Being Right or Making Money

Chapter 1 and 2 were good but not the rest of the book.

The book is ok.
Not so good, not so bad… I wouldn’t recommend it.

The sheer lack of reviews for this wonderful book really surprises me. I am no client of Ned Davis though I have come across his charts once in a while when some blog posted the same as a validation for his theory.

The book is not really about making money though it does provide you with enough ammunition as to how one could use data sets to build process that provide one with a better perception of the market.

The only guys who will end up disappointed will be those who bought the book with expectation that he will spill the beans on everything he has created and end up destroying his business. 🙂

The book consists of literally hundreds of charts, many of which can be created (provided you have the data) by any normal charting software. How you use it though will come down to your own understanding of both the markets and the model.

For those traders / investors who are bit biased on the quantitative side, this book is a real gem in terms of ability to generate ideas. If you are buying this book with the hope that you can directly implement many of the ideas onto the market, you may end up disappointed.

I’ve read hundreds of investment books and this is in my opinion a must read. A structured, disciplined approach to macro investing.

Very extensive documentation of overall timing systems. Exactly what goes into the system, how they work. A lot of graphs showing the results. They focus on overall market timing, it does not cover individual stocks. A look ahead, of there expectations, this was written in mid-14, and they are expecting a pull back. That is a still valid expectation. They also have a chapter on new energy developments. Overall a very good book.

Ned Davis, the Senior Investment Strategist and founder of Ned Davis Research, has become legendary in the finance industry for his market letters combining fundamental data with technical indicators over the last 40 years. Without having the data to back it up I am also of the view that he’s often been quite correct in reading the market.

The name of the book refers to the practice of making forecasts (trying to predict what the market will do in the future, i.e. “being right”) versus developing an investment strategy that could make you money despite the fact that forecasting doesn’t work. In the introductory chapter Davis points to the keys to making money as being; using objective data instead of gut feeling, following a disciplined strategy, being flexible to adjust in response to changing environments and employing risk management practices to ensure mistakes don’t get out of hand.

The setup of this book is somewhat unusual. The first 4 chapters (or about 115 pages cover) the philosophical aspects of Davis methods, the practical aspects of how to build models to be able to trade financial markets and further examples of a market model for equities and bonds respectively. Then the remaining 3 chapters or 100 pages add on some somewhat unrelated thematic pieces on the risk for a bear market in 2014, the investment implications of demographic developments and whether the US will become energy independent. Most chapters are written by others than Ned Davies and I’m frankly not sure what to make of the second part of the book – is the reader being served samples of the type of research Ned Davis Research can perform? For me the first part is the core, the rest is an appendix – albeit with interesting features.

With the aim of “trying to get into harmony with the reality of the current numbers” Ned Davis Research builds multifactor models out of a number of indicators of different types to gain a trading view of a specific market. The indicators look to market prices, monetary policy, investor psychology etc. and some of the internal rules at Ned Davis Research are “don’t fight the tape”, “don’t fight the fed” and “be wary of the crowd at extremes”. The book gives examples of a number of the indicators in use, including graphs and some data on how they have faired historically. A full model is constructed by giving an indicator +1 if it is sending a positive signal, -1 if it sends a negative and 0 if it’s neutral. The models sums up to a total score, although some indicators could have higher weight than others. The combined score is the view on the specific market.

As evident we are talking about trading models with relatively short time horizons. The approach is data driven and very objective and in that way supports the trader in handling his own market psychology. With 40 years’ practice Davis and his coworkers have also thought long and deep on which indicators to use to read the market. The indicators used actually look to fairly different time horizons where most are trend following and some are shorter-term contrarian. As they have such different characters I wonder if it’s the best practice to simply sum them up. Also adding up to 35 indicators on top of each other to give one numeric grade of what is happening surely brings a valuable simplicity but could also in my view risk concealing what happens beneath the surface and as such obstruct deeper market understanding.

Although I’m not a trader myself I have huge respect for the work Ned Davis does as he looks to numbers and validates what makes money and what does not. I like the approach of reading what the market is doing instead of trying to guess what it will do. As a book however, the first part is relatively short and sketchy and the second fairly unnecessary. If Davis in the next edition would use all of his available space to share his insights into model building that could become a trading literature classic.

Besides being a high quality and beautifully constructed book, the content is extremely interesting. The first three quarters of the book are more about trading and they indicators Davis follows. The last quarter are some interesting articles are demographics and energy independence. All in all, the book is well done. Although I found his “simple” indicators not so simple it is interesting to see the broad system. I found the macro articles really well done and puts things in great perspective. Super book !!

I’m the CEO of a professional investment advisory and very familiar with Ned Davis Research. I started reading this book with high hopes but soon realized that it was mostly written for his clients.

This book is really designed for those who subscribe to NDR’s (very expensive) newsletter service (and it is important that they read this book thoroughly). The first chapters explain how nobody can accurately predict… the early-middle chapters explain how NDR predicts (without showing how to duplicate their indicators)… the late-middle chapters predict that 2014 may see a severe bear market, which may prove to be wrong… and the final chapters suggest that the U.S. will ultimately benefit from the last two years of Obama’s Presidency Cycle and demographics and cheapening regional oil, which may prove to be correct.

I’d love to see Ned Davis write a book that would better serve those readers who are not his clients. Maybe next year.

The approach is the same as mine: this is not a dry text of concepts, but a check list of what indicators (Macro and Micro) should be considered before committing to a trade. It’s written by an author who clearly does this in real life, not an academic theory of what might possibly work. I like that the indicators and concepts are all explained – in their calculation and their application. I have already covered the cost of the book many times, & my decision making is more rigorous. My only complaint, is that the book has charts in it that cannot be read by the human eye – labels in a 5 font? You will need a powerful magnifying glass.