Stock Market Analysis - Lesson 1

“Markets are never wrong; opinions are,” is a quote from Jesse L. Livermore, one of the most colorful, flamboyant and respected traders of all time. We agree wholeheartedly with his comment, and we embrace his thinking. You should too, if you want to become a highly successful investor.

Human nature is the same today as it was in the 1920s and 1930s when Jesse Livermore was a major force on Wall Street. Investors have the same hopes and dreams today that they did then. Mr. Livermore saw that the opinions of many of his colleagues were often wrong, as the market went on its own merry way in a direction contrary to what they had expected. This, too, has not changed.

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 every day. Thus, if you believe that 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—in short, a lot of smart people who know just how the stock market works—are you 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. In other words, let the market tell you what the market is thinking. The only reliable way to uncover the net effect of all the various factors affecting the market is to look at the market itself. No fundamental market analysis will tell you more than the market will tell you. Believing in opinions and forecasts instead of the market will only lead to poor investment decisions.

Mike Cintolo is a specialist in market analysis. He’s also Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader

Next: Market Timing

Stock Picks

Tesla Motors

If Tesla ever begins to cut back on development and innovation costs, earnings will soar.


China seems to be raising up its very own version of Amazon in Alibaba (BABA.


Roy Ward uses the PEG ratio to determine if the stock is undervalued or overvalued.

Cabot Wealth Advisory

Three Vital Tips for the Chinese Stock Market

By Paul Goodwin on September 30, 2016

As U.S. stock markets continue to drag, the Chinese stock market is an ideal alternative for growth investors. Here's how to find the best Chinese stocks.Read More >

What Fed Speeches Mean for the Stock Market Today

By Chloe Lutts Jensen on September 29, 2016

Four Fed presidents gave speeches yesterday, and every word was digested by the stock market in an attempt to better predict the Fed’s next move. With odds of a December rate hike now about even, how should stock investors prepare?Read More >

The Emerging Market Stock You Ought to Own

By Paul Goodwin on September 27, 2016

The company I’m talking about (the one that you probably don’t own) is the largest Chinese instant messaging company. It is a giant in its own right, with a market cap of $262 billion and annual sales of over $19 billion. The company grew revenue by 28% in 2015 and routinely boasts after-tax profit margins over 30%.Read More >