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In the forest, there are small creatures that move almost effortlessly beneath the ghostly pall of a moonless night, slipping through dense vegetation, a jumble of hazards and traps, and a menacing cabal of hungry predators poised to pounce on the weak and the unwary. Instinctively, they remain attuned to the threats posed by those who are bigger, stronger, or more ruthless than they are. In true Darwinian fashion, they manage to survive and thrive, despite seemingly poor odds. Why? Because like successful investors in today’s stock market, they understand the laws of the jungle—as well as the sights, sounds, and subtle nuances that signal danger and opportunity—and they act accordingly, making the most of their unique individual strengths and evolutionary advantages.

The New Laws of the Stock Market Jungle is designed to help you improve your investment performance by giving you an insider’s perspective on how equity investing has changed in recent years—and by showing you how to capitalize on these changes. This will enable you to reduce risk and avoid pitfalls, to take advantage of market volatility and short-term price anomalies, and to formulate a winning strategy with a professional edge. Written for those who have at least some measure of experience, the book explores how a broad range of coincident and convergent influences—including the dramatic boom and bust of the past decade—has affected time horizons, speculative behavior, investor psychology, risk preferences, price patterns and relationships, performance metrics, and other aspects that have made the stock market more treacherous than before.

Admittedly, there are some who might argue that the accounting and other scandals that have come to light during the past few years are evidence that circumstances have only recently changed or, perhaps, that the turmoil is fleeting—like a summer squall that will soon blow over. In reality, these developments are but one small part of a much more widespread pattern of upheaval that has been taking place over the course of two decades or so. In many respects, they are symptoms of the shift, rather than the shift itself. Unfortunately, such headline-grabbing revelations often end up directing investors’ attentions away from what they need to focus on to come out ahead in the modern share-trading arena. As with crimes of violence, the horrors of war, and the various natural forces wreaking havoc around the world, these events, while terrible for those involved, often have little direct impact on most people’s lives.

Part 1 of The New Laws of the Stock Market Jungle reviews many of the significant developments that have affected equity—and other—markets in recent years, including advances in technology, improvements in electronic communications networks, the rise of powerful new players, the increased use of leverage, infrastructure changes, the globalization and democratization of finance, burgeoning information flows, falling transaction costs, and the dramatic growth of “alternative” investing.

Part 2 contains Chapters 1 through 10, which explore and dissect each of the 10 New Laws of the Stock Market Jungle. Each chapter sets forth a description of the core issues, pertinent factors behind the modern developments, the potential consequences for investors, and tactics and strategies for counteracting or capitalizing on current circumstances. Throughout, these chapters highlight situations where the unexpected seems to be occurring more often, and where the “Old Laws” have changed dramatically—or have otherwise been completely replaced—as outlined in Table P.1. There are also valuable resources to tap in to, tough questions to ask, and important signs to look—and watch out—for in yourself and others when contemplating a buying or selling decision. Although a number of potential investing approaches are touched upon, the emphasis is on providing you with critical intelligence that complements and strengthens your own investment plan.

Table P.1. New Laws of the Stock Market Jungle…and What They Have Replaced
 New LawOld Law
 Intraday share price volatility is on the rise.In the past, wide intraday share price swings were less common, and when they did occur they were often associated with unexpected geopolitical or economic developments.
 Stocks are increasingly being bought and sold like commodities.In the past, institutions generally bought and sold stocks based on traditional methods of investment analysis, often with a longer-term perspective in mind.
 Investing and reason frequently give way to speculation and emotion.In the past, institutional buying and selling was primarily driven by logic and measured analysis (although emotions have always influenced investor behavior).
 More information and faster communications often have unexpected consequences.In the past, information tended to circulate around the marketplace in a slower and more orderly fashion, and the telephone was the primary means of communication.
 Derivatives are exerting a growing influence on share prices.In the past, the action in the derivatives market was generally secondary to what took place in the underlying cash markets (except on certain occasions, such as Triple Witching Fridays).
 Many seasonal and cyclical patterns are becoming less predictable.In the past, many seasonal and cyclical patterns were less widely known and were not affected by today’s rapidly changing market forces.
 Aggressive approaches and tactics are leading to more unstable short-term imbalances.In the past, institutions tended to rely on more conservative approaches to investing and more passive methods of buying and selling shares.
 Substance and reality increasingly give way to form and fantasy.In the past, data produced and distributed by companies, analysts, government agencies, and others was less subject to error, distortion, and manipulation.
 Many traditional market indicators are becoming less reliable.In the past, many market indicators were less widely known and were not affected by today’s rapidly changing market forces.
 Global factors and foreign investors are exerting a growing influence on share prices.In the past, American investors and domestic concerns were much more relevant to the direction of U.S. share prices than overseas influences.

Part 3 offers a brief conclusion and looks at the potential implications for investors of a continuation of recent developments, as well as other factors that might impact stock market investing in the years ahead. The Additional References and Resources section provides supplemental background material for those who would like to know more about some of the key issues and themes that are affecting the modern day share-trading environment.

While many books on investing seem to offer nirvana in the form of a “silver bullet,” or even a black box method for garnering outsize returns in nearly all market conditions—with little in the way of subjective input—the reality is that such panaceas do not really exist. Along with myriad individual and institutional players in the equity arena, you cannot always get it right—nor should you expect to. However, it is my hope that with a solid understanding of what goes on in the underbelly of the market, and with the benefit of my 20 years of institutional trading and investing experience, those of you with a thoughtfully constructed and consistent long-term plan will end up as “kings” of the stock market jungle. Under those circumstances, the roar of success is likely to be deafening.

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