18 December 2025

The Power of Place

Recommendation

Harm De Blij, a geographer and a philosopher, is passionate about how place shapes a person’s destiny. He parses statistics to fill in details that maps only hint at telling. He employs rich demographic information to illustrate his thesis about the makeup of the current and future Earth. While some of his conclusions are revelatory and might change the way you think and act regarding certain world phenomena, others seem a bit obvious. The book ping-pongs between mind-blowing insights and yesterday’s news. Despite its hills and valleys, it provides a fascinating new take on the world, how it has changed, and how it will change or not. BooksInShort recommends De Blij’s worldview to political scientists, investors, health care practitioners, nongovernmental organizations, those who love to collate data, and those who love to study maps and see what revelations lurk within their folds.

Take-Aways

  • Earth’s future depends on the ongoing interactions among “globals, locals and mobals.”
  • Globals are internationalized people or entities, locals are people who stay in their birthplaces, and mobals are “transnational migrants.”
  • The world is composed of a thriving core of prosperity and a desperate, poor periphery.
  • Technology may virtually connect millions, but place defines billions.
  • Most people speak the tongue, wear the garb and adore the religion of their native land.
  • Of the world’s seven billion people, fewer than 200 million “live outside the country of their birth.”
  • Most of those who leave their birthplaces are desperate immigrants, fleeing the worst possible situations to try to find something slightly less awful.
  • English has been and will remain the international language, but being monolingual will be increasingly disadvantageous.
  • Women and men in the same place likely experience vastly different lives. For instance, in 2008, 70% of India’s men could read, compared to only 40% of its women.
  • The global disparity of opportunity has a deep impact and presents a growing risk.

Summary

Your Place in Place

Place determines so much in your life. Despite the modern myth of the mobile society, the vast majority of the world’s citizens will die in the country of their birth. Most of Earth’s inhabitants will speak the language, wear the clothes, observe the mores, practice the religion, relish the gifts and lament the drawbacks of their nation of origin. Those born in abject poverty will most likely die in it. Billions of people born in poor places suffer more disease, have less available health care and will live shorter lives than the millions fortunate enough to be born in better lands.

“Globals, Locals and Mobals”

Thomas Friedman argues that the Earth is flat, meaning that culture and technology are erasing differences among peoples and nations. But globalization has a terribly unequal reach, and the disparity in access to its opportunities creates worldwide risks. From “rebels...in remote mountain caves” who desire “destructive means once monopolized by superpowers” to floods of immigrants fleeing permanent degradation, the inequities of place have worldwide repercussions.

“For all the liberating changes that have already occurred, place of birth still has a powerful influence over the destinies of billions.”

In fact, most of those who leave their birthplaces are not businesspeople or artistic expatriates; they are desperate workers, fleeing the worst possible situations to try to find something slightly less awful. These “transglobals,” who go from one imprisoning nation to the next, searching for minimal security, are mobals. As they move among nations, tensions arise. For example, the American states that border Mexico face numerous issues stemming from the mass migration of workers from Central America. Globals created much of that tension by moving their factories or entire economies from one nation to another as market conditions dictate. Often, globals have little concern for their host countries or their citizens, the locals. When globals and globalization fail, the burden falls on mobals and locals. For example, when overheated economies collapsed, as in Dubai, many badly treated foreign workers were doubly displaced, being both far from home and unemployed. Yet even as the mobal migrants of Central America, the Middle East, and Asia draw press and political attention, the fact is most people stay where they are born. Of the planet’s seven billion inhabitants, fewer than 200 million live outside the countries of their birth.

“Core” and “Periphery”

Categorizing countries as “developed” or “developing,” or as First or Third World nations, is derogatory, reductive, and anachronistic. Numerous countries, including China, house both modern areas and backward, poverty-stricken regions. The modern zones have all the hallmarks of so-called developed areas: skyscrapers, mass transit, cutting-edge medical care, a multilingual workforce and new-media saturation. The neglected areas offer what backwaters have always suffered: disease, poverty, ill-paid work, shortened life expectancy and little chance of escape.

“The overwhelming majority of us die under the governmental, linguistic, religious, medical, environmental and other circumstances into which we were born.”

A more realistic reference point is to regard areas as either in the core or on the periphery. The world’s wealth “is concentrated in a highly urbanized and strongly globalized region” encompassing the US, Canada, Western Europe, Japan, South Korea, Scandinavia, Israel, Australia, New Zealand, Singapore and the coasts of China – that is, Europe through North America, plus East Asia and Australia. This area is “the global core.” The periphery is everywhere else. The cities and megalopolises with the best living standards are in the core, while other exploding megalopolises – Lagos, Kinshasa, São Paulo, Cairo, and so on – are in the periphery. The 15% of the world’s people who live in the core generate 75% of the world’s income. Millions of mobals try to leave the periphery for new lives in the core. Locals try to keep mobals out. Globals encourage or discourage mobal movement as suits their corporate needs.

Disappearing Languages

Language contains culture. As regional languages die, countless people lose the language of their past and the culture it contains. The death of regional tongues means the rise of lingua francas and global languages. During the colonial era, English became a global language and, sometimes, formed combinations with native languages. In Britain’s far-flung colonies, English was the lingua franca, the general language of administration and power. Locals who wanted to advance in business or society had to learn the language of their occupiers. Then, as now, if you grew up in a peripheral hamlet with little opportunity to learn the argot of the cities, you suffered a life-long disadvantage. Mobals must know multiple languages to have any chance of a better life.

“Language is the essence of culture, and culture is the epoxy of society.”

Japan and France jealously guard their languages against English encroachment. Less than one percent of Japanese are fluent in English. Japan’s economic power shows that “you can have globalization without Anglicization.” Estimates suggest that soon one-third of all people will learn English, but native English speakers – now the least likely people to speak another language – will need to learn a second tongue to function in the coming multinational landscape. Some predict that, one day, Mandarin Chinese will be a dominant international lingua franca, but evidence suggests otherwise and says that the world will keep speaking English, “the Latin of the latter day,” for a very long time. Perhaps not even half of Chinese people know Mandarin. China’s urbanized eastern core areas are hotbeds of Mandarin, but few speak it in the periphery. China’s billions of citizens speak hundreds of deeply entrenched local and regional tongues – not dialects, but languages; if Mandarin cannot conquer China’s citizens, it is unlikely to conquer the world.

Dominant Religions

A mapped overview of the world’s religions reveals that two faiths dominate: Christianity and Islam “prevail over 70%” of Earth’s inhabited regions. Christianity is the foremost religion across scattered parts of the globe, while Islam forms an almost contiguous territory through the Middle East and Africa. Muslim Malaysia and Indonesia are not connected to the vast Muslim landmass, but they demonstrate the religion’s long reach. Buddhism has the third-most adherents, around 400 million. Judaism has “fewer than 20 million members.” North and South America illustrate the Catholic versus Protestant split of the first European colonizers. Catholic Spain colonized most of South America, Catholic France had outposts in the Caribbean, and Protestant England and the Netherlands settled in the north. Those religious preferences continue to hold sway. The US is predominantly Protestant, and South America is predominantly Catholic.

Diseases of the Periphery

“The poorest and weakest on the planet are also the sickest.” Place makes vulnerabilities. In some regions of Africa, HIV/AIDS shortened life expectancy, wiped out most of a generation and “orphaned 20 million children.” Those born in prosperous, non-tropical countries – say Denmark or Canada or New Zealand – don’t worry about malaria, which ravages hundreds of millions of people who live in tropical poverty. Malaria’s life-long debilitating effects – profound weakness, recurrent fevers and shattered immune systems – make many sufferers unable to perform normal work functions, thus denying them a chance to improve their lives. In 1946, a high risk of malaria existed in the southern US, much of Eastern Europe, the Middle East and China. Today, malaria hits only the poorest residents of the periphery.

“In countries where the official language is ex-colonial, capacity in that language is the sine qua non for membership in the governing, administrative or commercial elite.”

Dengue fever, an enduring and illustrative periphery disease, is on the rise worldwide. As peripheral populations expand with no improvement in their living conditions, the number of dengue fever cases grows with them. Dengue moves from mosquito to human; a mosquito bites an infected person and injects the infected blood into the next human it bites. Dengue’s initial flulike symptoms precede crushing headaches, nausea and joint pain. No antiviral cure or preventative medicine exists, only preventative behavior.

“Males and females in the same locales have widely varying experiences, their destinies diverging in sometimes agonizing ways.”

As with malaria, dengue’s greatest allies are stagnant water, heat and urban overcrowding. Dengue thrives where humans lack window screens or mosquito netting, where monsoon rains flood poor drainage systems and where global warming keeps temperatures high. Rising numbers of people in peripheral nations are undergoing shocking increases in rates of dengue infection. Mexico suffered a four-fold increase between 2001 and 2006. The poorest South American country, Paraguay, reported 10 times more cases in 2007 than in 2006. From 1980 to 2000, the Mexican states bordering the Rio Grande River – the dividing line between Mexico and Texas – reported more than 62,000 cases. During the same period, the Texas counties on the river reported 64 cases. The lack of air conditioning, clean water, window screens and general healthcare made a thousand-fold difference in dengue infection between the core and peripheral sides of the river.

“Mantras of globalization are often at variance with reality.”

Projects that began under the banner of modernization contribute to creating diseased populations. “Dams, artificial lakes, irrigation schemes” and the like slow water down. Sluggish water breeds mosquitoes and the freshwater snails that spread schistosomiasis (bilharzia), a crushing disease. Some 200 million in the periphery suffer schistosomiasis, “second only to malaria as humanity’s most serious infectious disease.” Any contaminated water can pass along this infection. The catchment area of China’s massive Three Gorges Dam has long been tainted with schistosomiasis. Millions regard India’s polluted River Ganges as sacred and cleansing, and bathe in its hopelessly dirty water daily, and then suffer the expected resulting illnesses. Because of a paucity of clean water in the periphery, more children die annually from diarrheal sicknesses than from malaria or dengue fever, though these diseases draw less worldwide press or political attention. Providing clean water to vast, growing peripheral cities remains the world’s single most intractable, far-reaching health problem. Unclean water also foments cholera epidemics. Poor drainage and a lack of sewage disposal encourage every mosquito-borne disease. While people in the core take safe water for granted, one-fifth of the periphery – a billion people – has no access to clean water.

“From personal safety to public health, from compulsory religion to coercive authority, the world remains a mosaic of places presenting widely varying combinations of challenges to their inhabitants.”

Shockingly, “large areas of the periphery are in some ways worse than they were a half a century ago.” One factor in this decline is “medical tourism.” Globals from the core travel to the periphery’s better cities for inexpensive plastic surgeries, elective procedures, and so on, performed in posh, private surroundings. Peripheral nations, recognizing the potential income, divert medical resources from the costly care of locals to profitable services for paying customers.

Men and Women

“Even in the same house, the destinies of boys and girls diverge startlingly.” Male dominance seems culturally ingrained throughout the world and can ride roughshod over any notions of fairness. For example, an unintended consequence of China’s “one child” policy, which began in the late 1970s, was the selective abortions of tens of millions of girls. China’s thriving international adoption industry supplies primarily baby girls whose families abandoned them. “Today, China has a demographic surplus of 20 million boys.”

“The Earth is one small planet, but seven billion people still inhabit vastly different worlds.”

In the periphery, girls suffer. Boys are more likely to receive medical care and a greater share of available food. In Pakistan in the 1990s, 54 girls per thousand died as opposed to 37 boys; in Bangladesh, it was 69 girls to 58 boys; in Thailand, 27 girls to 17 boys. In India in 2008, 70% of men but only 40% of women could read. Women receive less education or training than men, though education is the only way out or up in the periphery. Cultural and traditional norms trap women in poverty, ignorance and ill health. In the worst peripheral nations, 500 out of 100,000 women die giving birth. In North America, by contrast, that number stands at 25 per 100,000.

An Urban Planet

Since 1994 and for the first time in history, 50% of the population is urban. London, New York, Hong Kong and more are “world cities...part of a global urban network.” London is more closely connected to New York than to less-significant urban towns in England. Likewise, Miami “interacts more with São Paulo than Jacksonville.” Core and periphery areas exist side by side in cities. Brazil reflects these stark inequities. 10% of Brazilians own two-thirds of all the nation’s land and half of its wealth. Brazil’s poorest 20% live in the worst conditions on Earth, worse than the slums of Nairobi or Lagos. However, sub-Saharan Africa is experiencing the world’s highest rate of urbanization; South and East Asia keep pace. By 2020, sub-Saharan Africa’s population will top one billion, with most people living in unmanageable cities. Lagos has no urban core; it seethes with chaos and congestion. Sadly, it seems to be the standard for future urbanization in the periphery.

About the Author

Harm de Blij is the author of Why Geography Matters.


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The Power of Place

Book The Power of Place

Geography, Destiny, and Globalization's Rough Landscape

Oxford UP,


 



18 December 2025

Going to Extremes

Recommendation

This fascinating tour of the sociology of extremism provides a general description of its impact on society and describes specific tactics for leaders and managers who want to foster open discussion while promoting a democratic workplace. Harvard Law School professor Cass R. Sunstein addresses polarization by presenting results from numerous studies. Polarization affects every group interaction, including those of lawyers, judges, doctors, elected officials and the military. BooksInShort recommends this book to those interested in promoting open discussions or in preventing pathologies that create mob behaviors and even genocide.

Take-Aways

  • When groups polarize and separate from mainstream society – either psychologically or physically – they can become extremist.
  • People change their attitudes when they want a group to accept them.
  • People will abdicate moral decisions to a recognized authority.
  • Collective behavior, or “groupthink,” provides a means of identifying decision-making processes that lead to extremism and mistakes.
  • Information moves and amplifies among groups via “social cascades.”
  • Investment clubs making decisions by unanimous votes produce the worst investment returns.
  • Group deliberation produces sounder decisions than individuals acting alone.
  • Techniques to blunt extremism include traditionalism, consequentialism, and checks and balances.
  • Informational cascades can affect markets and mass behavior.
  • In a democracy, information, criticism and skepticism combine to improve an institution’s performance.

Summary

When People Talk

When people get together to talk about an issue, do they find common ground and compromise? Do they consider all perspectives? In short, no. Hundreds of studies worldwide show that when groups discuss an issue, members take a more extreme position in the direction they were inclined before the meeting. The group confirms their predispositions and makes its members more extreme. This “group polarization” provides a good starting point for investigating extremism, which manifests across all cultures, religions and nations.

“First, human beings often suffer from unrealistic optimism.”

When groups polarize and separate from mainstream society – either psychologically or physically – they can become extreme. This accelerates when the group becomes suspicious of nonmembers and discounts their opinions. Group polarization can occur as people make everyday decisions regarding investing, evaluating others, deciding what to eat and where to live. It creates homogeneous groups intolerant of opposing viewpoints.

Patterns of Polarization

Polarization exists even among US federal judges. One study comparing the voting records in tens of thousands of judicial rulings by Republican and Democratic federal judges found that when judges of opposing parties worked together, the differences between their respective voting records were narrow. But when judges from the same party handed down their rulings, their votes stressed their party’s viewpoints on gay rights, disability discrimination, environmental protection, affirmative action and gender discrimination. In studies of juries, people incensed about an injustice and favoring a tough response became more aggressive as a group.

“A good way to create an extremist group, or a cult of any kind, is to separate members from the rest of society.”

When people want a group to accept them, they change their attitudes. “Social comparison” occurs when individuals tend to conform their attitudes to a group. Like-minded supporters can encourage extremism in politicians, investors or business leaders, and can provide them with a false sense of reality.

“It is tempting to wonder whether group polarization is a product of particular cultures and peculiar ‘types’.”

When people are unsure about their beliefs, they adopt more moderate views. But when others share their viewpoint, people become more confident and often more extreme. In countries that control their citizens’ access to the media or to conflicting ideas, the population’s attitudes reflect the information available. For example, 93% of Americans believe that Arab terrorists conducted the Sept. 11, 2001 attacks, but only 11% of Kuwaitis agree.

“Terrorists are made, not born, and terrorist networks often operate in just this way.”

Group behaviors can encourage generosity. When researchers gave subjects $10 each and told them to give some money to a stranger, most individually decided to give between $6 and $8. But once in groups, individuals become more generous because they didn’t want to be perceived as greedy. Studies find that groups become more extreme as those with moderate views depart, leaving only the “true believers.”

This Is Going to Hurt You More than It Hurts Me

The classic experiments of psychologist Stanley Milgram demonstrated that authority figures could direct people to act in ways that hurt others. Milgram asked subjects to administer electric shocks of varying intensity to unseen people in another room. The people pretending to receive the shocks were actors, but those delivering the jolts believed they were shocking other volunteers. In one iteration, 25 out of 40 people administered the maximum shock level even though they knew it was potentially lethal.

“When groups move, they do so in large part because of the impact of information.”

Ordinary people readily followed dangerous orders issued by a trusted authority – in this case, the scientist conducting the experiment. In another experiment, 20 of 21 nurses followed a doctor’s directive to administer a drug dosage that exceeded the maximum. One experimenter concluded that individual personalities do not inhibit aggressive behaviors. Instead, the situations dictated aggressive, antisocial behavior by invoking “deindividualization,” a process that makes aggressors and victims seem less than human.

“Homophily”

Preventing group polarization requires effort. Presidents Abraham Lincoln and Franklin D. Roosevelt solicited opinions from outside their circles of advisers. Today, Internet access offers those who are curious alternative points of view, though like-minded people tend to interact within a compatible social network. Sociologists call this homophily. In small groups, people congregate by age, education, race, religion and ethnicity. Larger groups unify along lines of intelligence, attitudes and aspirations. In the US, members of certain groups assume that others in the group share their political attitudes.

“The very decision to wear a uniform can have significant behavioral effects; warriors who change their appearance in preparation for war are more likely to brutalize their enemies.”

Sociologist Irving Janis identified this type of collective behavior as “groupthink.” Janis studied this as a means of investigating decision-making processes, and how it can lead to extremism and mistakes. In his research, Janis noted that certain groups discourage alternative viewpoints, avoid discussions and emphasize consensus.

Groupthink

In history, groupthink contributed to such failures as the Bay of Pigs invasion, the Vietnam War escalation, Neville Chamberlain’s Nazi appeasement and the Watergate coverup. The groups who made these decisions were insulated against outside advice, and had homogeneous backgrounds and a shared ideology. Janis found that groupthink played no part in the decisions to undertake the Marshall Plan after World War II, or in the Kennedy administration’s peaceful resolution of the Cuban Missile Crisis. In both cases, the leader encouraged dissent and evaluated different proposals.

“The shift toward extremism is often larger when the average person starts with a pretty extreme position.”

To counter groupthink, group members must question their assumptions and discover why other people object. One way to test assumptions is to pose the same problem to different groups and outside experts without a vested interest in the outcome.

Information flows among groups through “social cascades.” Cascades affect stock markets or real estate values as they generate rumors and buzz. Cascades can be “informational” or “reputational.” Informational cascades begin when people rely on data from those who hold strong, stated positions. This produces a contagious optimism that fuels market bubbles, such as the real estate euphoria of 2008 or the technology stock bubble of 2000. Reputational cascades occur when people stifle their opinions to concur with a group, and thus raise their own reputations. Politicians demonstrate this behavior on a daily basis.

“A central task, in democratic societies, is for the print and broadcast media, and those who run and participate in Web sites, to combat self-segregation along political or other lines.”

People participate in a group consensus to avoid hostility or maintain their self-esteem. Social pressure can suppress independent assessments and contribute to an opinion cascade. When social cascades develop in like-minded groups, they produce near unanimous consensus, even when based on factual errors. This may explain why investment clubs – primarily social groups whose members make decisions by unanimous votes – produce the worst investment returns. Clubs with the highest returns are characterized by frequent debates.

“Social Contagion”

Economist Robert Schiller described such a phenomenon as a social contagion, with both an “infection rate” relating to optimism and a “removal rate” describing the return to a normal perspective. When the media broadcast stories about rising prices for certain stocks, or real estate or gold, for instance, that accelerates an informational cascade that spurs a growth in value. Similarly, ethnic conflicts are less likely to spring from ancient historical feuds than from extreme polarization ignited by recent events. People who have incorrect information and limited general knowledge often hold conspiracy theories and can be susceptible to what others tell them. Conspiracy theorists are not delusional; they usually are ill-informed, sometimes as a result of limited civil liberties or a reliance on government for information.

“Different people have radically different thresholds that must be met before they will be willing to harm others.”

Contrary to popular belief, terrorists do not always come from poor, ignorant backgrounds. Many are educated and from middle-class families, but live in authoritarian countries with limited civil rights and few opportunities for social protest. Some experts contend that democratic nations offering opportunities for self-expression and the free flow of information prove infertile ground for producing terrorists. Alternately, studies have found that people who are prone to political violence try to recruit like-minded followers, prevent dissent and demand unanimity. One common recruiting tool relies on emphasizing how a perceived oppressor humiliated a target group. This fuels the victims’ “shared hatred” of a specific group, thus encouraging group activity.

Facing Extremism

Societies attempt to prevent the spread of extremism by using the following techniques:

  • “Traditionalism” – This approach relies on the collective experience of generations to curtail extreme behaviors. People generally acknowledge earlier successes and when presented with an alternative, more radical vision of the future, contrast that against established, accepted traditions.
  • “Consequentialism” – This process determines the consequences of certain actions by examining key facts. In the case of global warming, for instance, many hold polarized opinions while knowing few specifics. Asking basic questions and sorting fact from myth can help bring people back from extreme positions. Consequentialism works well for sorting out complex issues, such as gun control and the death penalty.
  • “Checks and balances” – When the Founding Fathers created the US Constitution, they developed the idea of checks and balances as a means of limiting legislators’ passions. This gave rise to the idea of a bicameral legislature – the House and Senate – to prevent extreme viewpoints from becoming law. The presidential veto is another tool for keeping the bicameral structure in balance.
“The exchange of information and ideas can and does breed unjustified extremism.”

US federalism features other “circuit breakers,” including Congress’s ability to declare war. The framers of the Constitution considered this decision too important to be left to the president alone. They did not want the country’s leader bypassing open debate and public deliberation about such a critical national action. In contrast, repressive societies lack moderating influences. Without alternative debate, audiences tend to adopt the viewpoints of the vocal minority.

Like-Minded People

Deliberation alone cannot prevent extremism or produce the best possible answers. Still, group judgments tend to be sounder than individual judgments. The “Condorcet Jury Theorem” finds that groups that answer questions based on their members’ majority rulings reach increasingly accurate conclusions as the group grows. But if individual members choose wrong answers, then the probability increases that the group also will be wrong. Informed individual members are more likely to make correct decisions, thereby increasing the group’s performance.

“Groups often blunder precisely because they put a high premium on deliberation.”

The probability of being wrong increases when the individual or group is prejudiced, confused or incompetent. This becomes more evident with group (including jury) deliberations, which can alter the judgment of individual participants. Deliberation works well with a diverse gathering whose members have differing information, styles of thinking and positions. In a democracy, the open flow of information, criticism and skepticism combine to improve an institution’s performance. When organizations become insular, they become immune to criticism and increase their chances of making bad decisions.

“Cognitive diversity is crucial to the success of deliberative democracy and its analogues in the private sector.”

Like-minded people, such as economists, the disabled, scientists and entrepreneurs, must congregate to advance their ideas so that others can decide which issues have merit and which don’t work. It’s an approach that uses free speech, public forums and open access to diverse ideas in order to advance society at large.

About the Author

Cass R. Sunstein is the Felix Frankfurter Professor of Law at Harvard University. He served as administrator of the White House Office of Information and Regulatory Affairs during the Obama administration. His other books include Can It Happen Here, The Cost-Benefit RevolutionGoing to Extremes, On Freedom, How Change Happens, Infotopia and The World According to Star Wars, and he is also the co-author of Nudge (with Richard Thaler).


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Going to Extremes

Book Going to Extremes

How Like Minds Unite and Divide

Oxford UP,


 



18 December 2025

Tom Dorsey's Trading Tips

Recommendation

Honestly, there are not too many books in the personal investing genre that we’d recommend for serious investment advice. But if you’re a serious investor considering a venture into short-term trading (formerly known as day-trading), you’ll benefit from the wisdom, mind-boggling detail and dizzying array of charts presented here. Tom Dorsey likens good investment advice to a sports playbook that a coach can follow through the twists and turns of the game. The plays and strategies that they outline will be valuable for novices, but BooksInShort figures that they will challenge trading veterans as well. You need to do some homework (like following the indices and making charts) to work with this book. Dorsey and crew urge you to learn stock-market basics, govern your emotions, understand the psychology that drives investors and avoid common mistakes, like investing based on trends and hot tips. And, don’t mind their sports jargon; it’s just a framework to make the uninitiated feel comfortable.

Take-Aways

  • Emotions influence every investor’s stock decisions.
  • To make money, you must understand market psychology.
  • Invest using research methodologies, including point and figure charts.
  • Point and figure charts can help you determine when to buy and sell.
  • These charts record the relationship between supply and demand.
  • Base your strategies on the fundamental laws of supply and demand, not on emotions or superficial market trends.
  • Combine technical and fundamental analysis to determine what and when to buy.
  • Avoid common investor mistakes.
  • Risk-reward principles help identify a stock’s potential return.
  • Short-term trading is unlike any other kind of trading and has its own rules.

Summary

Market Technology

Your emotions inevitably influence your decisions as an investor. Not only are the simple acts of buying and selling inseparable from emotion, your choice of stocks and your strategies are, too. So, it’s important to understand market psychology. Do you find the newest stock on the block irresistible? Do you buy stocks that are down in the dumps, feeling that you’re automatically getting a bargain? Are you influenced by market trends?

“Remember that the person who is wildly promoting or recommending a particular stock more than likely already owns it.”

You can develop confidence in your stock market decisions by using investment research methodologies, including point and figure charting. This proven, objective strategy is based on the fundamental laws of supply and demand, not on superficial market trends. When you learn basic strategies - such as how to evaluate technical pros and cons or accurately compare your stocks to market leaders - as well as more advanced strategies regarding short-term trading, options and indices, then the terms and the processes of stock market trading will be demystified. You will be in a better position to make profitable decisions.

Charting

Learn to combine technical and fundamental analysis, so you can decide not just what to buy, but when to buy. Using point and figure charts helps you determine when to buy stocks. Charting stocks lets you see the movement that determines whether supply or demand is in control of the stock. If supply is in control, then the probability is high that the stock will decline. If demand is in control, then the odds favor an increase in the price of stock.

"The one thing all winners of a Nascar race will tell you is that they drove a straighter line than anybody else. Investing is the same way. Try to make as few lane changes as possible.

Point and figure charts are superior to other kinds of charts because:

  • Formations are easier to recognize and interpret. The patterns tend to repeat themselves.
  • Trends are easily identified, and trend lines can be drawn easily.
  • You can establish valid targets using the vertical and horizontal counts.
  • You can see both the near-term and long-term position of stock.
  • You can follow more stocks because this is the easiest kind of chart to keep.
  • Charting by hand every day gives you a good feel for the stock, something you would otherwise not get.
  • The chart enables you to stay with a winner while it is winning and get rid of a loser quickly.
  • You can make the pricing interval fit whatever you want to chart, including stocks, bonds, commodities, speculation, investment and even volatility.
“Volatility is the price you pay for higher returns.”

The point and figure methodology has been around for more than 100 years. One of its first proponents was Charles Dow, The Wall Street Journal’s first editor. This kind of chart is simply a logical, organized way to record the relationship between supply and demand.

As the methodology has developed over the years, it has been refined for even easier use. Prices are put on the chart’s vertical axis. Xs and Os are used to signify changes: Xs stand for demand and are always moving up the chart; Os stand for supply and are always moving down the chart. Numbers in the chart record the time and identify months. Just as master chess players excel at pattern recognition on the chessboard, accomplished stock market technicians are highly skilled at chart pattern recognition. If you can understand and remember chart patterns, you can become a better investor.

Common Investor Mistakes

Because you - like all investors - are always at risk of letting emotions influence investing decisions, it’s important to avoid common investor mistakes. Be sure that you:

  • Don’t fall in love - Don’t hold on to a stock that has deteriorated just because you’re still in love with your original reasons for buying.
  • You bought the right stock, don’t forget to sell it right - Once you buy a stock you must review it on a regular basis; don’t forget about it.
  • Have a game plan for investing - Remember that stocks are governed by risk-reward principles. Investors often haphazardly pick stocks to buy in a strong market, thinking that the stock market is easy to beat. They fail to realize that risk is as prominent as reward. Have a game plan that helps dictate what stocks to buy and when, and also tells you when to sell or "play defense."
  • Don’t buy stocks that are extended - They lessen your potential reward.
  • Be willing to take small losses as well as small gains - Avoiding large losses will keep you in the game. You won’t be right on every trade, so you must be willing to bail out and take the small loss when it’s time.
  • Don’t act on poor advice, tips and financial media hype - Many investors try to get rich quick without doing any homework. They simply rely on TV or the financial media to tell them what to buy. This is a prescription for disaster. Educate yourself, create a game plan, do your own research. Only then can you be in a position to make sound, informed decisions. Never rely on schemes and rumors.
  • Don’t buy a stock just because it is a "good value" - Value is in the eye of the holder, and is subjective at best. If a stock has become a good value, find out why. The true value of a stock is determined by its capital appreciation potential, not by numbers on a balance sheet. The basis for capital appreciation lies in the supply and demand relationship of the stock.
  • Don’t hold on to losing stocks in hopes that they’ll come back - While hope is eternal, your portfolio isn’t. Holding on to a losing stock will sink your portfolio.
  • Don’t pursue perfection - If you are constantly pursuing the perfect "system" to play the stock market, or waiting for the perfect trade, you will be disappointed and broke.
  • Don’t do anything based on a magazine cover - Following the hot news and trends on magazine covers is a shortcut to the poorhouse.

Stock Selection

Knowing what stadium you’re playing in and what time the game starts is just as important as having a game plan and a playbook for investing. A football player wouldn’t show up at a swimming pool, and a golfer wouldn’t tee up on a baseball field. Each sport has its own playing field, and the same goes for investing. Learn the intricacies of market index composition and weighting, sector timing and sector-relative strength. Those factors will let you know what stadium your game is in and if the playing field is level.

“When to sell is probably the hardest part of investing.”

When you know the essentials of individual stock selection, you can be confident that you’re putting the right player on the field. This four-step process will help you do just that:

  • Step One: Market - Use the NYSE Bullish Percent, Option Bullish Percent, OTC Bullish Percent, High-Low Index, Ten Week and other indicators to determine if you should play offense or defense.
  • Step Two: Sector - Use your charting to determine which sectors suggest offense (those that are bullish).
  • Step Three: Fundamentals - Create and maintain an inventory of stocks. Any number of sources can help you determine which stocks are fundamentally sound. At this point, you want to choose which specific stock to buy.
  • Step Four: Technicals - Review these sound stocks on a technical basis to pick those controlled by demand, those that demonstrate the best technical picture. Then you can narrow your fundamental inventory down to those stocks with the best probability of moving higher. This is the step in which you determine when to buy a specific stock.

Risk-Reward Principles

Risk-reward analysis is an extremely important part of stock selection since it helps you identify the potential return in a particular stock compared to the amount of risk you take in buying it. Ideally, you want at least a two-to-one ratio: two points of profit for every one point of risk. To calculate the amount of risk versus reward, focus on:

  • Determine where significant resistance lies ahead, or where the stock would be overbought on its trading band.
  • Determine where significant support resides below.
  • Calculate the price objective for the stock, using either the vertical or horizontal count in your point and figure chart.
  • Determine your stop-loss point, the point at which you no longer want to own the stock.

Short-Term Trading Techniques

Short-term trading is unlike any other kind of investment activity. Becoming a good short-term trader takes a lot of work, experience and money. It’s not only difficult, but it can be very dangerous. However, adhering to a strict risk-reward strategy can help you make good profits. Most people don’t understand the nature of the risk in short-term trading. As a trader, you’re not risking your entire investment on a particular transaction since the odds are high that you will get out of the stock as soon as it looks even the tiniest bit weak. The real risk lies in the fact that while short-term traders can cut their losses, they also automatically cut their profits. To be a successful short-term trader, you have to pick stocks that are going up right now. Otherwise, you’ll spend all your money and most of your time, chasing your tail. Here are a few guidelines:

  • Consider buying after a stock pulls back - This will give you a better risk-reward ratio and a tighter stop loss.
  • Sell immediately if the stock drops - Sell if it drops below its support line.
  • Have in mind a precise short-term target - The vertical count used in your point and figure chart is an effective target. If the stock moves up, move the stop loss up below it until you are finally stopped out.
  • Consult a trendline - This is an alternative to the first three procedures. If the trendline is violated, sell the stock. One main trendline always dominates, but the short-term trader may want to redraw shorter trendlines. Studying trendlines can help short-term traders another way, also. A stock in an uptrend can be purchased as it hits the bottom of the trendline. If the stock does not rally off that trendline and continues its decline, then you have a close stop loss.

Managing Your Investment

It’s the fourth quarter and your football team is winning by a touchdown. Then, suddenly, your quarterback hits the ground injured. Now, you have to adapt. The stock market can cause similar injuries. When you manage a portfolio, the market is an opponent that never stops playing the game (no time outs!) and will constantly challenge your ability to adapt. You must form alternative strategies to conquer potential setbacks consistently, including:

  • Over time, manage your money so that you have consistent returns each year - This garners better results than having huge gains one year and terrible losses the next year.
  • Make as few moves as possible to get to your goal - If everything looks good from a technical standpoint, let your strong horse keep running the race. Don’t sell a successful stock to generate money to buy today’s hot tip. Stay with your winner.
  • Let the profits run - Really strong stocks tend to remain the strongest. They typically continue to outperform the market for an extended period of time.

About the Authors

Thomas J. Dorsey conducts risk-management seminars for brokers throughout the world at major stock exchanges and investment firms. He is the author of two prior books, Thriving as a Broker in the 21st Century and Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices. He has also written articles for such publications as The Wall Street Journal, Barron’s Fortune and Bloomberg Personal Finance. He is president of Dorsey, Wright & Associates, Inc., an investment advisory firm in Richmond, Virginia. The other authors are associated with Dorsey, Wright & Associates, Inc.


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