Ned Davis Research provides some of the most interesting data and analysis you’ll find in the stock market, and in a recent interview with The Big Picture’s Barry Ritholtz, Ned Davis talked about some of the keys to his approach.
Davis, who examines an array of technical factors, says that the biggest key to making money in investing may well be flexibility. Investors all have their own built-in biases, he says, and you have to be willing to consider analyses that run contrary to those biases. He said that he searches out stories on the opposite side of the positions that he takes, in order to try to get the other side of the story.
Because we all have biases, Davis says another big key is using objective, mathematical information. “Your gut feel or your instinct, I mean yes, I’m not saying that they’re not important,” he says. “But you need something objective to back it up.” Sometimes data can be skewed, however — for example, he says any one sentiment study can have its own flaws or biases. He thus uses a gauge that combines a number of different studies and surveys on sentiment to try to get as objective a view as possible.
Davis also talks about the importance of being risk averse. Risk management is one of the biggest jobs of an investor or investment manager, he says — not making the big mistake is key to making money over the long haul.
Davis says he thinks the market was very close to a secular low in 2009, but that he doesn’t like how the Federal Reserve has been flooding the system with liquidity since then. He thinks that’s not a good way to build a secular bull market. But he says for now he’s going with the flow, and not fighting the Fed.