calls this a persistent delusion.
Going with the Money Flow
It's one thing to talk about following the money flow, another to do it.
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To feel confident in your investments, it's important to know what's happening in the world's markets. This is no more than using market reading skills (pattern recognition, investigation, observation, measurement, situation awareness skills). You need a framework to understand what's occurring.
The basic idea being to protect yourself from being poor, if not to become wealthy, you need to own things that are increasing in value. That might be American dollars, Chinese Internet stocks, UK bonds, raw land in the Ozarks,...whatever. So you want to trade what you own for something that might improve your situation. You want to be in the good stuff and out of the bad stuff. And for that you need some kind of model, a guide, or an operating procedure. The model should provide a strategy and set up information for buying and selling. We need to say how the markets are trending. We need to screen out those equities of the overall market that would be good candidates for trading. It would be great to buy "only those stocks that are going up."
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To profit, you must be long in a stock that's moving up, or short in a stock moving down (or have your money in a holding tank, such as a short-term money market). So you need tomorrow's data today. The model has to be detailed and accurate enough to tell you, today, what the markets will be doing tomorrow. Henry W Dunn
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Our criterion is capitalization, so we focus on markets that have the largest monetary participation. One large money pipeline is the corporate purchase or sale of their own stock, which means insider buying or selling. We then have to read the charts of the individual markets (either visually or using a computer) to anticipate tops or bottoms in each of them and thus determine, respectively, whether money is moving out of them or moving in.
The idea is to form an in-depth overview of the market to keep track of where money is going -- an inter-market analysis to anticipate where it will go next.
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Both domestic and international markets should be represented. Based on percent of world market capitalization, our model should include the largest and most influential markets, namely the markets of the US, Japan, England, and Germany. Secondary markets should then be drawn from North America, Asia and Europe, and from the major markets in South America, like the Brazilian Bovespa.
The model should include (1) the largest commodities markets, like precious metals, energy, copper, food, and steel (inflation stocks) and (2) the financials (interest sensitive stocks like the banks, life insurance companies, and utilities), which benefit from falling inflation and falling interest rates.
Finally, we can identify special economic sectors. To see how you might invest in these stocks, you might consult the book, How to Be a Sector Investor, by Larry and Steve Hungerford.
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