Sometimes, we writers just don’t get it right. Sometimes, we write something and we think we are clear about what we are saying, and then boom! When one person suggests you are saying one thing in your writing and you disagree, that is a difference of opinion. However, when two people suggest you wrote something different from what you think you wrote, well, that just might be a problem. In a recent article, I suggested that when evaluating analysts and their conclusions, we need to be careful about bias …
In the two cases above, the first interviewee simply looked objectively at the facts and concluded that the economy would begin to improve in the near future. The second interviewee formed his conclusion on a bias for historical data, and, as we all know, history does not repeat itself as a matter of natural law. Just because one, or two, or three historical cycles demonstrated certain characteristics, it does not necessarily mean this one will demonstrate those same characteristics.
Now, what I thought I said was that history alone is not sufficient to determine market movement on a large scale, but the two comments below suggest either 1) they misunderstood, or 2) I missed my mark by not writing clearly.
Those who disregard history are bound to repeat their mistakes. While no one knows the future, to totally disregard it is not the smartest thing one could do, even in the field of investing and trading. The markets do have the human element, which is subject to fear and greed that drive the markets in non-rational directions. How can you disregard history?
One cannot disregard history when analyzing markets or figuring out the next phase of historical evolution, for that matter. I have referenced the past many times when evaluating markets, and I will continue to do so. I will not, however, rely solely on the past to guess at the future.
I found myself in some disagreement with your stance. I think a more balanced approach is to use both historical data and accurate up-to-date data. I think it is a combination of the two that leads to success. To discount history is also to not allow yourself to learn from other people’s historical mistakes.
To be clear, I am a strong believer in historical cycles, not small historical patterns. Trying to figure out where we are going requires both, so yes, my friend, the balanced approach you mention is what I was shooting for, but I guess I did not hit the mark.
Traders and investors backed off the market early today because they are not satisfied with what happened in Europe on Friday. They want more concrete evidence that the debt issue will be addressed. Apparently, our world of instant gratification does not allow that a process such as the one going on in Europe will take some time, which the agreement on Friday bought. In any case, help is on the way, if Europe can continue showing progress toward greater political stability. Europe knows what it has to do, but others will help as well. China, the nation with the largest foreign cash reserves, said this through its finance minister on Friday.
China will continue to be part of the effort [to save Europe] because we are interrelated, interdependent. We are in it together. We are in one boat.
Trade in the day – Invest in your life …
