Being Right or Making Money, 3rd Edition

Foreword

TIM HAYES, CMT JOE KALISH LANCE STONECYPHER, CFA

We knew nothing about sleepy Venice, Florida, and only one of us knew about the investment research company that Ned Davis started in 1980. Tucked away on a quiet street near a tired strip mall that had been ravaged by a tornado a year earlier, NDR's two small houses appeared sparsely occupied when we started in 1986. The company employed about 15 people.

As we gradually learned about computer-threatening lightning strikes and other surprises of working in southwest Florida, we also started to learn more about the founder's philosophy and approach to investing. Knowing little about market behavior, we listened to Ned carefully as he pored through his chart pile at weekly research meetings, anxious about the inevitable market questions that he would fire our way.

It wasn't long before our minds started filling with phrases that to this day remain crucial to successful investing: Don't fight the tape, don't fight the Fed, and beware of the crowd at extremes. We learned about behavioral finance long before it became a common term in the investment world.

While Ned would employ his red pen to raise questions about our research, he would also use it to circle data points in the past with similarities to market conditions of the present, in the process demonstrating the importance of understanding history. Along with his emphasis on clean data and historical analysis, Ned stressed reliance on indicators and composite models ...