This Week's Message: What the Market Is -- And -- The Making of an Investment Adviser

Nick, feeling the momentum from recently completing the rigorous CFP (Certified Financial Planner) curriculum, is contemplating his next academic challenge. He has determined that it'll either be the CFA (Chartered Financial Analyst [the pinnacle designation of portfolio managers]), or the CMT (Chartered Market Technician [the preeminent credential for technical analysts]).

Thursday morning he and I discussed which -- as both are intensely rigorous and require a several-year commitment -- would serve him best. I shared with him my view that the CMT would be the more pragmatic route, since within the technicals (the reading/assessing of the charts) lie the market's interpretation of the fundamentals that he'd come to understand via the CFA courses. In other words, the factors that impact the price of a given market index or security are of course reflected in the price. Therefore, the study of price, the identifying of trends and the signals that point to go-forward probabilities (i.e., technical analysis) gets the analyst to bottom lines without having to spend untold hours pouring through and interpreting mounds of balance sheets and income statements. The CMT, I suggested -- along with the mounds of literature on markets and economies that I've already assigned to him -- should serve him well.

I went on to explain (not for the first time) what, at its core, the market truly is: It's people! Market prices are driven by the thoughts, hopes, fears, ambitions and whims of people. People who buy and sell securities on behalf of themselves, their clients or their institutions; people who trade the world's currencies; people who buy the products and services of the companies whose stocks other people buy and sell; people who invent the products and services that other people buy; people who grow crops; people who eat crops; people who lend money; people who borrow money; and on and on. I stressed that, ultimately, it's the extent of his knowledge of people that'll determine the extent of the value he'll bring to our clients in the years to come. From there we discussed select readings on the human brain, crowd psychology and the like.

While he's still considering which curriculum to tackle next, my opinion notwithstanding, he's leaning toward the CFA. He views that as a more holistic venue, and the one -- I'm proud to say -- he believes will make him ultimately more useful to our clients.

As for Nick not agreeing with his old man, that should be music to the ears of you clients out there who wonder what happens if I should find my way onto the path of a Mack Truck. For -- along with possessing an unquenchable thirst for knowledge -- the world's best investment advisers are, I assure you, fiercely independent thinkers.

The markets are live social organisms that develop, grow, and change. Rigid rules fitted to past data are not likely to perform well in the future. If mechanical systems could work, the best programmers would have owned the markets by now. All mechanical trading systems, left alone, self-destruct with the passage of time. Promoters keep selling them because the public loves marketing gimmicks.    Alexander Elder