After recently hitting our 5th anniversary at Elliottwavetrader.net, and now exceeding 3000 members, I have learned quite a lot about market participants. For example, the one thing that hurts investors the most is when they lie to themselves or allow others to lie to them.
The problem is that there are so many fallacies accepted as gospel in the financial world that it causes investors to continually be looking the wrong way. And, worse yet, “analysts” without any analytical depth (or ethics) fall back upon these fallacies, which allows them to be inappropriately propagated even further throughout the market.
When I was in 5rd grade, my teacher had a sign hanging at the front of the room which said “put brain in gear before engaging mouth.” I would like to slightly modify this sound advice to fit our purposes in the financial markets: “put brain in gear before engaging pocketbook.”
Unfortunately, too many investors today do not pay heed to this wise advice. You see, it is just easier to blindly accept what you hear or read in the market rather than actually engage in independent thought. I mean, how many of you actually question the internal logical consistency or even back-test the propositions presented in analysis you read? I will tell you – very few of you. As I said, it is just so much easier to blindly accept what you hear or read if it “sounds” good, especially if it supports your own bias. Yet, what “sounds” good is all too often such superficial analysis that it is rarely accurate and often causes losses.
Worse yet, analysts are equally at fault, since they are just as guilty in accepting and regurgitating what “sounds good,” rather than engaging in independent thought in order to provide sound analysis and advice. When one does not engage in real thought, and just simply accepts or provides superficial “analysis,” how can you ever come up with the correct conclusion other than by pure luck? And, when these superficial analysts are continually wrong, they fall back on “manipulation” excuses, or claims that the PPT caused the market to react differently than they expected.
If your child came home from school without their report card, and told you that aliens stole his report card, what would you think? I mean, there is some tangential evidence of aliens that we have all seen, but does that mean they are the cause of your child’s missing report card?
Let’s be honest, even though there is some vague evidence of aliens, most of us reasonably do not believe they exist or believe they are actively involved in our daily lives. Yet, even though we see the same tangential evidence of the PPT, we have analysts that actually blame the PPT almost daily when they are wrong. And, they expect you to believe them in the same way your child thinks you are going to believe him regarding his stolen report card. Folks, wake up and realize you are being lied to. In fact, you are being manipulated more than the market is supposedly being manipulated. Sadly, too many investors do not know enough about the market to understand how they are being manipulated until it is too late and the losses have mounted beyond repair.
When I look around the internet, one of the things I have noticed is that the analysts that fall back upon these “manipulation” or “PPT” excuses usually have a very unsophisticated following, as the investors they cater to are not terribly knowledgeable. However, the analysts that provide more depth of analysis to investors usually have many sophisticated and knowledgeable investors following their work.
I want to force all of you novice investors out there to finally question what you read and begin to think for yourself. So, let’s start by questioning if you are predominantly surrounded by other novice investors, or do you see a depth of experience and knowledge within the group you follow? Also, ask yourself if there are other industry professionals within the group you follow? If not, you need to begin to question “why?!” If the analyst you follow is not surrounded by other industry professionals, money managers, and investors/traders of experience who respect the analyst’s work, you need to strongly consider “why not?!” The answer is that you are likely within the “retail” money group (or otherwise known as “dumb money”), which often winds up on the wrong side of the market.
There is one more issue I would also like to address, upon which I will likely be expanding in a follow up article. As I have always noted in the past, financial markets are non-linear in nature, yet too many are not willing to accept this fact. Rather, they want to be fed a black and white statement, without understanding the true nature of the market.
Any analysis you apply or follow MUST not only have a main premise, but must also outline how to recognize when that primary analysis is wrong. Otherwise, you will be left “hoping” as the market turns against you, causing losses of 20% or more in your position. As an example, if you remember the “analyst” I noted the last two weeks who advised a buy-and-hold on a leveraged ETF, sadly, he recently advised that his subscribers take a massive loss on that position, which could have easily been avoided if they would have recognized earlier that their primary analysis was wrong. However, he was too busy ridiculing such type of planning, as the market moved significantly against him and he continued to “hope” the market would turn around to provide the huge profits he continually promised to his subscribers quite recklessly. (And, yes, he blamed the loss on “manipulation.”)
While many make fun of the use of alternative perspectives in the market (and, believe me, I have foolishly heard it all too often), it is usually only the novice trader or investor that does so. You see, any investor that does not recognize the potential of being wrong, and knowing exactly when they will be wrong before they enter the trade or investment, is akin to an investor playing Russian Roulette with their investment account. Moreover, clearly understanding the alternative market perspective prepares you for what you need to do immediately should your primary expectation invalidate. I mean, when an army goes to war, do you think they only have one linear plan of attack, or do they make contingency plans before they move out? As Ben Franklin wisely noted, “by failing to prepare, you are preparing to fail.” And, for those interested, our EWT Mining Stock Portfolio is still hugely profitable in 2016, as we abide by risk management procedures.
One of the main purposes behind my public writings is simply to get you to think for yourself. I continually implore investors to no longer accept simple, superficial analysis based upon market fallacies and linear perspectives. Rather, I try to push you to begin to think for yourself than accept what you read or hear on its face. Truth is not always easy to uncover, and it often takes a lot of work. And, this is no less the case in financial markets than it is in all other aspects of life. As Dr. Franklin also noted, “Geese are but Geese tho’ we may think ‘em Swans; and Truth will be Truth tho’ it sometimes proves mortifying and distasteful.”