It simply means analysing the living daylights out of something. Even to the extent of agonizing over the detail. And maybe then going into a frozen state of inaction - doing nothing. Happens to many in life - about all sorts of activities. I think some would call it procrastination. To me it is more than that.
One of the problems with inaction is that it becomes repeat behaviour. It becomes your norm in life. Nothing wrong with repeat behaviour if we are reinforcing good stuff and not bad. Reinforcing a great golf swing only makes you a better golfer. Reinforcing a bad swing will in no way improve your golf - but more so, it will make you more frustrated which in turn most likely will make your golf worse.
I want to talk about this subject in an emphatic way. But my golf analogy I think explains this simply.
Psychology has always been a subject of deep interest to me - in understanding ‘me’ and the world around me.
I write this article because I see many people at the brink of success but somehow holding themselves back from reaching the pinnacle. They are maybe great analysts - but cannot invest or trade to save their lives.
I find the subject of trading psychology quite uninteresting per se, and partly as it is delivered by theoreticians and not those who have experienced the qualifying numerous cold sweat moments in trading/investing.
My background is an economist by training and also applying economic analysis in a number of my CEO roles. I thought I was able to understand macro economic trends well and had a good grasp of micro economics and so my natural gravitation was to look at the market from a macro perspective and then do micro analysis of companies that I liked.
Needless to say that was incredibly time consuming, enjoyable as it was. But more importantly it did not yield me great investment results. Of course over time markets and stocks are driven by the fundamentals but I quickly realised that stock selection needed to be sharper and despite what some analysts would say, timing was of vital import to outperforming the market in a marked way. I did not want to be a ‘me too’ investor. I had higher goals and would settle for nothing less than significant out-performance.
I then devoured everything I could find about technical analysis and more particularly computerised technical analysis. I wanted my analysis to not only outperform but also I wanted it to be incredibly efficient as I had many mountains to climb and did not want to be glued to my computer any longer than absolutely necessary.
I quickly experimented fast and furiously with all forms of technical analysis - range trading and trending indicators and all the permutations and combinations of each. How many moving averages can you use and what combos? Mind blowing but I found it very tedious and not an easy way to make money.
I did learn early that numerous indicators worked well as long as you had establish sound rules and you stuck to those rules.
But none were my holy grail. And I continued to feverishly hunt like the king's top hound dog.
And voila I happened upon Elliot wave/Fibonacci theory. I knew this was what I was looking for. I stopped looking and studied it liked crazy. I forget even much of the theory but all that mattered was that I could outperform the markets by a long shot. I knew how to really work it in practice. Day after day. Of course losses when markets took sudden turns. But it not only helped me time entry beautifully but it also told me when stocks were finished and it was time to fold and go. I used wave four as a buy in and wave five tops as a selling signal and I will talk in more detail about each of these in the coming weeks. I have a simple mind.
What grabbed me so strikingly?
I liked the sequence and pattern notions that are the basis to both Elliott and Fibonacci and they both connected with me because of their ‘earthy’ groundings. It was like I was on a surfboard and feeling the waves and swell - watching patterns develop and fall away. I was also taken by the mathematical sequence of Fibonnaci and that I could grasp the simple concept that was the foundation to wave patterns.
I especially liked the visual aspect to Elliott and that I could set up in ProfitSource a template page and cycle through a list of the complete market - or sectors - or my own watch list.
It was my habit to cycle through these lists at least daily. I was not interested in the code or company name. I was just interested in patterns which were surprisingly easily to find. I liked being in daily visual contact with each chart and watching the patterns emerging, developing and then finish - I had a scenario in my mind’s eye. Each day I challenged my self to project the outcome. It was a competitive but fun pursuit.
I distilled the Australian market for example down to about 300 stocks. I could cycle through these stocks in about twenty minutes per day. Not a big ask when, I was by this time, making great returns. It was a profitable pursuit that made my twenty minutes an easy investment. I marvelled at its simplicity. But I also have a strong view about keeping life simple and certainly I knew this to be true in investing. I would not allow excessive analysis to paralyze me.
I had arrived.
If newcomers were to ask me today what is the most efficient way to know the markets, make superior returns and stay out of trouble I would say by all means do your homework on indicators BUT be an applied expert on Elliott. The theory is an important stepping stone but how you apply in practice is what is key.
At another time in the coming weeks I would like to offer some of my coal face views about hitting the ‘buy’ and ‘sell’ buttons. That is the other key to being a highly successful investor. Being a great analyst, alone, does not make you money. I know numerous investors who have done many more hours of study or know much more about the markets than I - but cannot make money. Theory matters little to me. Making money does. If I have an excess I can always give it away. It is not my sole driver in life but it does many options.
Enjoy the ride