At some point in my life I came to the conclusion that military boot camp accomplishes something that would be truly useful for investors, in particular, technical analysts. Boot camp, officer candidate school, etc. are all designed to accomplish a few things. One is to weed out those who cannot meet the preset standards. Another, and the one I’m really writing about, is to remove preconceived ideas and beliefs and then build you back up with a fresh look at things. The following story is true. I say that because old fighter pilots have a huge tendency to embellish the past.
In 1971 after graduating from the University of Texas with a Bachelor of Science degree in Aerospace Engineering, the country was in recession, and the marketplace for new engineers was scarce, so I joined the United States Navy hoping to become a carrier based fighter pilot. Of course, that meant I had to become an officer and that in turn meant I had to attend Officer’s Candidate School in Pensacola, Florida. No problem, right?
In October, 1971, I drove from Dallas, Texas in my non air conditioned 1962 faded blue four-door standard transmission six cylinder Chevrolet Bellaire. This fine automobile had been with me since I was a junior in high school and had close to 175,000 miles. In the trunk I had a box of my aerospace engineering books because I knew they would be impressed and probably want me to teach the others about aerodynamics, heat transfer, and boundary layer theory. I started to include my golf clubs, but later decided I wouldn’t have that much spare time between learning to be an officer, teaching aerodynamics, and all the social aspects of being a Navy pilot. Additionally, I was a private pilot since 1967 and assumed I knew all there was to know about flying airplanes. Wow - was I in for a shock! A shock on multiple fronts.
After checking into a world war two barracks (I knew this was just temporary because at that age I already knew everything), I was told I did not need anything from my car and only needed the clothes on my back. I was excited as I thought I’d be issued my jet flight equipment and some officer uniforms the next day. Then I was told to get a good night’s rest and expect to get up fairly early. They were all quite nice. When I dropped off to sleep that night (the barracks was not air conditioned), it was the last moment of that part of my life. At zero five hundred hours (5am, which later became 2 bells) I was startled awake with a horribly loud banging sound and someone yelling at me. The banging sound was made by a metal trash can being kicked down the hallway (which later became known as the passageway). The yelling came from a lean muscular guy in a Marine drill instructor uniform, which was complete with a Smokey the Bear hat. Clearly, he was not aware of why I was there and had me confused with a felon, escaped convict, or something of that nature.
That was the beginning of a four month period of my life that I honestly believe I can recall every single minute of it because it was so dynamic, frightening, tiring, scary, disconcerting, exhausting, need I go on? If you have never been on the other side of a United States Marine Drill Instructor freshly back from Viet Nam, you have missed one of life’s remarkable events. Their goal over the next four months was simple; break me down to almost nothing, then build me up physically and mentally the way the Navy wanted me to be – an officer first, a pilot second. They did it.
You are probably asking, what was that all about and what does it have to do with technical analysis? Fair question and very appropriate. All too often one gets into technical analysis after having failed a few times using the myths of diversification, volatility being risk, and so on. Supposedly technical analysis then offers a much clearer path to how they think analysis should be accomplished; this of course is also another huge problem because of all the esoteric stuff that has become attached to technical analysis. I already have an article written on that, called Technical Analysis Magic, but haven’t worked up the nerve to publish it yet. Remember I don’t want to offend anyone, but cannot sit idly by and observe investors believing in technical nonsense.
Okay, back on subject. The time spent previously with the markets plus the learning curve of technical analysis carries a lot of baggage. It is this baggage you need to get rid of and the faster the better. Remember the goal of the Marine drill instructor was to break me down and build me up the way the Navy wanted me to be. There aren’t any boot camps for technical analysis that I know of and if there were, I’d be a little leery. There are a number of good trading coaches and literally hundreds of great books and newsletters. The problem again is that those new to technical analysis don’t know where to turn and often turn to the first smiling face they see. Sometimes they will be lucky and find a sincere knowledgeable person and probably more often they will fall into a marketing-oriented scheme that appears good on the surface. Sadly, that path is often not recoverable because they are eventually turned off by technical analysis and go back to losing money the old fashioned way. I have produced a couple of lists of recommended books. You will notice many of those in these lists are not books dedicated to technical analysis. Technical analysis is the vehicle, your mind is the driver. That is the biggest obstacle you will have in investing, no matter what the discipline is. A few of the books will aid in your understanding of how markets work and generally behave, others will help you focus on the markets and their history. Golf and investing have something in common; the worst space is the distance between your ears.
I know you already know this, but I want to state it just in case. StockCharts.com’s ChartSchool is as good as it gets for learning technical analysis. StockCharts.com has also captured the talent of most of the good writers and authors of technical analysis (I snuck in the back door – don’t tell Chip!). The diversity of talent in the various arenas of analysis is wide and deep. You do not have to stray away from StockCharts.com for almost all you need to learn and become proficient in technical analysis. In the lists below, be sure to check out StockCharts.com’s bookstore. Chip has always told me his goal with the bookstore is just to break even, it is not treated as a profit center so the books are priced very well.
Recommended Reading Lists
Shameless Self-Promotion: Morris, Gregory, 2013, Investing with the Trend, Wiley / Bloomberg Press. Please read the reviews on Amazon. Also, I do not recommend the electronic version because the book is filled with charts and tables.
There are many great books available in the field of technical analysis and finance. I’ve inserted a few personal notes after each book. However, I’m going to keep the list short and focused. If I had to pick a library of only four books, the Getting Started List below is it.
Getting Started List
Kirkpatrick, Charles D. and Dahlquist, Julie R., 2011, Technical Analysis (2nd Ed.), Pearson Education, Upper Saddle River, NJ. This is the book I buy my family and close friends who want to learn technical analysis.
Easterling, Ed., 2011, Probable Outcomes, Cypress House, Fort Bragg, CA. Ed runs the crestmontresearch.com website and has great articles and big picture analysis. He is the one who has actually defined what a secular market is. See previous article titled “Secular Bears.”
Bernstein, Peter L., 1998, Against the Gods, John Wiley and Sons, New York, NY. Absolutely the best read on risk and written by one who has great writing skills.
Montier, James, 2010, The Little Book of Behavioural Investing, John Wiley and Sons, West Sussex, England. I recommended this book in a previous article titled “Know Thyself.” It is one that should be read annually.
Further Recommended Reading
I’m not sure why I started this list because there are so many great books on investing and technical analysis out there now that it is difficult to decide which to read. I guess I just answered my own dilemma as I have read many, if not most of them and these are the ones I personally would recommend. When I started in this business the bookstores only had a couple of feet worth of books dedicated to technical analysis. Now there is a whole rack which shrinks during extended bull markets and grows during and after bear markets. As a quick guide to eliminate books; when the words forecasting, prediction, gloom, panic, Dow 50,000, How I made a Billion Dollars in three days, etc. are in the book title, just move on. And finally, selecting books written by someone who actually trades with real money will probably (but not always) be a good choice.
Pring, Martin J., 1985, Technical Analysis Explained, McGraw-Hill. This is a thorough coverage of the components of technical analysis.
Bernstein, Peter L., 1992, Capital Ideas, John Wiley and Sons, Hoboken, NJ. The late Peter Bernstein was a superb writer.
Makridakis, Spyros and Hogarth, Robin. 2010. Dance with Chance, Oneworld Publications, Oxford, England. If you want to understand risk and probabilities in a non-mathematical manner, this is it.
Mandelbrot, Benoit, 2004, The (Mis) Behavior of Markets, Basic Books, New York, NY. Mandelbrot tried to let “modern finance” know their Gaussian statistics approach to risk was inappropriate, but they ignored him, and still do.
Shefrin, Hersh, 2002, Beyond Fear and Greed, Oxford University Press, New York, NY. Helps you understand why you make some of the decisions you do. A reminder that you are human.
Solow, Kenneth R., 2009, Buy and Hold is Dead Again, Morgan James Publishing, Garden City, New York. A supporting book for something other than buy and hold.
Tetlock, Phlip E, 2005, Expert Political Judgement: How Good Is It? How Can We Know? Princeton University Press, Princeton, NJ. Deals extensively with forecasting and predictions and how absolutely horrible most are.
Fox, Justin, 2009, Myth of the Rational Market, HarperCollins, New York, NY. Supports the use of technical analysis, but not in a direct way.
Coleman, Thomas S., 2012, Quantitative Risk Management, John Wiley and Sons, Hoboken, NJ. A deep analytical and mathematical book that most will not enjoy, but I did. This book is probably like mine; it will cure insomnia, prop a door open, or can be used as a small step stool.
In summary, the books listed above will serve to accomplish the buildup phase of boot camp by providing a well-rounded canon of information to keep your mind on the right track. In addition, StockCharts.com’s ChartSchool provides all the other information needed for the buildup phase. So where is the break down phase? The phase that removes all the misinformation you have acquired over the years and many have accepted on face value as being correct? That is something I have tried to do with these articles; in particular:
The Many Faces of Technical Analysts
What is it with Modern Finance?
A Few Things Other People Should Know about Technical Analysis
Can Statistics help you Invest Successfully?
And in fact many others, and my primary goal for future articles is to occasionally provide the "break down" phase of boot camp.
I set a goal of publishing every Thursday morning a month ago and twice now it has been interrupted with speaking engagements. I’m traveling to Austin, TX to speak with the MTA group there on Wednesday evening. Hopefully I can get back on routine soon, but it might be after June when all the kids and grandkids have departed after their visit. Of course you can also sign up for email notifications, however, I don’t view my articles as being timely.
Trade informed,
Greg Morris
