Page 372 - THE MARKET WHISPERER

368 PART 10 - Winning Trades

pain is at the bottom, and the situation needs to seem hopeless before you
enter as a buyer. If too many people tell you that the market will go up, you
still haven’t seen the bottom. The less you listen to people speaking “with
authority,” the greater your chances of success. The faster you conclude
that no one can assist you, especially the economists, the better off you
will be. Most economists will not admit, despite years of formal education,
that they are unable to explain why the market rises and falls. But to justify
their academic degree and their career status, they will find convincing
explanations. Ask them if they have put their money where their mouth is!

• Rule 3: Analysts have to lower their rating
When searching for the bottom, you need to do precisely the opposite of

what the analysts are recommending. Most of their recommendations are

misleading. In many cases, funds use analysts to recommend stocks which
the funds have just stocked up on. Companies also lead analysts and feed
them internal information from morning to night. Did you ever wonder

how an analyst knows how to “precisely calculate” a stock’s anticipated

profit? The analyst receives a precise figure from the company’s finance

manager.

SMART When a stock at a low is “suffering” from a lowered
MONEY recommendation or downgrade which does not cause the
price to continue falling, that is a sure sign that the weak
sellers are already out of the picture, and usually indicates
that the price will now start trending up.

The stock you are buying must be “suffering” from an analyst’s
downgrade. In all my years as a trader, I have yet to meet an analyst who
upgraded the rating to “buy” at the bottom. Almost without exception,
analysts will lower ratings at the bottom. A stock which had been rated
a “strong buy” will become a “strong sell.” The problem is the method:
most analysts rate stocks based on the ratio of anticipated profit and
real profit. When a stock realizes its forecast, analysts will upgrade their
recommendations, and when it does not uphold the forecast, they will
downgrade. When the stock fails even slightly or temporarily, they will
downgrade. When a recommended stock crashes, analysts will shamefully
downgrade. In other words, this is all part of a cop-out. Things get worse
after a crisis, because crises catch most analysts by surprise. They get caught
at the peak of the crisis with too many “strong buy” recommendations.