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Markets Are Never Wrong; Opinions Are

I’ve mentioned here before how much I like Google. I use their search engine and Gmail every day, and I plan to get an Android phone soon. Google has changed the way we all live simply by changing the way we find, access and understand information. The company has an...

I’ve mentioned here before how much I like Google. I use their search engine and Gmail every day, and I plan to get an Android phone soon. Google has changed the way we all live simply by changing the way we find, access and understand information. The company has an unparalleled ability to create tools that make sense of massive quantities of information.

Their search engine is their best-known information-organizing tool. But they have many other tools for organizing, analyzing and viewing information. One of the newest is their book search, at Not only did Google recently digitize millions of books going back centuries, they also made them searchable. Below you can see a graph of the relative frequency with which the words monarchy (blue line) and democracy (red line) have shown up in English-language books since 1800.

The tool is mostly useful for academic research, or just for fun—go try out “coffee, tea” or “men, women” yourself. But Google also has lots of tools that make everyday life easier. One big one is Google Maps, which you’ve probably used. Google Maps’ traffic feature is one of the great triumphs of information organization. When you turn on the traffic feature in Google Maps, red and green lines show you whether roads are clear or congested. That data is collected from millions of cell phones sending location data to Google from moving cars. When there are a bunch of cell phones moving down a highway at 60 mph, Google knows the road is clear. When there are a bunch of cell phones stuck in traffic, Google knows that, too. The information was already out there—you, the user, don’t have to do a thing—and Google just found a brilliant and useful way to present it.

After the massive earthquake hit Japan last month, Google sprang into action to help, with Google Person Finder. Google Person Finder, created with the help of the U.S. government after the Haitian earthquake last year, is a public searchable database that allows people to inquire about missing persons or post data about those who have been found. Google was able to make it available to people affected by the Japanese earthquake within hours after disaster struck.

Other groups are also finding that simply organizing data well can yield new and useful information.

New York City uses data from calls to 311 (the city’s information line) to find out about—and then fix—common problems. A story in Wired last year revealed some ways the data was being used:

“The service also helps city leaders detect patterns that might otherwise have escaped notice. After the first survey of 311 complaints ranked excessive noise as the number one source of irritation among residents, the Bloomberg administration instituted a series of noise-abatement programs, going after the offenders whom callers complained about most often (that means you, Mister Softee). Similarly, clusters of public-drinking complaints in certain neighborhoods have led to crackdowns on illegal social clubs.”

A computer programmer I know is working on a new iPhone app that uses debit and credit card data collected by a major bank to give businesses in New York City “loyalty ratings.” Coffee shops with lots of repeat customers (who frequently use the same debit or credit card for their coffee) will have a higher loyalty rating than stores that patrons don’t frequently revisit.

And a website called CureTogether repurposes user-submitted data to create sophisticated charts of the treatments that work best for certain ailments. The one below was published in a Slate article on data last November.

In addition to pointing out useful applications of data like the one above, the Slate article invited readers to submit their own ideas for using data to improve life. I’d like to do the same—if you have a good idea for harnessing the power of data, or if you already use data to make your life better, I’d like to hear about it (just reply to this email). Interesting ideas or stories may be published in a future Investment of the Week.

Now to the market.

One of our favorite pieces of investing wisdom at Cabot is “Markets are never wrong; opinions are.” (We like it so much, it’s engraved on the mantel in our office.) The advice, attributed to Jesse Livermore, is particularly relevant today. I’m seeing a lot of disbelief today, from analysts and investors who don’t think the market can possibly push higher when there’s so much bad news and uncertainty in the world. But the market is pushing higher anyway!

I’m reminded of another quote, this one from the cosmetics magnate Mary Kay Ash: “Aerodynamically, the bumble bee shouldn’t be able to fly, but the bumble bee doesn’t know it so it goes on flying anyway.” This quote is actually even more instructive knowing that the myth that bumblebees were an aerodynamic anomaly was debunked decades ago. The point is, if what you think should be happening is at odds with what is actually happening, reality is right and you’re wrong. Markets are never wrong; opinions are. Put another way, when it seems like the market knows something you don’t, you should listen to it.

If we listen to the market today, it’s telling us to buy stocks. Today’s Investment of the Week candidate, which is closely tied to the economic recovery, is a good place to start. From the latest Dick Davis Investment Digest, via AlphaProfit Sector Investors’ Newsletter, edited by Sam Subramanian:

“With manufacturing activity strong, shares of DXP Enterprises (Nasdaq: DXPE) are a timely industrial play for risk-tolerant investors. The distributor of maintenance, repair and operating products earned 36 cents a share in the third quarter, 6% above analysts’ estimates, as revenue increased 20% year-over-year. DXP serves several industries including chemicals, oil & gas, and transportation. The company is complementing organic growth with acquisitions. DXP shares trade at a low double-digit forward P/E multiple versus the prospect of EPS increasing over 40% in the next 12 months. Limit orders should be used given limited liquidity of DXP shares. … Buy below $19.25. Sell above $23.25. Stop Loss $8.75.”

Click here to learn more about DXP Enterprises and other top stocks featured in Dick Davis Investment Digest!

Wishing you success in your investing and beyond,

Chloe Lutts

Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.