Market Indicators: The Best-Kept Secret to More Effective Trading and Investing

Part II. Considering the Human Element

	Not everything that can be counted counts, and not everything that counts can be counted.
	--—ALBERT EINSTEIN

In the first part of this book, we reviewed a wide variety of methods that examine and compare numerical market data. The results offer clues to the future direction of stocks, sectors, and markets. These are useful, worthwhile tools.

For all its usefulness, however, ratios and charts are not the only thing to consider when looking for ways to make better-informed investment decisions. Numbers, with their cold, hard logic, don't operate companies or deliver services. They can't model the inherent chaos of life, nor account for the surprisingly frequent accuracy of human gut feeling.

I got a taste of that accuracy shortly after my first management interview with the CEO of a small hardware chain. They had sustained ongoing operating losses, and investors were concerned that competition from The Home Depot and Lowe's were overwhelming them. But the chain was shifting to specialize in serving professional contractors, a niche management claimed was strong, and had land and buildings with a cost basis that went back decades. We felt the balance sheet undervalued this asset. One of their divisions made windows and was itself profitable. If they shut down all their stores, sold their land, and auctioned the window division to pay creditors, we estimated, their shares would still be worth more than the $5 current stock price. If management could ...