Continued from...Action and Reaction in the Stock Market
Extent and Duration IncalculableCertainly the stock market barometer shows nothing of the kind. There is no approximation to the regularity of the pendulum, either in the arc of ther swing or its velocity. We see a bear market declining forty points, a bull market advancing fifty points over more than twice the period, a bear market declining nearly sixty points, a bull market recovering forty-five points, a bear market declining less than thirty points, a major swing upward of not much more than twenty points, a bull market advancing nearly sixty points in the industrials with a simultaneous advance of less than thirty in the railroads, and a different period for each successive swing. This, in approximate figures, is the record for a quarter of a century. There is, obviously, a rough periodicity about such movements. But if we begin to twist them into some mathematically calculable, regularly recurring "cycle," the next main movement, up or down, will leave us all adrift, with nothing to hold on to but an empty theory and an empty purse.
Sham MysteriesI do not want to dogmatize about this, although I am trying to make what is essentially a scientifically treated subject popularly interesting, if, indeed, sermons are ever popular. One trouble of all teaching, and a moral danger to every teacher, is that the authority necessarily accorded to the instructor leads him to make something of a mystery of his trade. His unconscious desire to eliminate embarrassing competition leads him to exaggeration of the difficulties to be encountered in acquiring a sound knowledge of the subject. In a brief time, as human affairs run, there will be a sort of cult amplifying and complicating an otherwise simple thesis. Every religion breeds a priesthood, where sacerdotal succession becomes more important, or at least much more jealously defended, than mere salvation. Both in the English common law and the canon law handicrafts were sometimes referred to as mysteries. The plumber who comes into your house likes you to believe that his elaborate preparations, and the general mess he makes, are evidence of the difficulty of the task he has accomplished - a difficulty you as a layman are entirely unable to measure - and a sufficient pretext for the extortionate bill he renders.
Tipsters and InsidersI have known some likable people connected with what are frankly stock-tipping agencies. There is a market for what they supply, and they are necessarily excellent judges of human nature. They are never bearish on the stock market. They are often successful and prosperous in a bull market, and I suppose that the savings of the fat years support them in the lean ones. They tell the unscientific speculator what he wants to know, but not what he needs to know. Sometimes the guessing is good, and always there is the suggestion that there is a mystery about reading the stock market movement. If this is true of what they teach on the general market, it is still more true about individual stocks. With them "insiders" are always buying. In my experience I have known many insiders, and for every purpose of the small speculator they were far oftener wrong than right.
As a matter of fact these so-called insiders, the real men who conduct the real business of a corporation, are too busy to spend their time over the stock ticker. They are far too limited, too restricted to their particular trade, to be good judges of the turn of the market. They are normally bullish on their own property, in the respect that they believe it to be a growing concern with great possibilities. But of the fluctuations of business which will affect their stock, together with the rest in the same group or all the other railroad and industrial stocks in the same market, their view is singularly limited. It is not mere cynicism but truth to say that sufficient inside information can ruin anybody in Wall Street.
That is not only true, but it is an excellent thing
that it is true, Of course the executive officers of large corporations
should have a sound general knowledge of conditions outside their own sphere.
They should be well instructed. They might read this book with advantage,
if it only taught them to take a more objective view. But even with the
basis of a general education, such as is required in a good university
of the man who intends afterwards to specialize in law or surgery, their
very occupation unduly affects their sense of proportion.
Our Trustworthy GuideThis is why the stock market barometer is so valuable. It makes little of cycles or systems, interesting and even well-grounded inferences or common fads. It uses them all so far as they are useful, together with every other scrap of information it is possible to collect. The market movement reflects all the real knowledge available, and every day's trading sifts the wheat from the chaff. If the resultant showing of grain is poor, the market: reflects the estimate of its value in lower prices. If the winnowing is good, prices advance long before the most industrious and up-to-date student of general business conditions can bushel up the residue and set it forth in his pictorial chart. Few of us can be Keplers or Newtons. But it is possible to formulate working rules which will help and protect any man in that forecast of the future which he must necessarily make every day of his life. This is what the stock market barometer does. It makes no false claims. It admits highly human and obvious limitations. But such as it is, it can honestly claim that it has a quality of forecast which no other business record yet devised has even closely approached.
From The Stock Market Barometer by William P. Hamilton, published in 1922
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