A little over ten years ago, back in Austin, a PC engineer friend called me speaking in hushed tones, to tip me off that Dell's earnings report and business forecast would be 'a lot better than analysts predicted.' I thanked him and then pointed out there's just one problem with that, well two problems: 1) Dell's quarterly earnings report had been released the morning before, which leads to 2) There's only two kinds of inside information, the bullshit kind, and the illegal kind that will get you fitted for an electronic anklet, if you're lucky.
There are also two kinds of market prognosticators, those that don't know, and those that don't know they don't know. That goes for you, your broker, your unemployed uncle that claims he made a killing in the market, and your engineer buddies at Dell. And if you're listening to any of the hundreds of self professed gloomy bears and manic confident bulls now available on your choice of high definition business channels, odds are you're watching the worst of the worst, people who know they don't know and pretend like they do. It's quite a menagerie. With rides and attractions. Let's check out a few!
Fundamentalists try to predict future earnings in the belief that what a company might make a few quarters down the road determines what to buy now, based on things like a projected price-to-earnings multiple or an up and coming one time write down against the bottom line. Technicians on the other hand analyze charts and talk in term of support and resistance, head-and-shoulders patterns, or double and triple top breakouts. Macro-economists might divine the direction of interest rates and overall economic climate while others are micro-economic bottom up sector rotators.
There are mechanics, who look at things like how much of the stock is closely or institutionally held, what the short interest is, examine key dates that bears or bulls might gravitate toward to defer a capital gain, or lock in a result for a quarterly or yearly report. There are bottom fishers,
Dow Jones dogsters, dead cat bouncers, Nobel Laureates
gone bust, and plenty of bully
bandwagoneers.
Of course, there is no shortage of even more wacky stock market strategies. One can trade options with only a few hundred buck, the crack cocaine of the equity world; get lucky, get hooked, and you might chase that fleeting dragon right into a homeless shelter. There is the car size predictor which states the if cars get larger, the market gets stronger. We have to give honorable mention to the Superbowl predictor and astrology trading. And there's the hemline indicator, which derives investor sentiment from the length of leg showing, or lack thereof, in woman's latest fashion. Sure, you might be laughing right about now, but there are people that actually believe this shit.
Then there's one indicator you can always count on to be consistent, if perhaps tautological: the political one. See, when stocks go up it's because of my party's policies, and when they go down it's because of yours. Simple enough, and entirely useless.
The problem with most of these -- aside from conflating causation with correlation -- is they seek to predict market direction by predicting something else. That something else is even less rational, and has infinitely more permutations, than the already irrational day to day frenzied greed or utter panic of short term investors that could send stocks only one of three ways in the first place.
Up, down, or sideways, pick a bookie broker, a strategy, any one, long or short, bear spreads or bull butterflies, buy write or sell short against the IRA box, doesn't matter, round and round she goes ... you have a big fat one in three chance of being the next mini Elaine Garzilli. And hey, if you're wrong, tomorrow's pick is another day to tout your mad skillz. You now know everything you need to post a smart ass comment on the Motley Fool and you're way over qualified to blog on it. Throw in a cowbell and various fart sounds and you're ready to host a show on CNBC.
Now, the SEC might get all cranky if I start giving advice or so much as hinting at a guaranteed money making results. But I can absolutely guarantee you that if you pay me -- or anyone else -- to tell you which way they think stocks will go, money will be made. And while the old joke used to be that "I made money, my firm made money, and two out of three ain't bad," today's version, with brokerage houses toppling over like great houses of wobbly cards while issuing ginormous bonuses to the wrecking crew, is more concerned with three out of three -- me, Me, and ME.
Look, here's the money graf: When there's more buyers than sellers stocks go up, more sellers than buyers make stocks go down. Good luck predicting that regardless if you're a momentum trader, a contrarian, a fundie or a techie, or even an engineer at mighty Dell. No one knows what will happen -- No One -- that's the scariest fucking thing about pinning your middle class, American Dream, let alone our 'lives, our fortunes, and our sacred honor,' on this chaotic, crazy shit. Until you are liquid in your FDIC insured checking account or a tin can full of Krugerrands buried in your yard good for six month's emergency living expenses, don't even think about dabbling in Le Casino Marquet. But as a reasonably successful, former stock & bond jock myself, I have to say to those that played anyway, whether you took your winnings while ahead or are losing them in the Great Bushwhack, thank you for playing.