Capital Markets.

I read this recently over at the Dorsey Wright Blog and wanted to excerpt it last week but events moved  in the way.  My highlights.

Naked Truth About Capital Markets

Here is the naked truth: capital markets are designed to reallocate money from dumb people to smart people. If that weren’t true, smart people wouldn’t play. Smart people don’t play unless they have a probability of winning. For example, smart people don’t tend to play the lottery....This might be the real reason that the rich continue to get richer....{B}eing smart about the capital markets requires a very specific skill set consisting of three things.

1) Knowledge. Smart means understanding which return factors are likely to outperform over time. If you plow through all of the investment literature as we have, you will see that it largely boils down to two return factors: relative strength {my note:  relative strenght plays a part of the calculation in our studies of money flows} and value. Both are robust and work in numerous formulations...... Success is mainly a matter of consistently exposing the portfolio to the return factor. Pick one–or both–because they complement one another extremely well. If you have just this small nugget of knowledge, you are miles ahead of the game.

2) Discipline. Smart means understanding that execution is more important than knowledge. It’s not enough to have the knowledge of which return factors will likely work over time. You need to have a systematic method of exposing the portfolio to your chosen return factor in a disciplined fashion.....  If you consistently expose your investment capital to a good return factor in a disciplined way, you are light years ahead of your competition.

3) Patience. Smart means understanding that great patience is required. Most investors, I suppose, would like to get rich quick. That’s unlikely to happen. In a karmic kind of way, the universe actually makes you earn your money by going through trials and tribulations. The E-ticket ride you get in capital markets is never easy, and often not pleasant. Both

Link:  The Naked Truth About Capital Markets