The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

17 August 2006

The eremite's kingdom

Successful investing is not about precise timing. If that were so, then it follows as necessitous that both the buy and sale must be monitored for the precise moment to act -- when the gears change direction to up from down, and vice-versa. Oh sure, there is some measure of egoboo (satisfied inner ego) one derives by purchasing the low or selling the high. And, of course, there remains the omni-present need for perfection. Perfection, I contend, can be found only in the graveyard. Nonetheless, many investors strive for this fool's gold, especially the many who fancy themselves to be a technical analyst. So how do your efforts to time precisely the market's many squiggles help your portfolio achieve its objective (increasing value)?

The real problem, the one that requires your attention, is money management. One reason proper money management trumps technical analysis is that, as your portfolio's value increases, the corresponding and commensurate need to purchase larger positions increases as well. No longer will you be buying 100 share lots. No longer will you be buying and selling positions in one fell swoop. You will stage into and out of your portfolio holdings, and within a circumscribed area of your objective. (I utilize a 10% band.) So, yes, money management wins the day.

For example, in this post, I argued to swap a long-term market leader for a long-term market loser; that the market itself paid you to make the swap. That is, it was (is) folly not to make that swap. I did not argue in favor of the swap on the basis of technical analysis (although I could have). And what do you know? Subsequent events have borne out the wisdom of that recommendation, as Johnson Controls/JCI shares have tumbled, whereas Ford/F shares have skyrocketed higher. (F's out-performance, in fact, has occurred both absolutely and relatively.)

Perfectionism...? Timing...? More appropriate would be value -- whether that perceived value is found in a company's fundamentals... or a stock's technicals. Nothing, including the markets -- and certainly no person -- exists in a vacuum. Perceptions are both absolute and relative; relative to its own history, of course, but also relative to its competitors. Perhaps a stock is cheaper than a competitor on all valuation metrics, and yet its stock continues to decline ("Hey, it's a better value!") while the competitor's continues to rise. Technical analysis does not betray this recognition, whereas an understanding of value does. Hence, the recommendation of F a brief time ago.

The market is typically open 5 days each week and 390 minutes each day. No matter the direction the market trends, there always exist opportunities to make money on any analytical measure you prefer.

The irresponsive silence of the land,
The irresponsive sounding of the sea,
Speak both one message of one sense to me:—
Aloof, aloof, we stand aloof, so stand
Thou too aloof, bound with the flawless band
Of inner solitude; we bind not thee;
But who from thy self-chain shall set thee free?
What heart shall touch thy heart? What hand thy hand?
And I am sometimes proud and sometimes meek,
And sometimes I remember days of old
When fellowship seem’d not so far to seek,
And all the world and I seem’d much less cold,
And at the rainbow’s foot lay surely gold,
And hope felt strong, and life itself not weak.
-- Christina Rossetti
-- David M Gordon / The Deipnosophist

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