Monday, September 20, 2010

Markets: We See What We Want To See

"We see what we want to see, and we hear what we want to hear".  The Point! by Harry Nilsson, is a child's yarn from the 1990's that our young family loved to listen to (on vinyl at 33 1/3 rpm back then, it's now on CD and has even been immortalized on DVD).  I won't go into the story here, but it's well worth listening to with your children.  My point is not quite exactly - but essentially - the same: "Don't believe everything you think".  This is a problem for all of us, whether we acknowledge it or not.  How do we determine what is really happening and what is just "wishful thinking"?  A favorite stock market guru of mine relies on technical analysis to buy and sell because basic price and volume candle charts will indicate what's happening to a stock or an index before the financial press can release it as (old) news.  The thinking is (and it makes sense to me) that technical analysis is a way to lessen the emotional side of investing - all very mathematical and sensible.  But here's the problem: is it just wishful thinking to me that technical analysis is better than, say, fundamental analysis - another very sensible, mathematical process?  A very good friend of mine can look at a company financial statement and know within minutes if he wants to invest.  I can't (or won't) do that.  Two very different approaches to investing - because I see what I want to see, and he sees what he wants to see.  Reality probably lies somewhere in between the two.  And then there's Elliott Wave Theory and ...