1. Market Analysis—Markets are never wrong; opinions are.
"Markets are never wrong; opinions are," is a quote from Jesse L. Livermore, one of the most colorful, flamboyant, and respected market speculators of all time. We agree wholeheartedly with his comment. We truly embrace this thinking. And you should, too, if you want to become a highly successful investor.
Human nature is no different today than it was back in the 1920s and 1930s when Jesse Livermore was a major force on Wall Street. Investors have the same hopes and fears today that they had seventy or eighty years ago. Mr. Livermore saw repeatedly that the opinions of many of his colleagues were frequently wrong, as the market went on its own merry way in a direction contrary to what they had expected.
We learned long ago that it's a mistake to argue with the stock market. To understand why, you need to remember that market prices are determined by the actions of millions of investors each and every day. Thus, if you believe the market is wrong, you are actually saying that the net result of all the people participating in the market must be wrong. Knowing that these investors include thousands of well-trained security analysts, technical analysts, insiders, and friends of insiders, are you really willing to say your thoughts are more insightful than everyone else's? We think not!
Rather than fighting the action of the market, a much more rewarding strategy is to identify the current trend and stay with it as long as it persists. You see, the only reliable way to uncover the net effect of the various factors affecting the stock market (including changes in interest rates, inflation, the dollar, earnings, emotions, etc.) is to look at the market itself! Believing in opinions and forecasts instead of the market will only lead to poor investment decisions.
With all that said, it shouldn't be a surprise that our major market timing indicators are focused on the market, especially our two trend-following indicators, the Cabot Trend Lines and Cabot Tides. They're the reason we've repeatedly been ranked among the top ten market timing newsletters. Following the Trend Lines and the Tides will make sure your investments are always in harmony with the market—and that's the first step along the way to making big money.
Lesson 2. Market Timing
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