Valuable Techniques for the Savvy Investor
Every investor deals with the same market. That is to say, no one really starts out with an unfair advantage or disadvantage in the stock market. The uncertainty, opportunity, and risk applies to everyone.
Those who learn how to maximize opportunities and minimize risks ultimately will outperform the market. Why? Because the majority of investors, including large institutions with full-time professional analysts, fail to use the right fundamental tools, and fail to act on the right information, even when it is obvious. This raises a few interesting questions. If the wrong way to respond is so obvious, why do people continue to act as they do? Why don't people recognize the universal truths of the market and act accordingly?
The problem is that there are many schools of thought about what strategies are right or wrong in the market. People continue to act as they do because the errors made in investing are not as obvious as we might think. And there are no universal truths in the market. Not everyone agrees with the ideas and suggestions offered in this book. For example, there is great comfort and reassurance in the up and down movements of the Dow Jones Industrial Average (DJIA). Many investors and analysts choose to believe that the DJIA is the market, and that watching its fluctuations provides reliable indications of how to time personal investment decisions.
It is everyone's right to believe as they wish, and to disagree with others. Fundamentalists struggle to overcome the desire for easy solutions and answers, recognizing that identification of truth often is the result of hard work, and the process of finding knowledge is very dull, compared to the more exciting technical approach to investing. A contrarian constantly questions the majority thinking in the market, and would prefer to doubt commonly held beliefs than to simply go along. You will discover that there is a certain sense of danger in questioning commonly held beliefs, even when your sense of logic requires that you disagree with what most people think to be right. Oscar Wilde observed, "To believe is very dull. To doubt is intensely engrossing."
The contrarian needs to overcome more than the majority point of view. Remember, it is not just that most people are wrong; most people don't even get to the point of questioning their own beliefs. To succeed as a contrarian, you also need to develop a strong and unyielding belief in what you know to be right and logical. Scientific, realistic research is rare in the market. The majority believes in many things that are misleading, false, inaccurate, and unreliable. As unpopular as it might be to so state, reliance on the DJIA is one of those things. The movements in today's averages tell you absolutely nothing about the market; about the individual stocks in the averages, or about how or when you should make investment decisions.
KEY POINT
If you merely begin to question the basic beliefs held in the market, you will be far ahead of most people, who never get to that point at all.

The specific techniques you use in managing your stock market investments should depend on specific circumstances, your ability to tolerate risk, and the current market conditions. The basic beliefs you apply—fundamental versus technical, or contrarian versus consensus thinking—serve as the foundation for your strategic approach. The techniques you select and use are the action steps by which you put your beliefs to work in portfolio management.