STOCK CHOICES: PHILOSOPHY AND METHOD
 

STOCK MEASURES of value cover three main categories, "value", "growth", and "new era." Always have, always will as long as there are markets and people. People buy a stock because it's cheap now or going higher now, or because it's going a lot higher right now! But, whatever it is which you or anyone else measures or evaluates within these categories, measures or values do not drive stock prices. It's how they are perceived by investors and speculators. Perceptions drive market prices. So we must seek further and ask if there is any way to measure perceptions. Fortunately there is. Prices themselves. They are the bedrock consideration. They reflect precisely and continuously what buyers and sellers are willing to pay and receive in each and every stock purchase-and-sale transaction which occurs.

THEREFORE A METHOD based on price behavior has greater chance of investment success than any other measure or combination of measures upon which, after perception by participants, purchases and sales are transacted. Perceptions are always arguable. Ask any trial lawyer, radiologist, woman, or man. Prices are unarguable. But in a continuous stream, such as stock prices, they appear to be highly disorderly. There is no proven connection from one to the next. They are appropriately called "random" (Cootner) or what Barzun would call a series of "routine accidents".

IF YOU CAN sufficiently diminish the randomity--beneath all the noise, structures emerge. That is what we do here, extract order from measures of perceptions. Numbers are the best way to do that. Some simple polynomial mathematics reveals serial processes lending themselves to ranking hierachies which act as pointers to the "best" and the "worse" in a group. This is what you see in each of the portfolios each week. Does all this guarantee profits? Of course not. The whole science of statistics and probabilities merely states that so-and-so events happened with such-and-such frequency of occurrence in the past. They tell you nothing about tomorrow morning. But people act as if they do because that's the way to bet.

IT'S ALL IN THE perception. New paradigms and new eras are nothing new. Each has revolutionized society and economics with true validity. When they arrive and become recognized, the shares of the companies involved get bid to the sky, and hundreds of new companies burst forth to assist the parturition. A handful survives. Price tells all. Ascent. Culmination. Decline. Recovery or burial. Re-ascent. Vapor trails of investor perception. The weekly rankings on this site track and present orderly arrays for rational investment selection and speculation.

See Investment Letters also Method


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