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!

25 June 2007

Ariadne's thread

I once had the goal for this blog of writing one new post each day, but fall increasingly short of that objective. A few of you write and wonder to where I have disappeared the past 1 or 2 weeks. One reader even checks in every 30 minutes, 24/7! Rest assured I am still here, reading the markets' tea leaves, yes, but also honing my list of investment opportunities. In some instances, I whack away mercilessly; in others, I whittle with care. My 9 Core Opportunities remain unchanged; in fact, I remain as excited as ever for their future.

Some readers write publicly, albeit posted elsewhere...
"The tricky part is, the market changes just as you think you capture the trajectory. I guess they use the term martingale to describe this property."(A martingale is "a stochastic process in which the conditional expectation of the next value, given the current and preceding values, is the current value" -- dmg)
Excellent insight. I suppose the markets frighten many investors, always fearful that the markets will somehow attack them when least expected, as though the market's trend, and even trajectory, will lull them into a false sense of complacency. (Please watch video below.)

This possibility (caught unawares by sudden and seemingly random price action) is not one that concerns me. Not to sound arrogant, but I have spent a lifetime knowing trends and trajectories in the markets and when change occurs in advance of that change; thus, price movements that might seem random to most investors are anything but that to me. But I go the next step, and fit my expectations for possible and probable changes into my investing time frame, and discern whether the changes represent mere intra-trend volatility, or a reversal of the trend -- in my time frame.

For example...

[click on chart to enlarge]

This pattern (in the oval) shows a market possibly (probably?) breaking down. A breakdown that I warned about in advance of the reversal, which is my mission here. Even the most non-astute chartist could view this chart and see the minor double top, a pattern whose confirmation awaits a breach beneath the interim low. Simple peak & trough analysis shows a new pattern of lower highs -- and likely soon to occur lower lows. Already the S&P index breaks beneath its 50 day simple moving average (sma) -- a sign of a loss of (upside) momentum, or trajectory.

Please recall the many factors that now weigh heavily against the markets' continued bullish trajectory, which include fundamental, valuation, inter-market relationships, seasonal, and now, finally obvious to all, the technical action of the markets themselves. Does this S&P chart betray how low low might prove to be? A decline to 1450-1430 seems possible, even probable. Does it also betray a time frame? An intermediate term low could be probed anytime during the coming weeks and months. Does a decline of this magnitude (measured from high to low or low to high, and which differs from amplitude, which measures from peak to peak or trough to trough) carry a message to you? It does me, and I sold all trading lots in its anticipation. (As mentioned most recently here, here, and here.) But not investment lots, and never my Core Opportunities. If you differentiate between trading and investment as I do, then never allow the markets' ephemeral oscillations to frighten you. Please watch again the video. Do you see the spotter ever act fearfully, in panic mode? Should you act fearfully, then, when dealing with a different beast? Sure bear market attacks hurt, but not if you act with intelligence and resolve, and never emotionally. It helps, I admit, if you can take right action in advance of the panic of other investors; an objective I hope to help you achieve with my posts on this site.

MA looking awesome today (Friday, June 15). SNDK also having a good day, but not one of your core positions?
Thank you for recalling my high regard and expectations for Sandisk/SNDK, most recently in this post dedicated to the stock's nascent bottoming action. And for recalling that I recommend Master Card/MA, one of my 9 Core Opportunities. You are a mensch. MA rates as a Core Opportunity, whereas SNDK does not, largely in recognition of SNDK's business and product being mostly commodified. However, I cannot allow that recognition to blind me to the sizable move SNDK sets up. Ergo, my recommendation to buy at crucial support at $37. The shares have moved higher, with higher highs yet to come, but the stock does not qualify as a leader because the company does not. I want to invest (as opposed to trade; the difference, as I denote it, is my time frame) in only the best of the best, the crème de la crème. To each his (or her) own; certainly, I have no corner on all the possible great companies, stocks, and ideas. I hope to hear from you with your prospects for great companies, whose stocks will rise for more than a season.

Another reader comments (on a different site that aggregates my posts)...
"Thanks for your thoughtful discussion, David. Your review, given the markets' downturn this past week is timely. Time horizons are complicated and vary for investment type and category (including capitalization). I am especially in agreement with you regarding GOOG. However, in general, the logical side of investing yields to the emotional side when the stock market drops suddenly, and investors need a decision rule set that closely matches their financial outlook and needs."
Very insightful comments. Thank you. I have spent nigh on a decade trying to alert patient and interested readers about the over-riding importance emotions play in the quest for consistent investing success. Alas, many investors continue to seek the Holy Grail for Investing, not realizing how easy success is to be had -- if only they would give up their quest for the complex and difficult in favor of the simplex and elegant. It seems you do. Congratulations.

I never feel pressure to do something, anything, based solely on ephemeral market action. The market is up or down a lot today, or any day? Big deal. I never confuse action in the markets for my response or action in my portfolios, nor as a substitute for action in life; I have no need for drama or melodrama. When negative market action moves into a time frame meaningful to me, I step aside and use the newly-found time to study, to review, to deliberate, to measure, to weigh, and to judge. Precisely as I do now.

What does all this jabber mean as to where I have been these past days? I attempt, with the hope of a small measure of cogency and coherency, to share my thoughts re the current market environment and why my posts of late have been few and far between - and might be even more so in the weeks ahead; I do little in the markets and am otherwise busy living life.

We’ll say, late at night, or just before it is dawn:
If only God knew how awful it is we’ll feel,
surely, then, God wouldn’t make us suffer as horribly as this.

Though, perhaps, after all, God doesn’t know the whole of our tale.
Or, perhaps, after all, God is powerless, too,
or, perhaps, God is simply the God deep within us...

Yes, so deep within us,
God is what it is we’ll suffer, as well.

Brecht wrote, in old age, a little poem
about happiness, which, he confessed,
had eluded him all of his life.

And so he stated wryly, if pitifully:
It had better hurry up, at last,
if happiness, you know, is ever to be mine,

because, you see, so little time, of course, is left.
- Robert Mazzocco

So, with the help of Ariadne's thread, I find myself where I began and belong, living life; investing, viewed with the proper perspective, is not the end objective but only pays my way. Oh, and before I go... Thank you, SA; you bring me happiness, just as you redeem me.

Full Disclosure: Long the Core Opportunities (Apple/AAPL, Chipotle/CMG, Google/GOOG, Intuitive Surgical/ISRG, J Crew/JCG, Master Card/MA, and Research in Motion/RIMM).
-- David M Gordon / The Deipnosophist

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