Being Right or Making Money, 3rd Edition

CHAPTER 3 A Stock Market Model

LOREN FLATH

A Stock Market Model

I can almost hear Ned telling his partner, Eddie Mendel, at the dawn of Ned Davis Research back in 1979, that he would need only one programmer for one year. For over a decade, Ned had been charting his favorite indicators by hand, and the work was becoming overwhelming. There were many more indicators to chart and not enough time in the day to do so. And as Ned points out in Chapter 1, he not only needed better charting, but more importantly, he needed to replace subjective trading decisions with a more objective approach. So he hired a programmer and challenged him to create software that could not only draw effective charts, but could also analyze markets in a rather unusual way. Together they developed the concept of timing models, and these models formed the basis of NDR's core positions in a variety of markets and economies. It turns out, however, that predicting that he'd need just one programmer for one year was Ned's worst call. Today we have an IT staff of nearly 30!

As Ned has pointed out many times, the bane of the investor is the Big Mistake. On the following pages I detail the makeup of one of our major models, the Fab Five. The goal of any NDR model is to keep us open-minded and disciplined, and to let our profits run while avoiding big mistakes. We realize models can be quite fickle, no matter what their ingredients are or how they are built. This model is no exception (there are no exceptions!). ...