paucity of analytical effort would not have been sufficient to handle a wide variety of market conditions. Nevertheless, the results were significant in several respects:

• It was demonstrated that transaction intervals of the order of ten days could be achieved with enough action signals generated to assure 100% time investment of funds.

• It was shown that the theoretical maximum of about 2400% per year yield on invested funds could be produced.

• It was found that the expectation of 90% decision accuracy could be achieved.

• It was learned that the average indiwdual will do best by concentrating on a thorough analysis of a few issues. The analysis time requirements to handle a large number of issues is prohibitive unless a staff of personnel is utilized.

• The high expectation of decision accuracy eliminates the need for wide diversification, [t is probably best to limit commitments to a maximum of two to four issues at any given time.

• It was shown that the theory is valid, and the methods work. All you need to do is to master the techniques-and avoid the psychological barriers inherent in extracting the magic from stock transaction timing!

chapter nine

Why Stock Prices Change

• How Decision-Making Enters the Picture

• Understanding irrational Decision Processes

• What You Should Know About Fundamental Factors

• How Company-Related Fundamentels Affect Prices

• The Influence of Broad Environmental Factors

• Should You Sell in Event of War?

• What About Currency Devaluations?

• How National Crises Should Affect Your Decisions

• How the GNP Affects the Market

• Now Compare Cyclicality vs. History!

• The Impact of the Fall of France

• Here is How Long-Range Cyclicality Affects the Market

• Summarizing Price Change Causes

Up to this point the objective has been to put into your hands as rapidly as possible the essentials of a price-motion model, some methods of puttmg it to practical use in transaction timing, and an integrated approach to investing based upon it.

It is time now to fill in some gaps; to provide you with increased confidence in and understanding of why the techniques work. Such understanding is not needed when all goes smoothly, but can stand you in good stead if your emotions get out of hand or things dont occur quite as expected.

Why Stock Prices Change HOW DEaSION-MAKING ENTERS THE PICTURE

You must now force yourself to abandon many traditional investment concepts, replacing them vrith new ones. This is not easy to do, and a reasonable rationale for doing so is an aid.

For example, you must revise your concepts of risk.

Traditional investment procedures based upon research of fundamentals result in long-term trades with little possibility of capitalizing on the huge yield rates possible through short-term transactions and profit compounding. Price oscillations in this approach are evils to be survived, and the only way in which risk can be reduced to an acceptable level is to select good stocks, be thorough in your fundamentals research, have faith in business, and train yourself to be very patient. Short-term trading catches you up in the oscillatory action and presents inordinate risk in this t e of investing.

However, you have now been exposed to a radical thought: namely, that these oscillations have a personality of their own, with characteristics which permit a certain degree of prediction-and hence the risk of short-interval transactions is drastically reduced! Many deeply ingrained investment traditions are thereby rendered not only invalid, but are put in the new position of themselves representing untenable risk.

To make the necessary attitude transition deep down, you must be able to accept the credibility of the phenomena described by the model. To aid you in this reorientation we need to go back to the basic tenets of the price-motion model and establidi a creditabOity base.

"X MOnvATION

CONVERSION MECHANISM

STOCK FUUCniATIOMS

K-l

How Prices Fluctuate