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II-Inverted Reasoning and its Consequences
IT is hard for the average man to op- pose what appears to be the gen- eral drift of public opinion. In the stock market this is perhaps harder than elsewhere; for we all realize that the prices of stocks must, in the long run, be controlled by public opinion.
The point we fail to remember is that public opinion in a speculative market is measured in dollars, not in popula- tion. One man controlling one million dollars has double the weight of five hundred men with one thousand dol- lars each. Dollars are the horse-power of the markets the mere number of men does not signify.
This is why the great body of opinion appears to be bullish at the top and bearish at the bottom. The multitude of small traders must be, as a plain
necessity, long when prices are at the top, and short or out of the market at the bottom. The very fact that they are long at the top shows that they have been supplied with stocks from some source.
Again, the man with one million dol- lars is a silent individual. The time when it was necessary for him to talk is past-his money now does the talk- ing.
But the one thousand men who have one thousand dollars each are conversational, fluent, verbose to the last degree; and among these smaller traders are the writers-the newspaper and news bureau men, and the manu- facturers of gossip for brokerage houses.
It will be observed that the above course of reasoning leads us to the con- clusion that most of those who write and talk about the market are more likely to be wrong than right, at least so far as speculative fluctuations are concerned. This is not complimentary to the “moulders of public opinion,”
but most seasoned newspaper readers will agree that it is true. The press reflects, in a general way, the thoughts of the multitude, and in the stock mar- ket the multitude is necessarily, as a logical deduction from the facts of the case, likely to be bullish at high prices and bearish at low.
It has often been remarked that the average man is an optimist regarding his own enterprises and a pessimist re- garding those of others. Certainly this is true of the professional trader in stocks. As a result of the reasoning outlined above, he comes habitually to expect that nearly every one else will be wrong, but is, as a rule, confident that his own analysis of the situation will prove correct.
He values the opin- ions of a few persons whom he be- lieves to be generally successful; but aside from these few, the greater the number of the bullish opinions he hears, the more doubtful he becomes about the wisdom of following the bull side.
| Author | G. C. Selden |
| Language | English |
| No. of Pages | 140 |
| PDF Size | 4.9 MB |
| Category | Self Improvement |
Psychology of The Stock Market Book PDF Free Download