Que Sera Sera - Some Things Never Change $SPX $DJI

This is a little piece I wrote several years ago and I had chosen it as the introduction to my new website when I started this site. Some things need to be re-posted. I hope you enjoy it.


Doris Day - Que Sera Sera


When I was just a little girl, I asked my Mother what will I be? Will I be pretty? Will I be rich? Here’s what she said to me

Que Sera, Sera…Whatever will be, will be. The future’s not ours to see…Que Sera, Sera…..

From the book Psychology of the Stock Market, by George Charles Selden.

1 – Your main purpose must be to keep the mind clear and well balanced. Hence, do not act hastily on apparently sensational information; do not trade so heavily as to become anxious; and do not permit yourself to be influenced by your position in the market.

2 – Act on your own judgment, or else act absolutely and entirely on the judgment of another, regardless of your own opinion. “Too many cooks spoil the broth.”

3 – When in doubt, keep out of the market. Delays cost less than losses.

4 – Endeavor to catch the trend of sentiment. Even if this should be temporarily against fundamental conditions, it is nevertheless unprofitable to oppose it.

5 – The greatest fault of ninety-nine out of one hundred active traders is being bullish at high prices and bearish at low prices. Therefore, refuse to follow the market beyond what you consider a reasonable climax, no matter how large the possible profits that you may appear to be losing by inaction.

These words, his personal summary of the ideas he tries to espouse, are rules to live by for any active trader. Written by Selden in 1912, his book is amazingly accurate in describing the sentiment of today’s market and every market for the last century.

Believe it or not, the market has not changed in these one-hundred years because we the people have not changed. We would like to believe that we have evolved with all our new technology; that trading and investing today is unique to any time in history, but this is merely delusional. We are emotional beings reacting with the same fear of winning or losing and the enthusiasm for knowing our business; both these emotions hinder our ability to be objective with regards to Mr. Market.

In these last few years that I have been trading actively, I have heard many seasoned traders talk of this being a normal or abnormal market. I have heard traders say that this it is not right that we should not be able to profit more than 3%-5% on a trade and I have heard traders say that it is not right when we are able to profit more that 3%-5% on a trade, but in actuality, this is all normal. The market finds a point where it will rise when it can no longer sell off until it reaches the point where it should rise no further. At this time, it continues to rise in small increments, what we call the chop for a few days or more until it finally turns to the downside. The trader who says, “finally a normal market” is just as naïve as the trader who asks, “what happened to our normal market?” – for both conditions exist, have always existed and will always exist.

The same holds true for the inverse, as the market will sell off to the point where it should sell off no further based on fundamental analysis, but it will continue down in a chop just as it did at the market top. There are, and always have been, traders who take advantage of each moment in the cycle because this is what they have determined is the way to best make a profit and they scoff at those who profit during a different time in the cycle. There are those who like to take profits early and those who like to let it ride and both sides believe that the other is foolish. One side believes the other takes too much risk, while the other side believes the one to be careless and unable to take full advantage of the possibility of profit.

Today we separate the value investor from the chartist. The two sides generally despise each other openly, claiming that the other is unrealistic and is not trading with best odds, yet both sides make the same mistake led by those pesky emotions.

As I read Selden’s book over the weekend, written a century ago, I was amazed at how traders, investors and speculators had the same sentiment then, as we do now. Most professional and successful traders fall into the same traps that Selden speaks of. We have all seen the various sides that the pros on IBC have taken with regards to the market. We have our bears who are relentless in their resolve regardless of what the market is actually doing; the market is overbought they say. Certainly it cannot go higher and when it does they whine for it is wrong and has been manipulated to defy its fundamental course.

We have our bulls who are just as stubborn and all the while using the same excuses, making the same mistakes that traders have always used and made.

The market is manipulated, we say, the bearded clam has made it so with his POMO. It will go higher! We are at our most bullish because the market has risen to our expectations, why should it stop now. We expect it to continue amid the chop which we are sure will become a blow off top…and we say this as if we have never heard this before…as if no trader or analyst in time ever considered that the market was being manipulated. But traders have always accused the market of manipulation as Selden clearly points out, whenever prices don’t go as the speculator has determined they should, say if a ticker “looks strong, has encouraging news and they hope for large profits….if prices decline, they charge it to ‘manipulation,’ ‘bear raids,’ etc., and expect early recovery’ since…’the bear news appears to be put out maliciously, in order to cause prices to decline further.” It usually takes a painful slide into a grotto of losses before the trader determines that “there is no use fighting the manipulators” and suddenly we have a surge of short selling.

Does this sound familiar? It’s been going on for a hundred years folks.

Selden speaks of the “Market Makers” that have always made it so, although he doesn’t call them this, he simply calls them “They”. He discusses the possibility of “They” being the large investment banks, the floor traders or big oil companies. He mentions this long before we had high frequency trading, trader bots or even online brokerages. Somehow, the market makers have not changed much with all our technological advancement.

I know quite personally the mistake of many traders/investors to rely on research analysts to tell them where a stock or the broad market will go, but we forget that analysts don’t trade. They are not experienced in the art of trading so how is it that we trust them to tell us how we should do so?

These are often the manipulators who spread the rumors in order make the stock trade a certain way. The sell side analyst has a client for whom he wishes to be correct so that he can continue to sell his research and assessment. By the time companies report earnings the miss or hits in the earnings reports are often expected by analysts who know they have spread the rhetoric so that the expectations have moved the prices in the direction that they said they would even before earnings are reported. There is much truth to the idea that expectations are usually priced in and only when there is a surprise do we get real movement after earnings. If the consensus is for a stock to have good earnings, for example, it is very easy for the analyst to set those expectations just a little high all the while knowing that the stock will run up into earnings by having set those expectations and this is why many seasoned traders will often sell out before the earnings report because even if the earnings meet expectations, the price has already been run up and will now come down.

Selden devotes a chapter to this concept which he calls, “Confusing the Present with Future Discounting”.

We may be easily impressed by these analysts who write eloquently and make calls that come into fruition not admitting that “They” made them so.

We may be equally impressed by the analyst who debunks other analysts because his analysis is more accurate. Certainly there are some who are better than others at running the numbers and making accurate predictions. These debunker analysts of analysts are the true professionals, we say. This is who shall lead our trading decisions because they so eloquently and accurately debunked the calls of the other analysts, but again we forget that a good analyst is not necessarily a good trader. He does not trade; he is usually restricted by his firm and is rarely allowed to trade in the firm’s effort to not raise flags to the powers that be. Rarely does the portfolio manager in a large hedge fund do his own analysis. He usually buys the research from the sell side analysts and employs his analysts to either debunk or affirm the sell side’s analysis. The portfolio manager eventually makes his own decisions which may take the analysis into account although, if he is well seasoned, realizes that the time frame of the analysis is what he needs to correct.

I will sideline here for just a moment to give you a bit more detail of the start in my own career which I have mentioned before. The money manager and hedge fund for which I started out was a very rare occurrence.

I was very interested in learning about the market and how to trade it. I interviewed for this job with this small hedge fund. I had much double entry accounting experience under my belt and this well known and respected Money Manager / Venture Capitalist hired me to do the accounting for his fund. It was a fairly large fund considering how little staff was involved. The fund managed a large sum by most standards and the staff consisted of this money manager and me and no one else. It is unheard of in the industry for a money manager to run such a large fund with a staff of one book keeper inexperienced in the ways of Mr. Market. He hired me not just because I interviewed well, had much accounting experience, good references and proved that I could do math quickly and accurately in my head, but because I answered the 100 million dollar question when he asked me why I wanted the job. I told him, “because I want to learn how to make a lot of money”. And so he took me under his wing and gave me a beginning for which I will always be grateful.

The first stock that I modeled under his direction and that we subsequently analyzed together was $NFLX. It was July of 2005 and we decided that it was clearly a short at its current sub $20 price. I probably don’t need to show you a chart of $NFLX for you to guess that we were dead wrong. It not only went up from there, but is now trading at well over $200. But at the time we were convinced that the financials were over valued and had to come down. This was my first lesson in price action although I did not realize it at the time. I did not yet understand why traders or money managers hired analysts or purchased sell side research. It is quite rare to be unbiased enough as a trader to also be your own analyst for the analysis will sway you, once again led by those pesky emotions.

I have also heard many on this site scream some of the same words that Selden describes as being said by a conservative individual when he describes the danger of getting a “notion” in one’s head. “You meet a highly conservative individual and ask him what he thinks of the situation. ‘I am alarmed at the rapid spread of radical sentiment,’ he replies. ‘How can we expect capital to branch out into new enterprises when the profits may be swept away at any moment by socialistic legislation?’”

Have we not heard the same rhetoric in recent years with regards to the Obama administration? How many watchers of Fox News have declared the same sentiment for today’s America as if it has never been suggested before. My own Mother in her conservative extremism had declared the Czars of Obama policy would destroy all that America stands for. She has believed this to be true since he took office as if no one had ever said this before.

I am pretty sure Alan Greenspan felt the same way as he sat by Ayn Rand’s side mesmerized by her philosophy which she so beautifully articulated and which later caused the famed Fed Chairman to allow our banking system, unregulated, to dig a hole so deep as to collapse the market. Not that this collapse was anything new, nor that he or anyone else had the ability to negate it. I hear so many talk of the impossibility for our economy to recover because of the lack of jobs. Do you think no one has said that before? Surely we can all imagine this sentiment in the early 1930’s. Selden discusses this same sentiment having taken place in 1909. And in a recent viewing of the film The Game from 1997 with Michael Douglas and Sean Penn, the idea that the economy would never recover because jobs were never to come back was a background theme. The reverse of this is he who speaks radically that spending and high cost of living are unimportant when compared against the trillions of dollars of new wealth that will certainly ensue and he is of course, a convicted bull.


All of these ideas hinder the trader simply because we have them. We do not innately have the ability to “go with the flow”, to curb our emotions and not take a side. I have been fortunate enough to meet one such trader, although I will not name him for I have already spent too much time as a marketeer (sic) in this role as King of The Peanut Gallery. If you recognize the value of this ability, you will or maybe already have searched it out. That trader who can curb his emotions and remain unbiased in the face of so much bias. The trader who can, as Selden preaches, “keep out of the market, when in doubt, because delays, do indeed, cost less than losses.”

This is my final word. The market is behaving normally. The market has always behaved normally for this is how the market behaves. Don’t fight it for acceptance will allow you to finally be unbiased. Trust in the price action and “go with the flow”. I hope this helps and I wish you all the best of luck in your trading endeavors.



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