ZF Capital > Focusing On Price

WHEN YOU TRAVEL to a foreign city, for the first few days at least, you’re more than a little disoriented; you’re lost. You don’t know where the museums are, or where the cheapest place to buy a cold beer is. You don’t know how often the bus comes, or which diner has the best pie. And until you are oriented — until you find a map — lost is exactly where you’ll stay.

In the investment world, our analysis is our map. The market can be dynamic, confusing and seemingly impossible to understand. It’s our analysis that turns chaos into harmony. In this game, the scenery is always changing. When you’re lost in the market, it’s disciplined analysis that helps you find your way.

Of course, there’s no shortage of indicators, reports and data points to consider. If you follow the fundamentals, there’s everything from revenue to price/earnings ratios. Technicians watch moving averages, relative strength, Fibonacci and other market minutiae too numerous to name. (more…)

WHY AREN’T THE most highly educated money managers also the most profitable? Because in the market, it doesn’t matter what you know, but what you do. All of the degrees, training and letters after a name don’t add up to much unless they’re put to good use when it counts.

The problem with being overeducated is that, too often, knowing too much prompts us not to think, but rather to assume. And because a trader must always focus on a security’s current action, the challenge is often not to know your history, but to be able to forget it. From my perspective, the best indicator of the market is the market. When we know (or think) too much, we often slip into the habit of assuming relationships in the market that don’t always hold.

For instance, many people have come to assume that stocks and bonds are negatively correlated; that is, when equities rise, bonds fall. And historically, that has often been the case. But as we noted in last week’s column, over the past few months both stocks and bonds have been strong. Traders have benefited from owning not one or the other, but both. (more…)

ZF Capital

Tradecraft – The Brain Drain

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