“The market itself determines the relative importance of all factors more accurately than any speculator can hope to interpret them.”
. . . Don Guyon, One Way Pockets (1917)
“The market itself determines the relative importance of all factors more accurately than any speculator can hope to interpret them.” So wrote Don Guyon in the seminal book One Way Pockets, one of the best stock market books ever written. The book was written in 1917 and to be sure NOTHING has really changed since then because human nature has not changed. Investors and traders can buy and sell based on their own interpretation of the daily news, but the market action itself determines the true and the most accurate interpretation. In other words, if the investor, or trader, isn’t in sync with the stock market, he/she is going to suffer losses. So, when the stock market speaks, if you want to make money, you had better listen! And the stock market has repeatedly spoken over the past few months, as well as since October 2008 when most of the stocks bottomed, with multiple buy signals according to Dow Theory. Many participants have chosen to ignore the message of the markets, swayed by valuation concerns, low GDP growth, earnings worries, and broken-clock pundits who suggest the trading range will be extended at best, or at worst a bear market has begun. Yet as Ralph Waldo Emerson opined, “Foolish consistency is the hobgoblin of little minds.” Unfortunately, there are far too many “little minds” on the Street of Dreams these days.
Recently, the markets have been gyrating in a narrow range. Again, according to the book One Way Pockets:
When a market fluctuates for several weeks or months within a narrow range, one of these three things is happening: pools and large operators are accumulating securities by absorbing the offerings of tired holders; or they are distributing certain stocks under cover of artificial strength in others; or the market is in a state of uncertainty and waiting a fresh impulse.
As stated in the book’s more recent introduction – the author, who assumed the nom de plume of “Don Guyon” to avoid being identified with his wealthy clients – was associated with a boutique brokerage firm S a u t S t r a t e g y that had sizeable business with investors in all sections of the country. In 1915 he began an analytical study of the orders executed for certain active traders with the idea of determining the fundamental weakness, if any, in their speculative methods. The results were illuminating enough to afford corroborative evidence of general trading faults, which persist to this day. While I have found many of the book’s insights helpful to my investment process, and urge investors to study said book, there have been other investment methods of interest.