discovering trends
Today I woke up and read the WSJ. Of course, one of the headlines was about Housing Construction increasing 15% over September. Perhaps the news has driven some stock prices up (has it? I'm not sure).
Yet obviously something like an increase in housing construction didn't suddenly happen when the WSJ reported it. People in the industry or researching it must have known months ago that things were changing.
Now of course by the time something like this housing news hits the wsj front page, it's too late to really use it since the information has already been priced in.
So how do you guys get an idea of market trends before they become known to everyone?
I was reading Liar's poker the other day and there was this paragraph about a trader Alexander who would look immediately at secondary and tertiary effects. For example, after the Chernobyl disaster, Alexander immediately thinks of buying potatos, since nuclear fallout would threaten European crop and thus increase demand for American goods.
How do you guys improve your ability to see the connections between various sectors of the market like this?
Experience. After spending significant time following certain markets you start to see the relationships between different factors. Over time you get used to looking at all the indicators and how they move relative to each other and can start to see trends develop before they become fully realized/are announced.
While I'm only a senior in college, the group I've been interning with primarily focuses on relative value, top down investing, so spotting trends and comprehending intermarket relationships is integral to my work.
It's definitely a steep learning curve and I'm still hiking my way up.
Talk to people in the industry - brick manufacturers, steel suppliers etc. This will give you an indication. If you live near a cement factory count the number of trucks leaving the facility.
I remember watching a documentary somewhere, where a hedge fund manager actually went out to stores and asked salespeople about how much inventory they had on a certain brand of jeans. Nailed his forecast at earnings and made bank.
If you're asking how you can get the information without any work.... if there was no work involved it'd be public and already priced in.
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