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Base Your Trades Upon Facts |
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In science, a fact is something that you can verify with your five senses. You can see, feel, hear, taste, or smell a fact. A fact is independently verifiable. Unfortunately, facts are usually only a fraction of the iceberg. Collecting facts does not always lead inexorably to the proper conclusion mainly because you can never be sure that you know all the facts. Suppose a company looks outstanding on a fundamental and technical basis. Unbeknown to you, a large holder of the shares may be having serious financial problems due to an event that has nothing to do with that particular security. The large holder is forced to sell his large holdings over a short period of time, causing a major downward move. You are right about the company but wrong about short-term direction. |
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We make decisions based upon facts. However, most of us have trouble distinguishing facts. We also have difficulty in the degree of reliance we can place on any single fact. Moreover, there is such a torrent of information that we cannot recognize which facts are more important than other facts. Before you make a trading decision, you will want to verify the facts as closely as you can. You will also want to assess the source of the facts. Most of the time, the statements of fact that we rely on come from sources that we have not independently verified. When the weatherman states that it is now raining, I can look for myself in order to verify the facts. But when the weatherman predicts tomorrow's weather I can't verify that forecast. And rather than rely on my own assessment, I may tend to believe that a professional prediction of a proposed fact is better than my own. |
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Assessing and evaluating the source of "facts" is crucial. The view of the facts espoused by the chief executive officer of a company may be especially biased. Remember that facts can be sculpted, twisted, bent, and restated. Lawyers manipulate facts all the time. There are lies, damn lies, and statistics. When it comes to statistics, "figures lie and liars figure." So carefully examine the facts upon which you base your trading decisions. |
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