Inference


According to Webster's, to infer is to arrive at a decision or opinion by reasoning from known facts or evidence (e.g., from your smile, I infer that you're pleased).


In one of his cases, Sherlock Holmes inferred that the killer and the victim knew each other very well because of the actions of a dog. Mystified, Watson asked how the dog helped solve the crime. Elementary, Holmes replied; since the neighbors did not hear the dog bark, the dog must have been familiar with the murderer, which would happen only if the murderer had frequently visited the victim's home.


After ordering his troops to stop their advance and dig in, General Patton inspected the front lines. Something unusual caught his eye—there were cart tracks in the snow where the Germans had picked up their dead and wounded from the battlefield. Patton inferred that this avoidance of motorized vehicles by the Germans indicated a lack of gasoline. Sensing an advantage, Patton ordered his troops forward and, as a result, significantly shortened the war.


Investing is often compared with Poker, with its table talk (what management will say about its business), upcards (statistical measurements of the past), and downcards (restricted or unknown information). Though upcards and table talk are extensively followed by security analysts, the downcards tend to be ignored or merely guessed at, since they cannot be analyzed. Nor can the early "straws in the wind" that indicate changing conditions be analyzed. However, they can often be sensed, through the kind of inferential discipline practiced by Sherlock Holmes.


Mankind, after all, has been making inferences since the time of Adam and Eve. All that is necessary is for one to have a good feel for normality from reading and personal experience...all one has to do then is to interconnect observations and knowledge correctly in order to sense future possibilities.


However, keep in mind that though inferential reasoning significantly improves the odds, it does not provide a sure bet. The Germans could have fooled Patton by faking cart tracks in the snow;



Goodspeed, Bennett W.. The Tao Jones Averages: A Guide to Whole-Brained Investing . E. P. Dutton Inc.. Kindle Edition.