By: Chris Rowe — March 3, 2019
When I was coming up on Wall Street, I had an excellent mentor.
My mentor had an excellent saying. He used to tell me, "Chris, a man has two tongues. One in his head, and one in his shoe."
He left it for me to draw the obvious conclusion: Pay attention to what people do -- where they plant their feet -- NOT to what they say.
I thought of this not too long ago, while watching CNBC.
An exceptionally smart real estate mogul named Sam Zell was holding forth on how apartments were the "absolute greatest" investment, with prices "almost surely" going up.
I (and thousands of others) witnessed him saying this, in real time. He was very persuasive. I would have sworn he believed every word he was saying.
I was so psyched I even paused my TV so I could jot down some notes on my phone.
Well, the following week I saw that same guy Sam Zell announce he was selling out of more than 23,000 apartments for $5.4 billion to Starwood Capital Group!
Sam Zell, you dirty doggy. His WORDS said one thing (apartments are the greatest investment)...
But his ACTION told us the truth about what he was thinking. THE TRADE HE MADE (selling apartments) told us exactly what he was really thinking.
I’m not always as tactful as I should be, so I get into trouble. Do you know anyone else like that?
Growing up on the streets of Queens NYC., they called it “keeping it real".
Words mean little to me. People's actions are all that matter in my book, especially when gauging someone's level of commitment.
Maybe that’s why I’ve managed to build my wealth to where it is today.
You see, I'm a technician and technical analysis is the truth in its purest form. It studies price behavior, which is simply the end result of peoples' actions as revealed in Buy and Sell orders. It doesn't get much more honest than that.
Sam Zell's mouth said one thing and a week later his actions said the opposite. So don't bother listening or reading to what analysts, commentators, CEOs or celebrity investors are saying.
Zell, and other powerful investors are often accused of “talking their books”, meaning they comment in the media about how great an asset is in order to push the price higher where they ultimately sell the asset.
After all, every talented negotiator works to convince the other side they're getting a great deal.
We never know for sure who’s talking their books. But there's one thing we are sure of: The action of the investment, itself. That surely gives you the investor's honest opinion.
The fear of potential financial losses (and the desire for financial gain) will always separate the real from the fake, when "deal time" finally arrives.
Technical analysis lets you see where real money is really being invested. For that reason, it always tells the truth about what investors are really thinking.
And that's why the best indicator of future price is recent price action.
In December, we saw the stock market drop more than 15% in three weeks.
Instead of panicking, it was wiser (and truer) to focus on what this sharp decline in a short time really means. It means huge institutions are telling you what assets they're no longer interested in holding.
In the stock market, actions speak loudly and words barely whisper. So don't bother listening to what the media is telling you. When they shriek "the sky is falling" it pays to keep your head.
Sure enough, the S&P is up almost 19% from its Christmas Eve low.
The key point is, there's no abstract, verbal "truth" in the markets. There's no "E-equals-MC-squared" kind of thing when it comes to investing.
It's all subjective, because it's all about Supply and Demand. That is, what PEOPLE are willing to SUPPLY (give up in exchange for hard cash), and what PEOPLE are willing to DEMAND (accept in exchange for giving up hard cash).
It's not a formula, it's a dance. (Or if that's too genteel for some of you bare-knuckle traders reading this right now... it's a battle.)
For every bear market argument you hear, there's a bull market argument.
But don't make the foolish mistake of trying to outsmart the institutions that just sold all of that stock. Don't be so arrogant to where you're actually buying or selling stock because in your opinion something about the economy... or corporate earnings... or interest rates... or the White House... or the Polar Vortex will turn out one way or another.
And, by the way, institutions often don't buy just because they have such a good handle on future corporate earnings. They tend to buy because they know other institutions are planning to join in on more future buying.
And they sell for the same reasons. As the old poem has it, "Ours is not to reason why". Because we don't know why. More importantly, we don't care.
We listen to the market's "shoe". To prices. Because they always tell us the truth.