WHAT WE’RE THINKING
Make good choices, and results will come
In a business setting, the statement,
“He’s all about results” is considered
a compliment.
But if you look past the obvious,
focusing entirely on results can be a
mistake. Here’s an example:
Suppose two men ask me how to
cross the street. I tell Joe to look both
ways and cross only when no cars are
approaching. I tell Bill to close his
eyes and walk slowly across the street
without stopping.
Let’s assume both men follow my
advice. Joe gets pancaked by a car
he didn’t see despite the fact that he
looked both ways, while Bill proceeds
safely across the street because no cars
were coming.
Given the fairly simple example,
it isn’t difficult to determine that Joe
received the superior advice, even
though Bill achieved the superior re-
sult. But in more complex situations,
we humans tend to conclude that if
we succeed after taking a particular
action, that action was, at least in part,
the cause of our success.
It’s all about your focus
A results-oriented outlook centers
around attempting to duplicate the
circumstances that preceeded a posi-
tive result. The S&P 500 Index rose
at least 19% in each of the five years
from 1995 through 1999. A strategy of
buying fast-growing stocks regardless
The Dow Theory is a method of interpreting and clas-
sifying general market trends and does not directly
encompass the selection or rating of individual stocks
or the duration of market movements. Dow Theory
Forecasts endeavors to supply its subscribers with
sound opinions and advice based on its analysis of
public information from sources believed to be reliable.
Editor, Director of Research
Richard J. Moroney, CFA
Managing Editor, Analyst
Robert A. Sweet, CFA
2 Dow Theory Forecasts, November 24, 2008
Robert
Sweet, CFA
Managing
Editor
of valuation worked well during much
of that period.
Of course, anyone who had money
in the market in the spring of 2000
knows that such a strategy has a limited
shelf life. Decades of academic research
have proven that stocks with low price/
earnings ratios tend to outperform
those with high ratios. Yet many inves-
tors who should have known better
continued to buy stocks at incredibly
high prices during the late 1990s.
At the Forecasts, we prefer a de-
cision-oriented approach. Decision-
oriented investors don’t ignore results,
they just expect that over time, su-
perior decisionmaking will result in
superior results.
Decision-oriented people tie ac-
tions to their consequences. It doesn’t
take a genius to realize that if 100
people followed Joe’s lead and another
100 people followed Bill, most of the
first group would make it across the
street safely, while the second group
would suffer a lot of casualties.
As investors, we cannot afford to
Contributing Editors, Analysts
Charles B. Carlson, CFA David A. Wright, CFA
David B. Walle
Contributors
Robert M. Moll Jennifer R. Hopfinger
Dow Theory Forecasts (ISSN 0300-7324 USPS 997-
000) published weekly by Horizon Publishing Company,
7412 Calumet Ave, Hammond, Indiana 46324-2692.
Subscription Rate $279 a year. Back issues are available
for $10 each by writing to the address above, or free to
our subscribers on our Web site at www.DowTheory.com.
Periodicals postage paid at Hammond, Indiana, and at
look beyond results. The average stock
in the S&P 500 Index is down 47%
this year. That’s not just a number on a
page, but reflects real-money losses for
those of us who own stocks in the S&P
500. However, focusing entirely on
results can lead us to bad decisions.
Stay the course
Results-oriented investors see
most stocks going down and come to
the obvious, if short-sighted, conclu-
sion that the best strategy is to sell
everything to avoid further losses.
That strategy feels good today, and
may feel even better next week if the
market has a couple bad days. But a
year from now, or perhaps even three
or six months from now, your results-
oriented strategy could have you
smelling the exhaust of a bull-market
train that passed you by.
Stocks have generated much higher
returns than cash equivalents over the
last 80 years. History tells us if you
give them time, stocks will rebound
and generate wealth. Our research
tells us that stocks with high Quadrix
scores should generate greater wealth
than the average stock.
For decision-oriented investors, the
course is clear. Hold some cash, but
maintain exposure to quality stocks.
The ride gets bumpy at times, but this
train is still the best way to get where
you want to go.
additional mailing offices. When you move—Please notify
us three weeks in advance of any change in address. This
will insure uninterrupted service. Periodically we rent our
mailing list to companies with products that may be of in-
terest to subscribers. If you would prefer not to be included
in these mailings, please notify us in writing.
POSTMASTER: Send address change to Dow Theory
Forecasts, 7412 Calumet Avenue, Hammond, Indiana
46324-2692. Copyright 2008 Horizon Publishing Com-
pany. Any reproduction without written authorization
is prohibited. If you have any questions about your
subscription, please write or phone us at (800) 233-
5922 or (219) 852-3200.
MetaStock is a registered trademark of Equis Int’l.