Part I can best be described as the location for things I have learned over the past 40 years about the markets, about investors, and about investment philosophies. These involve many concepts and measurements of the markets that include fiction, flaws, and facts about the markets.

Part I is all about understanding the past and hopefully learning from it. As the old saying goes, “The present is never exactly like the past, but it certainly rhymes,” which is helpful to apply when studying the markets. In Part I my opinions are often included, sometimes they are adamant, other times they are merely subjective. I have come to believe strongly in what I say in this book, but also know that just because I believe it, does not always mean it is absolutely fact. I try to say that often so that I don’t offend everyone.

There is an old aviation saying, It is better to be on the ground wishing you were in the air, than in the air, wishing you were on the ground.

Mark Twain is credited with saying, It is not what you don’t know that will get you into trouble; it is what you know for sure that just ain’t so.

There are things in modern finance that are just plain wrong, more marketing than substance, and I try to dispel much of it in this section. There are many things in modern finance that just don’t measure up to their overhyped abilities. I try to point out many of them and offer examples where they are flawed.

1. Bull markets—Generally defined as moves upward of 20 percent or greater. This is actually a take-off from the more popular definition of a bear market.
2. Bear markets—Universally defined as declines in the market of 20 percent or more. Drawdowns are moves downward, measured in percentages, with the term bear market attached to drawdowns of 20 percent or greater.
3. Secular markets—Long-term moves in the market, which are defined by long-term swings in valuations, which are caused by changes in inflation.
4. Market valuations—Generally refers to price earnings ratio, but can involve other fundamental data.
5. Volatility—The world of finance defines volatility as standard deviation; this book will refute that concept.
6. Sector analysis—Both Standard & Poor’s and Dow Jones have predefined equity market sectors. These are classifications for stocks across broad categories and often used in strategies.
7. Asset class analysis—These are generally broader than sectors in that they are not tied to equities. Equities could be considered an asset class, along with fixed income, gold, and so on.
8. Return analysis—Charts of annualized returns over various periods is presented along with various looks at the distribution of returns.
9. Return distributions—Various charts showing return distributions based on percentages, variability, and segments of the return data.