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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35362  
Subject: Re: OT: the Role of Psychology in Investing Date: 10/27/2002 12:52 PM
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Open,

Much thanks for your positive feedback, and my sympathies on your painful introduction to market realities.

A suggestion. Don't dis NAIC. I took their classes, and their insights and methods can be effective tools for identifying the WHAT. It's their nearly complete avoidance of how to determine WHEN that drove me crazy and that's where the method can get itself into trouble, projecting the past onto a present which isn't confirming that past (through price and volume). The fundamantal stuff is the hard part: learning what the financial numbers are really saying and how voracious (and fickle) a discounter the market is of those numbers. The tech stuff is easy. Basic stage analysis and couple of moving averages and relative strength are sufficient tools to filter noise from signal.

The NAIC method worked overly well from about the third week in Dec '94 until the second week of March '00, then all hell broke loose and the tech bubble burst. But a careful NAIC user would have already gone mostly to cash long before due to seeing the overvaluations and taking prudent profits. That's what got them into trouble: getting sucked into the momentum game instead of sticking to their knitting as fundamentalists/value investors. (Yes, the NAIC method has an intrinsic growth bias, but GARP is a way to moderate that.)

One huge advantage of NAIC is that it is a group effort and typically depends on excellent resources like ValueLine that have withstood the test of time. Not infallibly so, mind you, but with statistical significance.

Yeah, lots of people are scrambling right now, trying to reorient and regroup and are changing horses in mid stream, rather than hunkering down and setting themselves up for the next cycle when their methods will again flower.

All methods fail cyclically. The problem is the cycles don't announce their beginings and endings, and as soon as you get bored and blink, or as soon as you give up in dispair, the market does exactly what you were waitng for, but you are no longer there as part of it.

Patience. Patience and balance are hugely important to investing success. Managing oneself --the emotions of fear and greed, hope and dispair --is as important as managing one's evidential resources.

Best wishes, Charlie
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