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The Need to Believe in Market Gurus is Stronger than Ever

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.

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