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My Trading Strategy, Part II

@ 5:02 pm

IT TAKES A ROCKET SCIENTIST!

(Copyright ©   2005, by Eric D. Wish.   All rights reserved.)

“There is no magic about buy signals. They are only devices by which we call our attention to stocks that have already begun to attract the attention of others.”

Burton Crane, The Sophisticated Investor, 1964, p. 49

Can you believe this?   The day after I tell you how much I admire Jim Rogers, he goes on television and tells everyone that   he   buys stocks that are near their lows and avoids those hitting new highs.   I guess I better set the record straight by telling you where I stand on this issue.   Assume you are looking over a field of rockets, all on their launching pads.   Your job is to determine which rocket will take you to the moon.    There are a number of ways to approach this problem.   One person might study all they could about the model of the rocket and its history.   They might find what similar rockets have done in the past and that a rocket with a particular size and payload should be able to go quite far.   This strategy is equivalent to the approach taken by the fundamental analyst.   He (or she) knows the company’s prior earnings and projections for the future.   He can tell you all the reasons why a particular company’s stock should do well–earnings, cash flow, sales, industry trends etc.   He can estimate the stocks “true” value.    

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About the General Market Index (GMI)

@ 8:54 pm

Index This market just makes you want to scream, doesn’t it?   Now you know why I stay out of sick markets and sold my MHS days ago.   Here is a stock that broke to a new all-time high at the end of March and held up for a few weeks.   It seemed like a good “defensive” stock, being in the management of prescription drug programs.   So what happened today?   It announces quarterly earnings today up 27% but apparently did not boost its profit outlook for the rest of the year.    So what does it do? It declines today 9.12%! This is the type of action one gets in a market that is in a downtrend with few stocks successfully holding new high ground.

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Let’s Talk Strategy

@ 11:18 am

“it is utterly useless for us on the outside, who buy and sell comparatively small blocks of stock, to conjecture about what “they” are doing.   We cannot know what the insiders intend to do, but we can see their orders on the tape when they execute them.   That is why my plea is for everyone of us to have no mere opinions of his own, but to allow the actions of the market to tell him what is passing.”
(Humphrey B. Neill, Tape Reading & Market Tactics, 1931, New York: B.C. Forbes Publishing Company; 14th printing, 2003, Vermont: Fraser Publishing Company)

When Nicolas Darvas was interviewed by Time Magazine in the early 60’s and it came out that he made almost 2 million dollars in the market in 18 months (while he was dancing around the world!), he noted that he read and reread Neill’s book (along with Gerald Loeb’s).   Neill’s book has been reprinted many times and I happened to find it on the shelf of my local Barnes and Noble store.   Neill dedicates his book, “to my losses, with a deep appreciation for the experience and knowledge which each loss has brought me.”

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