A Stock Picker Who's Always on the Lookout

My email inbox over the past two years has often resembled a cavalcade of sorrow and regret: Physicians, engineers, teachers and ad salespeople have bared their souls to admit repeated and unexpected failure as investors -- buying tech stocks near highs in 1999 or 2000 and holding on as the market blasted them to bits.

I have always found these confessions intensely curious because they explode most assumptions about the link between speculation and emotionalism. These were not foolish people; they were logical, tenacious, high achievers who planned their long-term trades carefully. How could they fail so abjectly at the task of investing, which seems on the surface to reward the rational?

The answer is that the market does indeed reward reason, but in ever-changing ways both hidden and extremely complex. Like the locked-down rules of convention or science found in law and physics texts, the rules of stock investing begin from a steady and sensible base. But the rules can also mutate quickly, paradoxically and capriciously. Nimble, experienced traders who observe and act upon these rule changes with ease extract huge sums of money from the market in short order. Investors who instead play strictly by a fixed set of rules -- however useful and immutable they might once have seemed -- are often their chastened counterparts, the losers of that money. ...