Being Right or Making Money

STAY A STEP AHEAD OF THE MARKETS BY REJECTING GUESSES ABOUT THE FUTURE AND TRUSTING TECHNIQUES THAT WORK

Today there are as many investment opinions as there are people. But as many a scorned investor can attest, predicting the future isn't easy. In fact, Being Right or Making Money, Third Edition explains that reliably predicting the future is often not even possible. The good news is that it isn't necessary either. Once you stop trying so hard to be right about the future, you can start making money.

Being Right or Making Money, Third Edition contains a position trading strategy that any serious investor will want to keep nearby. Using the unbiased, objective standard in this book, you can stay on-target for profit in all market conditions. You'll learn how to create asset allocation models in both stocks and bonds, how to make sense out of contrarian opinion, and how to use indicators to keep you focused, no matter what.

You won't find any shock-and-awe investing tactics in this book. Instead, Being Right or Making Money, Third Edition presents the solid trading model that has made Ned Davis Research Group a go-to source for market wisdom.

Foreword xi

Preface xv

Acknowledgments xvii

Chapter 1 Being Right or Making Money 1
Ned Davis

Bad News about Forecasting (Being Right) 1

Good News about Making Money 5

Being Right and Other Investment Techniques Are Overrated and Are Not the Keys to Success 6

The Four Real Keys to Making Money 7

The Battle for Investment Survival and Handling Mistakes 12

Stories of Five Successful Winners 14

Making Our Own Reality 19

The Ned Davis Research Response to All This 22

Timing Models 23

What Is Contrary Opinion and How to Use It 29

History and Risk Management 32

The Rest of the Book 36

Notes 39

Chapter 2 The Model‐Building Process 41
Ned Davis

The Model‐Building Process 41

Where to Start: Model Inputs 41

Sentiment and Valuation Indicators 42

Monetary Indicators 43

Economic Indicators 47

Internal Indicators 47

Moving Averages 48

Crossings and Slopes 49

Momentum 54

Putting Indicators Together 55

Conclusion 57

Chapter 3 A Stock Market Model 59
Loren Flath

A Stock Market Model 59

Overview of the Fab Five 63

Tape Component 64

The Final Tape Component 73

The Sentiment Component 74

Sentiment Summary 87

The Monetary Model 87

Monetary Component Summary 96

Fab Five Combo Component 97

Combo Model Summary 103

Summing Up the Fab Five 104

How We Use the Fab Five 104

Chapter 4 A Simple Model for Bonds 105
Loren Flath

A Slight Modification 109

Summary 113

Chapter 5 Potential Bear Market in 2014; Bearish Secular Residue and Then Buying Opportunity 115
Ned Davis

Preparing for a (Say, 20 Percent) Bear Market 115

Sentiment and Valuation Indicators, If One Wanted to Be Bearish 115

Other Sentiment Indicators 120

Valuation Problems 124

Trend Indicators to Plan for a Potential Pullback—Follow the Leaders 130

More Leading Indicators of Market Peaks 132

Four‐Year Presidential Cycle Risks 136

Macro Backdrop: Debt Bubble Update 139

Watching Fed Policy to Prepare for a Major Pullback in 2014 147

What Do Demographics Say? 151

Chapter 6 The Aging World: Economic and Market Implications 155
Alejandra Grindal

Global Population View 155

Why Is the Population Getting Older? 159

Demographic Developments 161

Implications of Aging Populations 165

Ways to Offset a Declining Workforce 172

Conclusion 177

Chapter 7 United States Energy Independence –A Game-Changer 179
John LaForge

What the United States Consumes 181

The Thorn in the Side of Energy Independence—Oil and Transportation 183

Choosing the Right Fuel 195

Why Electric Could Be a Game-Changer 198

Why Electric Has Yet to Take Off 199

How Far Ned Could Go 200

Nat Gas—An Indirect Play on Electric 202

The Immediate Impact of Abundant U.S. Energy Resources 209

A Potential Headache for the U.S. Manufacturing Resurgence 212

Conclusion 215

About the Authors 217

About the Contributors 219

Index 223

NED DAVIS is Senior Investment Strategist and founder of Ned Davis Research Group (NDRG) and is widely quoted by media and Wall Street sources. He has been professionally involved in the stock market for over 40 years.

STAY A STEP AHEAD OF THE MARKETS BY REJECTING GUESSES ABOUT THE FUTURE AND TRUSTING TECHNIQUES THAT WORK

Being Right or Making Money, Third Edition represents the consolidatedwisdom of the highly regarded Ned Davis Research Group. Surprisingly, this wisdom flies in the face of many of the new, trendy investment ideas that this century has produced. In this book, the Ned Davis Research specialists unflinchingly assert that risk-averse position traders have been more successful on average than the high profile, flash-in-the-pan day traders. Solid analysis and clear examples support this opinion, and the result is a book that should serve serious investors well in the coming years.

Technologies, bubbles, and scandals have left many traders' heads spinning. Building resilient portfolios and solid long-term positions isn't what it used to be. Thankfully, the changes that we've seen—demographics, U.S. energy strategy, etc.—are relatively easy to cope with once they're understood. With a solid strategy involving asset allocation models and long-term charts, this book helps readers recognize low- and high-risk opportunities, leading to the development of sound money management skills.

Coming out ahead in the long run requires, as always, a broad understanding of social, political, technological, and economic trends. These are the big ideas that really move markets. Being Right or Making Money, Third Edition was written to inform and inspire investors to rally around these issues, bypassing the spastic ups and downs that characterize day trading. When you start to think about the big ideas, big success will follow.