Interesting comments Susan. I too feel it is an art. Those that go against it think it must be a science and thus a black box. IT is not. It is like anything that takes time to learn. I wrote an article on pattern recognition and will put it on this thread in a minute. thanks for reminding me of it. I like the people on this thread. All very nice and positive. Not like other threads I have experienced. Let me find the article and i'll paste in on this comment.
"FLASH OF GENIUS"- Forbes November 16th 1998
On Becoming a Craftsman
I was cleaning up my desk to start out the new year with a clean desk and I came across this article from Forbes along with some of my commentary. What caught my eye was the sentence "We need to pay much more explicit attention to teaching pattern recognition." This comment was made by Professor Herbert Simon. The article went on to say, "Simon won a Nobel Prize in Economics in 1978 for theories of decision making that turn on the nature of human expertise. His central finding was that pattern recognition is critical. The more relevant patterns at your disposal, the better your decisions will be." I found it quite interesting when he discussed chess mastery. Most would think that mastering the game of chess relates to analysis but Dr. Simon suggests that isn't the case. Success in chess relates to pattern recognition. I can picture Bobby Fischer playing Kasparov of Russia in a chess match. Each is seeing patterns on the chessboard just like we would see patterns on a stock chart or a bullish percent chart. On Intel's chart it was clear to the trained eye that the stock was making higher long term bottoms as the broad averages made lower bottoms. The untrained eye would not have picked up on this subtlety but this pattern spoke volumes about the probable direction of Intel. It's like a colorblindness test. Have you ever taken one in a doctor's office? Most have. It's a card with colored spots on it. The person who is not colorblind will see the number within the dots clearly. Those who are colorblind will not. The craftsman in Point & Figures will see patterns that the uninitiated will never see, and this is what shifts them up to a much higher plane compared to other professionals in the business. By clearly understanding these patterns whether on a chessboard or the big board, the initiated will have the confidence to act rather than react.
"What makes a good doctor, lawyer or stock picker?" he asks. It all relates to pattern recognition. It relates to experience as well. "Mozart composed for 14 years before he wrote any music you'd regard as world class,.... you can tell juvenile Mozart from 18 year old Mozart." He suggests it's the same in all fields. "Bobby Fischer got to grand master title in chess in just under ten years, and so did the Polgar girl. Brain power matters but so does experience". He goes on to suggest that even your doctor has probably diagnosed your problem before you finish telling him all the symptoms. We at DWA often know the answer to portfolio questions asked by our broker clients before they finish illuminating the problem.
What Does It Take To Do World Class Work
No matter what profession you are in, there are those who are world class and those who are other than world class. Professor Simon says: "It takes at least ten years of hard work-say, 40 hours a week for 50 weeks a year--to begin to do world class work. We found it takes eight seconds to learn a pattern for a day, and quite a lot longer to learn it permanently. That takes you to the million pattern estimate, it you allow for certain inefficiencies in learning and also for forgetting." This is why there are relatively few professionals in the investment business one would call world class. The term we use for it is Craftsman. How long do you think it took a cobbler in the 17th century to learn his craft? How about a Cooper? I surmise that it would have taken about 10 years. Those who have reached world class level have seen approximately 1 million patterns. This is exactly why it takes so long to become world class in the investment business. So many professionals jump from one thing to the next -- they never take the time to do one thing well. To be world class one must choose something that one will become a craftsman in. Susan calculated that over the last 10 years, charting about 400 stocks per day for fifty weeks a year comes to about 1 million stock charts she has seen. This is why she has such insight into the Point & Figure Chart patterns of stocks, sectors and the market. This also goes with the rest of the analysts at DWA. I get asked frequently "what will happen when everyone is doing Point & Figure Analysis". My response has always been that to become truly good at it one must take years of study and most people do not have the time nor the inclination to become a craftsman at this method of analysis. Only a select few will go the distance. Where a method becomes self-fulfilling is when investors follow one "guru" like Joe Granville was in years past, and simply do what he tells them to do until the inevitable happens. For the method of Point & Figure to reach saturation status like the flock of sheep Granville used to have would take a tremendous number of investors to choose to become craftsmen or world class in this method to make the kind of difference Granville's sheep did.
Here is what normally happens. A broker reads our report and gravitates to the breakout page. He looks at one symbol that says Double Top Buy Signal, buys that stock with no other analysis, and gets whacked. He or she then says this doesn't work and then moves on to the next strategy. Every now and then one will pick up my book "Point & Figure Charting" and actually read it. He will then begin to implement the strategy. Somewhere down the road he will keep a few charts by hand himself. His feel for the subject then increases tremendously. He loves the new confidence he has. He then continues to learn and apply, until years later he looks back and can clearly see a distinct difference between his abilities then and now. His journey has still much further to go to reach world class, but he is on the way. His client retention is now high as is his confidence. He now maintains 200 stocks a day and looks at many more through our internet system. When he nears the 10th year he is approaching world class and the number of chart patterns he has viewed is approaching 1 million. He no longer needs to read the financial newspapers, or watch the financial TV shows. Major statements made by Wall Street pundits will have no affect on his thought process. He (or she) will instinctively know what to do when presented with market, sector and stock chart patterns. It will become like a child who graduates from high school who has totally memorized their multiplication tables. Remember your mother working with you on multiplication using flash cards. These were patterns you eventually memorized. You now instinctively know 9x9 is 81.
How many of you have been doing this for longer than 5 years and are now feeling comfortable with this investment process? You're on the road to world class. There's nothing like being world class at something. To get there it takes determination, patience and hard work. There are many other methods of analyzing the market that one might choose. Do you plan to become a world class investor? You only have one life to live.
Tom Dorsey |
