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Observing personal characteristics leads to a judgment of how a person will react. The juror in the box with the hat and the sunglasses, reading Atlas Shrugged, the intense angry witness, the glib expert: how will they react, what will they do as the situation develops? Jury selection is its own field of study. Mike Bloomberg elevated electioneering and campaigning to a science. An enjoyable pastime when out and about is people watching. What do the person's clothes, body language, physical appearance, way of relating to their companions, mannerisms, all say about that person, tell what he is like, what he believes, what he thinks of himself? The observables display what group they identify with, where they are from, and what and how they might react as the situation develops. None of this is from the horse's mouth. None of the information is told directly from the subject, but gathered indirectly. Some interesting parallels from intelligence and counterintelligence gathering come to mind in the process of discovering secret information without cooperation from the subject and without the subject being aware of the investigation.
This type of intelligence gathering occurs in the markets. In the market there are many observables. First is the tape record of the transactions. The tape reveals many things to the careful observer, and some say all that there is worth knowing. Like surveillance, much of the time is spent watching mundane random actions, but all of a sudden an anomaly is either noticed or discovered through analysis. The suspicious move, the unnatural condition, or the familiar move or set up appears.
But there is more. There is company information disclosed in reports, and financial, public information, governmental proclamations, press releases, news, inside in formation, industry gossip and the talk on the street, laws rules, rulings, policies, estimates, analysis, insider actions. Much of the possible information available to the observer is not conveyed expressly but as meta message or through analysis. We've talked about this in news. Other examples include the contrarian sentiment indicator, put/call ratios. Another example is the recent cited study about the analysis of clustering of certain words in company reports indicating positive or negative prospects. A silly example is the fake doctor's brief case indicator some years ago. The point is there is information above what is said directly by reading between the lines, reading the body language of the market and its participants, sifting through the spin. Observation is helpful in avoiding losing more than you have a right to lose and avoiding some of the more obvious traps being set for the unwary and gullible.
Jim Sogi, May 2005