Stock market methods have different time frames. If a method trades on an intra-day basis, the trader can get into the "long run" very quickly. If the trades are weekly, it takes longer.
The long run is elusive. Since prices are more psychology than value, the definition of the long run depends upon changes in cycles of psychology.
This concept is very difficult to grasp. We all want to render a verdict. When is the right time?
Looking Outside the Box
One of our regular themes at "A Dash" is educating investors by getting them to think about something different. Only then do we bring the point back to investing.
This is most easily done with examples where there are frequent predictions and results. The world of sports provides such an arena for testing.
Readers should note our earlier article, Investing is not Gambling. Having said this, the predictive problems share many elements. There is a wide array of methods, both fundamental and technical. There are many pundits using methods of all types. The nature of the forecasts involves probabilistic distributions, even though the consumers of forecasts do not realize this.
When the results are in, it all seems to have been certain, almost pre-ordained. The various factors that cause swings get lost in the outcome.
The Blowout of the Week
Since we do not condone any illegal wagering, let us suppose that the reader resides in Nevada and can make a legal bet on an NFL football game. Each week there are many choices. Let us consider this week's big winner.
The Minnesota Vikings were a three-point underdog at Arizona. The Vikes, trying to nail down the NFC North championship ran up a 28-0 lead and coasted to victory. Those who bet on them never had to breathe hard.
Their great running back, Adrian Peterson, rushed for 165 yards on 28 carries. Getting another chance to start in place of the injured Gus Frerotte, Tavaris Jackson threw for four TD's. The Viking defense had continual pressure on Cardinal QB Kurt Warner. The Arizona coach felt that his team "did not come to play."
This was an obvious wire-to-wire victory for those who saw the correct elements. Right?
Getting it Right
We have identified a handicapper who predicted this victory on his "premium service." Should we sign up for his package next weekend? Does he have special insight into football? Into the Vikings or the Cardinals? He absolutely nailed this blowout pick......
There were some free services where the prognosticators picked the Vikes to win. Should we look to them?
It is something to think about......