What is it the good managers have? It's a kind of locked-in concentration, an intuition, a feel, nothing that can be schooled. The first thing you have to know is yourself. A man who knows himself can step outside himself and watch his own reactions like an observer... 

George Goodman, The Money Game

The Speculator's Statement

Financial markets are in a constant state of intrinsic uncertainty, where success is not achieved solely through the correct estimation of present value of earnings or economic projections, if such a thing were even possible, but rather on the capacity to detect and profit from the formation and dissolution of shared perceptions. As a stock picker, an accurate estimation of future earnings will not ipso facto make one a successful operator in the stock market. Fund managers as a whole are worthless because they don't understand the nature of financial markets. Why? 

A successful speculator thinks beyond patterns, numbers, and charts. What perceptions, expectations, and changes is the market sharing, ignoring, and discounting? In equilibrium, stock prices should equal the present value of discounted future earnings. The market is never in perfect equilibrium, although it may pass through it. A participant in the stock market must execute in the reverse framework of what is conventional. The convention is to calculate an intrinsic value for a stock, and if the stock is below (above) this price, to go long (short) the stock. This is incorrect, there is no readily identifiable intrinsic value because market prices are based off future expectations and the whims and fantasies of thousands of irreconcilable opinions, which are always changing. 

There are many conventions in the world of finance. Fundamentals, Technicals, Charts, Liquidity, Macroeconomics, etc. Market participants cling to one or more of these conventions and make it their religion. They all think that their conventions can predict the future price of a security - the truth. In fact, none of them represent a truth, they are only a part of it. They will work sometimes, but not all the time. Fundamentals are not always reflected in the price, nor are they never reflected in the price. Each stock is traded differently. Some like lottery tickets, others like insurance, some as actual businesses. This is important to know.

Anyone following a "system" is doomed to fail. Systems are doomed to fail because they do not take into account the principle of ever-changing cycles. However, from time to time, many market participants - a majority - will share a convention while pricing a security. Diversity of opinion vanishes and this causes pricing anomalies to occur. The dissolution of this frame, this convention, will do the same. A speculator's job is to find such pricing anomalies and exploit them. Providing liquidity in times of distress (bringing out the cane) is also a lucrative proposition. The markets are always changing and one must adapt...