To walk through the current Traders Expo in Las Vegas is to be struck by the “need to believe.” What do I mean? Instead of people realizing there are no Holy Grails or secrets, the masses have lined up to digest the latest prediction promises. They are promised software with buy and sell signals, but no logic disclosed. They are promised an education in fundamental trading, but not told of the extreme limitations. And so on — the need to believe in someone else’s analysis is still huge even 4.5 years after the Wall Street analyst love affair went up in smoke.

This excerpt from Barrons speaks to the “analysis” so many want:

On the corporate fundamental front, sharp investors will be watching the market reaction to companies that issue profit warnings. Wednesday, for instance, Applied Materials’ reduced profit outlook caused a fleeting decline in its shares, but then buyers quickly stepped in. The stock, and those of other semiconductor companies, ended up leading the market that day. This is viewed as the behavior of a bullish tape. When stocks start taking bad news to heart, and investors look for chances to sell rather than embrace lower prices as invitations to buy, it may indicate a fatigued rally. In other words: Trust — for now — in the potency of the rally. But constantly verify that it remains on solid footing.

Where is the objectivity in this analysis? How do you actually define in terms of a number the phrase “solid footing”?

Are there good reasons to believe in gurus? Not exactly. But even if people are told the right way to think. Even if they are given objective information, Ben Stein outlines why most will still fail:

For every hundred men who take the pledge to never drink again, maybe five stay sober. Likewise, for every consumer who saves prudently, there will be 20 who don’t. Just make sure you are on the winning side of this dismal scenario and you’ll be fine. Or, in the words of the old joke about the hunters running from the bear, “I don’t have to outrun the bear. I just have to outrun you.”

Bottom line? The markets are zero sum. Market losers in love with gurus will always give to the winners.

The Barrons Analysis Failure

The phrase “solid footing” is the complete diagnosis of what is wrong with the Barrons excerpt. It sounds like analysis. It sounds like the writer is providing a criterion that a careful investor could monitor. But it has no numerical definition. It cannot be tested. It cannot generate an objective entry or exit signal. It is comfortable language that creates the impression of actionable guidance without providing any.

Compare it to a trend following entry rule: buy when the price closes above the 20-day high. That is a number. That is testable. That can be applied consistently across thousands of markets and thousands of historical periods. It either fires or it does not. “Solid footing” cannot be measured, cannot be tested, and cannot be applied consistently. It is the verbal equivalent of a black box: words that sound informative but contain no objective information.

The Traders Expo observation reinforces the point. Years after the Wall Street analyst debacle, the booths are still full and the promises are still the same: signals without logic, education without limitations disclosed, authority without accountability. The products change but the marketing template is identical. The need to believe drives the purchasing decision, not the evidence.

Ben Stein’s bear analogy is the complete answer to the question of whether this matters. The markets are zero sum. The money flows from the hundred who took the pledge but did not stay sober to the five who did. The trader’s job is not to outrun the market. It is to outrun the other participants, specifically the participants who are making decisions based on “solid footing” analysis and guru recommendations rather than objective rules. They are the bear’s other target. As long as they exist in large numbers, the trader with a systematic, objective approach has a structural advantage.

Frequently Asked Questions

Why does the need to believe in gurus persist despite the Wall Street analyst failures?

Because the need is psychological rather than rational. People want confident answers to uncertain questions. The analyst who says “trust in the potency of the rally but verify its solid footing” sounds authoritative even when the words are empty. The guru who promises signals with no logic disclosed satisfies the need for guidance even when the guidance is unreliable. Knowing that analysts have been wrong before does not eliminate the desire to believe the next one will be right.

What is wrong with the phrase “solid footing” as investment analysis?

It has no numerical definition and cannot generate an objective signal. Analysis that cannot be tested, replicated, or applied consistently is not analysis. It is language that creates the impression of guidance without providing any. The test of any investment criterion is whether it can be stated as a rule that produces consistent signals across historical data. “Solid footing” fails that test entirely.

How does the zero-sum nature of markets interact with guru-following behavior?

Traders who make decisions based on unverifiable guru analysis are providing the other side of trades for traders who use objective systematic rules. The guru follower’s emotional, prediction-based decisions consistently produce the kind of systematic errors that the evidence-based trader can exploit. As long as the majority of market participants make decisions based on psychological need rather than objective rules, the systematic trader has a structural edge in the zero-sum game.

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