970s, a pen and paper have been two of my primary tools, as I prefer to personally write down market data on both a daily closing and weekly closing basis. I spend ten minutes or so on the former each morning, and around fifteen minutes on the latter over the weekend. I also jot down a few monthly closing figures, which takes even less time. In an age where technology rules, I like keeping this tradition I learned as a kid. It immerses me in that analytical moment. The lion’s share of my time, however, is spent utilizing the wonderful computer graphics and technical market studies available today.
When it comes to believing the verdict of either the stock market or an individual (no matter how brilliant that person is) in assessing an investment trend, I’ll always side with the former. How you decipher the market’s message is up to you, but I’ll tell you this: you cannot successfully invest in the stock market on the “long” (buy) side during a primary downtrend, just as you cannot afford to be left behind during a primary market upswing. It was Charles Dow who identified three trends among the market indices and compared them to the ripples (shorter term), waves (medium term), and tide of the ocean. The last was compared to the long-term trend, which you cannot swim (or invest) against. And so it is with the stock market.
Respect its verdict because it reflects not what people are saying with their words but what they are doing with their capital. It’s the same with a relationship—actions speak louder than words!
A single person’s opinion, no matter who that person is, cannot carry anywhere near the same analytical weight as the collectively vast money flows into and out of stocks by the world’s market participants. These money flows form the price patterns that I, as a technical analyst, seek to successfully interpret on my stock market charts. I can’t tell you the multitude of times in which a sustained market move either up or down has been accompanied by cries that the market is ignoring reality or moving in an irrational manner based on the prevailing news background. The truth is that the folks who utter these phrases are ignoring reality, as the stock market is both judge and jury and its verdict—the prevailing market or stock price—is final.
Remember that the stock market is a discounting mechanism, so all too often the reasons why stocks or markets are trending in a sustained direction may not be apparent at the time they are doing so. Witness the market’s substantial liftoffs in the summer of 1982 from an approximate sixteen-year trading range amid little euphoria, from its October 1990 bottom amid widespread pre–Gulf War worries, and in early 1995 with the Orange County, California, bond crisis fresh in investors’ minds. And in case you’re wondering about what’s commonly referred to as the “subprime” mortgage crisis that began in 2007, the popular bank indices peaked early that year, well in advance of both the Dow Jones Industrial Average and Standard & Poor’s 500 Index peaks that October. Indeed, the market was sounding a warning about this sector well in advance of the analytical consensus.
To the technical analyst, successful investing requires that we learn to listen to the market’s voice first and foremost, not the cries of the consensus or what the so-called expert wisdom says. The technical analyst is concerned only with gauging the supply–demand credentials of a stock or market move—not trying to explain the reasons behind it. The latter is a fundamental consideration. Besides, by the time the reasons for a sustained move in either direction become apparent, who knows where the market or stock will be trading?
Moral: Don’t be quick to dismiss a sustained stock market move in a particular direction simply because there’s an absence of supporting evidence accompanying that move. Rarely are there reasons to account for these rallies or declines at the time of their occurrence, so if you’re looking to make sense of the market’s mannerisms in this way, prepare to be frustrated. History is replete with instances that confirm this. Remember, no one knows more than the stock market does, and disrespecting its verdict can prove financially ruinous.
(To be continued...)
This excerpt is taken from “Relationship Investing: Stock Market Therapy for Your Money” by Jeffrey S. Weiss. To read other articles of this book, click here. To buy this book, click here.
The Epoch Times Copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
