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!

31 October 2008

Music for the Weekend -- a-Hem

Ever hear of the band, Hem? No? Well their lyrics are genius, and frequently verge on poetry. Consider this sample:

The sidewalk bends where your house ends
Like the neighborhood is on its knees
You're surrounded by a chain-link fence
That keeps me out but lets me see

Well I come by most every night
The shutters pounding in the breeze
A clothesline strung like paper kites
That blow my words right back at me
(from Stupid Mouth Shut -- Hem)

The band has an alternative country feel to it, but they are far removed from traditional country music. In that way, they share a similar aesthetic to Brandi Carlile and Patty Griffin, two other astoundingly excellent musicians I have shared with you. The story behind the band's indefatigable quest to find their lead singer is enchanting. And then they found Sally Ellyson, whose vocal talent is truly amazing; she makes the music haunting, which is the best type of music (for me).

Many of you will recognize the band's song, Half Acre, which was used by Liberty Mutual Insurance for a commercial...

Half Acre
I am holding half an acre
torn from the map of Michigan
and folded in this scrap of paper
is a land I grew in

Think of every town you've lived in
every room you lay your head
and what is it that you remember?

Do you carry every sadness with you
every hour your heart was broken
every night the fear and darkness
lay down with you

A man is walking on the highway
A woman stares out at the sea
and light is only now just breaking

So we carry every sadness with us
every hour our hearts were broken
every night the fear and darkness
lay down with us

But I am holding half an acre
torn from the map of Michigan
I am carrying this scrap of paper
that can crack the darkest sky wide open
every burden taken from me
every night my heart unfolding
my home

Hem's most recent CD, Funnel Cloud, is widely considered their best to date, which is no wonder because the arrangements are lush(er), and Sally's voice soars with power. Listen to Not California or I'll Dream of You Tonight for two stunning examples.

Purchase @ Amazon

Lucky us, though; Hem will release a new CD early next year (2009). They can consider me, at least, to be a ready audience. I only hope their tour in support of the new CD brings the band somewhere close to me, so that I can enjoy them up close and personal.

Really, can contemporary music possibly get any better than this...?
-- David M Gordon / The Deipnosophist

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The ACORN 'Controversy' ... Really?

Gosh, is ACORN truly an issue, or subterfuge? The Las Vegas Sun offers an interesting analysis; the relevant portion:

"Voter fraud is rare in the United States, according to a 2007 report by the nonpartisan Brennan Center for Justice at the New York University School of Law. Based on reviews of voter fraud claims at the federal and state level, the center's report asserted most problems were caused by things like technological glitches, clerical errors or mistakes made by voters and by election officials.

"It is more likely that an individual will be struck by lightning than he will impersonate another voter at the polls," the report said.

Alex Keyssar, a professor at Harvard's Kennedy School of Government, calls the current controversy "chapter 22 in a drama that's been going on awhile. The pattern is that nothing much ever comes from this. There have been no known cases of people voting fraudulently."

"What we've seen," Keyssar said, "is sloppiness and someone's idea of a stupid joke, like registering as Donald Duck."

ACORN officials have repeatedly claimed that their own quality control workers were the first to discover problematic ballots. In every state investigating bad registrations, ACORN tipped off local officials to bogus or incomplete cards, spokesman Kettenring said.

Many states require that all registrations be submitted to local voting officials so that election directors are in charge of vetting problem ballots, not the groups collecting them."

Read the entire essay here.
-- David M Gordon / The Deipnosophist


29 October 2008

Investing alerts

A site that monitors your positions, and then delivers actionable alerts to your email inbox, RSS reader, even your cell phone... How cool is that?!

Well, that is precisely what

does for you. In fact, included among its many features are seven different alerts based on price and volume, five different alerts for technical analysis studies, and three alerts based on (area) pattern recognition. With more alerts coming soon.

Yes, your real time streaming quote service can deliver alerts, but not this many, and most services deliver the alerts only to their program, which means you must be there. Alerts4All frees investors from the tether that is the quote service and computer.

The company's CEO, Fabian Siegel, offers beta subscriptions to the first 50 Deipnosophist readers to sign up. To make this offer fair to all my readers, I will update this post at 1pm pdt today with the link. Come back then, and obtain your courtesy subscription!

UPDATE (at 1pm pdt): Link to Alerts4All for beta subscriptions. First come, first served. Please confirm that your computer has installed the most recent version of Flash; check it here, if needed.
-- David M Gordon / The Deipnosophist

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28 October 2008

Greasing the Slide

Regular readers know my regard for James Surowiecki; every now and then, though, he really creases the net. Such as the New Yorker essay below (link embedded); in particular, his penultimate and final paragraphs.
"... investors who can endure past the present moment now have the chance to buy what at least look like very cheap stocks..."
Difficult for most investors to do, as James notes, but not for all investors; some few buck the tide.

-- David M Gordon / The Deipnosophist


The Financial Page

November 3, 2008

Greasing the Slide
by James Surowiecki

“Death by a thousand cuts.” “Fire-sale liquidation.” “A vortex of selling.” No matter how people described the market collapse that hit a month ago, the message was the same: it felt like there was nowhere to go but down, and it felt like we’d be going there forever. (Given last week’s dip, it still does.) Beginning on September 29th, the U.S. stock market fell on nine of the next ten trading days, plummeting twenty-six per cent; then, after a short, sharp rally, it lost ten per cent more in less than two days. Explanations for the crash often focussed on the hysteria and panic that periodically seem to seize investors. But the madness of crowds wasn’t the whole story. In a healthy market, there are countercyclical forces—mechanisms and institutions that go against the general market trend and encourage diversity of thinking—that make it harder for feedback loops and vicious cycles to take hold. Lately, though, many of these institutions and mechanisms have become procyclical: instead of countering trends, they amplify them.

Take, for instance, the credit rating agencies, which investors rely upon for evaluations of companies’ creditworthiness and general financial well-being. They are supposed to be a kind of early-warning system for investors, evaluating the health of companies in a way that’s insulated from prevailing market trends. Yet many studies have found that rating agencies are more likely to upgrade companies when investors are bullish and downgrade them when investors are bearish. This makes rating changes less useful to investors and also means that they push the market in the direction it’s already going. On October 9th, Standard & Poor’s announced, late in the day, that it was considering downgrading G.M. That helped an already shaky market fall four per cent in the final hour of trading.

Wall Street analysts have also been good at pouring gasoline on a raging fire. Analysts’ ability to take the long view and scrutinize company fundamentals should make them a counterweight whenever investors get too giddy or too gloomy. And sometimes it works that way: last fall, when investors were still relatively optimistic about banks, Oppenheimer’s Meredith Whitney correctly forecast serious trouble for the industry. More often, though, we see what the U.C.L.A. finance professor Bradford Cornell calls “positive feedback between stock price movements and analyst recommendations.” In other words, analysts often end up following the market, rather than leading it. In the case of a sell-off, this tends to make a bad situation worse. Earlier this month, Goldman Sachs downgraded steel companies like AK Steel. A bold call, you might think, except that it came only after AK Steel’s stock had fallen nearly seventy-five per cent in two months.

Rating agencies and Wall Street analysts are always with us. But the most destructive procyclical force in today’s market is relatively new—hedge funds. There’s an irony here: hedge funds have been touted as a great countercyclical force. Because hedge-fund investors, unlike mutual-fund investors, usually can’t pull their money out on a daily basis, the funds were supposed to be able to take a longer-term view and pursue contrarian strategies (like the hedge-fund manager John Paulson’s huge bets against the subprime bubble). Because they can follow myriad investment strategies—selling short as well as going long, trading derivatives, and so on—they were supposed to add diversity to the market. And the growing influence of hedge funds did indeed coincide with a decline in market volatility. A study by the Federal Reserve Bank of Cleveland showed that hedge funds generally made markets more stable.

Unfortunately, what was true of normal markets has turned out to be irrelevant in a crisis. Hedge-fund investors can’t ask for their money back tomorrow, but they commonly can ask for it at the end of any quarter, and after the market’s tumble this summer many of them did just that—to the tune of more than forty billion dollars in September alone, according to one estimate. The funds had to raise cash to meet those redemptions, which led them to dump stocks seemingly without regard to price. This colossal liquidation led stocks with a high percentage of hedge-fund ownership to fall, in some cases, forty or fifty per cent in a matter of weeks. The problem was magnified by the fact that the funds inevitably piggyback on one another’s trades, which made the selling feed on itself. And the faster funds’ positions shrank the more shares they had to sell in order to raise cash. The process was made still more destructive by many hedge funds’ reliance on leverage—funds often make bets totalling four or five times their capital. On the way up, leverage is great for maximizing returns. On the way down, it’s great at maximizing pain.

The great paradox of the sell-off, then, is that the factors that were supposed to increase the flow of information to investors, foster long-term thinking, and encourage contrarian positions did exactly the opposite. If there’s a silver lining in all this, it’s that investors who can endure past the present moment now have the chance to buy what at least look like very cheap stocks. Still, it’s not surprising that investors have been unwilling to step up. It’s hard enough to catch a falling knife. But it’s nearly impossible when hedge funds are hurling it. ♦

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What goes up must come down

What goes up must come down

For more than 400 years, financial ‘bubbles’ and panics have shaken empires and altered history. It’s happening again with the housing bubble. Why don’t we ever learn?

What is a financial bubble?
Bubbles are a market phenomenon in which something’s value is inflated far beyond its intrinsic worth. They are probably as old as commerce itself, though the first outbreak of market delirium identified as a bubble was the Dutch Tulip Bubble of 1636–37. A few decades later, the British government tottered after hundreds of thousands of Brits went broke investing in a South American real estate boom. In the 1800s, countless Americans lost their shirts speculating on railroad stocks. The 20th century brought the most destructive bubble of all—the credit-fueled stock speculation of the Roaring ’20s that ended in the Great Depression. More recently, the U.S. has been rocked by the Internet bubble of the late 1990s and this decade’s housing bubble, which ushered in today’s worldwide financial crisis. In fact, bursting bubbles led to nearly all 11 recessions the U.S. has suffered since the end of World War II.

Do all these bubbles have anything in common?
They’re all outbreaks of what historian Charles Mackay called “the madness of crowds.” (See below.) Take the tulip bubble. In the early 1600s, a mysterious virus infected many of the Netherlands’ tulip bulbs, which suddenly started producing brightly colored flowers with unusual streaks and whorls. A craze for the flowers developed, and during the winter of 1636, many Dutch started trading promises—futures contracts, essentially—to buy or deliver tulip bulbs the following spring. Prices rose furiously. One eager buyer traded his house for a single bulb; another swapped 12 acres of land. The outlandish prices brought in even more traders seeking easy riches, and initially, prices rose as new buyers surged into the market. But promises to deliver bulbs outnumbered the actual supply, and as spring approached, many people who had contracted to deliver bulbs couldn’t fulfill their obligations. Contracts to buy the bulbs were suddenly worthless, and the market crashed.

People really thought tulips could make them rich?
It sounds silly. But that’s the nature of bubbles—frenzied speculators part with common sense in their “irrational exuberance’’ for the next big thing. In the mid-1800s, new U.S. railroad companies were working to link markets that had never before been connected, thus revolutionizing commerce. Millions of Americans borrowed money to buy shares in railroad companies, and stock prices soared. But the steep costs of building the railroads proved too much for many companies, and several collapsed, ruining investors who planned to repay their loans out of their stock profits. The Internet bubble of our own time was remarkably similar.

In what way?
Investors were so excited about the potential, they lost sight of reality—hope triumphed over reason. Take the notorious case of Webvan, a company that delivered grocery orders placed over the Internet. On the day Webvan went public in 1999, its stock market value soared from $375 million to $8.5 billion—one of the best opening days of any stock in history. Webvan could never deliver enough groceries to justify that value, and the company went bankrupt in 2001. But it wasn’t just faith in the Internet that led speculators to bid up Webvan’s price. They also had faith that other people believed even more fervently in the Internet’s potential. In short, people who paid a foolish price for Webvan and hundreds of other Internet firms figured they could always find a greater fool to pay an even higher price. And many did, compounding their folly by buying their shares with borrowed money. Eventually, of course, the bubble burst.

What does borrowed money have to do with it?
Without borrowed money, there likely would be no bubbles. That’s because bubbles first inflate when credit is easy to obtain, and pop when credit tightens. During the stock bubble of 1929, for instance, many investors bought shares with borrowed funds. When prices started to fall in October 1929, investors rushed for the exits, hoping to sell their shares while they were still worth more than their loans. But because everyone was selling at once, stock prices plummeted, leaving many investors with debts they couldn’t repay. Many U.S. banks were among those investors. Hearing about the banks’ losses, depositors rushed to withdraw their funds, starting a bank run that caused thousands of banks to collapse.

Is something similar happening today?
In many ways, yes. The housing bubble first started to inflate when interest rates fell to 1 percent after the 2000 dot-com crash. Banks happily granted mortgages to almost anyone who could fill out an application. Millions of borrowers bought houses they really could not afford, figuring they could sell at a profit if they got in a pinch. It wasn’t such a far-fetched idea—in much of the U.S., housing prices had risen steadily since the late 1970s. But prices eventually hit a peak and started to fall, and the inevitable stampede for the exits began. As in 1929, says finance professor Lawrence Kryzanowski, people thought “the good times were going to go on forever. And then very quickly, they stopped.” History provides one consolation, however: Just as every boom inevitably comes to an end, so does every recession.

The madness of crowds
Many economists believe that people tend to make rational financial decisions. But the recurrence of bubbles suggests that greed, emotion, and peer pressure can overwhelm rationality. When we see friends and neighbors making big bucks trading dot-com stocks or flipping McMansions, we want in on the action. For a while, as everyone joins the party, rising prices become a self-fulfilling prophecy. But then comes a seemingly minor event that reverses the psychological polarity, turning endless optimism into bottomless panic. (In the case of the housing bubble, it was one big bank’s announcement in March 2007 that it was experiencing higher-than-expected losses on its mortgage holdings.) The same herd mentality that drove people to crowd into the market now drives them to flee the market en masse. Falling prices then become the self-fulfilling prophecy, and the panic feeds on itself, sweeping aside caution, common sense, and historical memory. Super-investor Warren Buffett has seen it happen over and over again through the years. "What we learn from history,” he likes to say, “is that people don’t learn from history."

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27 October 2008

Human creativity and imagination

... comes in many guises, and not solely the books, films, and music I list fondly in the sidebar to the left.

We all know, I bet, of the dancing Fountains at the Bellagio hotel in Las Vegas, NV. But have you ever seen such a display of engineering ingenuity as this water fountain at Canal City Mall in Japan...?

Wow! Thank you, Alan.
-- David M Gordon / The Deipnosophist


24 October 2008

Humor for the weekend

Perhaps this email forward has been around the block a time or two already, and is new only to me; nonetheless, I could not help chuckling...
1) Fine: The word women use to end an argument when they are right and you need to shut up.

2) Five Minutes: If she is getting dressed, this means 30 minutes. Five minutes is only five minutes if you have just been given five more minutes to watch the game before helping around the house.

3) Nothing: This is the calm before the storm. This means something, and you should be on your toes. Arguments that begin with nothing usually end in fine.

4) Go Ahead: This is a dare, not permission. Don't do it!

5) Loud Sigh: This is actually a word, but is a non-verbal statement often misunderstood by men. A loud sigh means she thinks you are an idiot and wonders why she is wasting her time standing here and arguing with you about nothing. (Refer back to # 3 for the meaning of nothing.)

6) That's Okay: This is one of the most dangerous statements a women can make to a man. "That's okay" means she wants to think long and hard before deciding how and when you will pay (dearly) for your mistake.

7) Thanks: A woman is thanking you, do not question, or faint. Just say you're welcome.

8) Thanks a lot: Pure sarcasm; she does not thank you at all. Never say "you're welcome" which only will bring on a whatever.

9) Whatever: A woman's way of saying a bad word to you!

10) Don't worry about it; I got it: Another dangerous statement, meaning this is something that a woman has told a man to do several times, but is now doing it herself. This action will later result in a man asking 'What's wrong?' For the woman's response, please refer to # 3.

So, c'mon, women (readers): Can this list possibly be true and correct...?
-- David M Gordon / The Deipnosophist

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Halloween and the Democrats

My previous post re John McCain's political support, while scary, is also unfair. So fair is fair. Time to poke some fun at the Democrats, too stodgy and traditional by half...

... if you know what I mean. And ain't that the truth?
-- David M Gordon / The Deipnosophist

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Who buys, if everyone sells?

When all investors attempt seemingly to squeeze through the same exit door at the same time, then who takes the other side of their sell orders; in particular, an ugly market opening such as today's indicates?

The NYSE specialists and NASDAQ market-makers, that's who. It is the stated responsibility for the former group and implied responsibility for the latter to do just that -- in the attempt to maintain orderly markets, "When everyone sells, you (Mr Specialist) must buy, and when everyone buys, you must sell."

But that does not mean they should lose money in the transaction. In such an environment, they will repeatedly lower bids (their bid) until the sell (stop) orders stop their inflow, at which point the markets open, stocks gap lower, much lower -- and the moment they buy from you, me, us. While we panic, they keep their collective head about them. But they will not carry a position overnight, so sometime soon thereafter, typically within the opening ~45 minutes, the markets will up-tick -- they will create the up-ticks -- and they will sell into the price rise. Voilà, a seemingly stupid purchase becomes profitable almost immediately.

But how does an ugly opening become a reversal and a rally to a possible positive close? Short sellers follow the specialists and market-makers, and cover their short term short positions, which creates additional buying pressure. And then the (intra-) day traders purchase, seeking a profitable quick long-side trade. Swing traders purchase next, and then, position traders, and finally long term investors. Which explains, rather simply, how a market gets its legs... and has legs (new trend endures).

This process, simplified though I have made it, is not a prediction, merely an explanation into the markets' mechanics. It is why professional investors seek gap openings in either direction as an opportunity to fade - invest opposite the prevailing direction -- for however fleetingly they hold the positions.
-- David M Gordon / The Deipnosophist


23 October 2008

McCain gains support

During a TV interview, a husband and wife explain their political intentions; he remains undecided, but she clearly believes in John McCain for President. She explains why in this 1 1/2 minute snippet from the interview...

Okay, this video unfairly represents a small percentage of Americans whose (political) decisions come from elsewhere than terra firma. So, now, I must go find a similar example of an Obama supporter to even the score.
-- David M Gordon / The Deipnosophist


20 October 2008

TV Show of the Week

NOVA: Parallel Worlds, Parallel Lives

Mark Oliver Everett — known to music aficionados as E, of the critically acclaimed rock band, Eels — is the son of “one of the most important scientists of the 20th century,” according to Scientific American.
The late Hugh Everett III developed an abstruse and revolutionary theory — that every decision we make creates a parallel universe.

An outstanding episode of NOVA, featuring Mark’s own wistful songs, follows his quest to understand a man whom he lived with but never really knew. His journey leads him not only to his father’s friends and colleagues but also into the puzzling worlds of quantum physics and mental illness.

Tuesday, Oct. 21, at 8 p.m., PBS (Check your local TV listings)
-- David M Gordon / The Deipnosophist

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A final step beyond the pale

Allan Harris referred me (us) to this article, or "exposé" to quote Allan. (And which article is too important to leave buried in this blog's comments section.) Allan is correct; the journalist identifies and reveals John McCain [to be] unfit to serve as this nation's Commander-in-Chief.

Which makes Colin Powell's endorsement of Barack Obama even more meaningful...

... Especially when you recall that Powell and McCain have been friends for something like 25 years.

I prefer not to venture into politics, because I recognize that any group of people will divide almost evenly into favoring this or that candidate or issue; for the advocates of McCain, they will view revelations of McCain's true character as ploys by the Democrats. (And vice-versa.) So, to be clear, I do not endorse any one candidate or issue, only share in the disgust at a person who dares to call the kettle black.

Of course, I welcome your comments and insights, as always.

-- David M Gordon / The Deipnosophist


18 October 2008

McCain loses; the country wins

Gosh, I do not intend to steer this blog into the landmine-strewn field of politics, nor do I intend to betray my political preferences, but...

Does anyone truly wonder why McCain's aspirations to be President sink quickly?
Throughout Debate #1, McCain could not look Obama in the eye; heck, he could not even look in Obama's general direction;
During Debate #2, McCain referred to Obama as "That One" (and insulted the moderator, Tom Brokaw); and
During Debate #3, McCain betrayed facial looks of impatience, disgust, and disrespect. The most obvious example occurred post-debate in this non-photoshopped picture (caption courtesy of Yahoo)...

US Republican presidential nominee Senator John McCain (R-AZ) reacts to almost heading the wrong way off the stage after shaking hands with Democratic presidential nominee Senator Barack Obama (D-IL) at the conclusion of the final presidential debate

Add several factors -- including but not limited to McCain's recent erratic behavior, his nonsensical comments, his daddy posture to shield his VP candidate (a selfish decision if ever there were one. For the good of country or the good of John McCain?) -- and the total picture comes into clearer focus.
-- David M Gordon / The Deipnosophist


Federal Reserve Watch

Hey, David,

I've been reading your finance blog for a long time; I really can't thank you enough for your efforts. I've learned a lot about the markets and hope you help me keep up with these wild times.

I've finally gotten together my own contribution to the world of online finance discussion; you can take a look here:

It's not a straight blog, but more of a nexus of monetary news and (when available) videos. The goal here is to make a finance focused news omni-site so that I don't have to check 40 pages every day -- and hopefully others will find it enlightening too!

Let me know what you think, and keep up the good work!
- Bill

Administrator, Federal Reserve Watch


17 October 2008

Investing Wisdom

Even though his sentiments should strike readers here as similar to my own (shared here), I still yield the bully-pulpit to the smart fellow from Omaha...
-- David M Gordon / The Deipnosophist
New York Times
October 17, 2008

Buy American. I Am.


THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.


A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.


The REALLY big picture

In a word, awesome.
-- David M Gordon / The Deipnosophist


14 October 2008

Lehman employees' final day at the office

If a picture truly is worth a 1000 words...

-- David M Gordon / The Deipnosophist


"Bailout powers stocks"


The title of this post comes from the above-the-fold headline of today's local paper, but is nothing other than a lazy journalist's attempt to state succinctly what requires more thought. A more appropriate title would be, "Fifteenth iteration of bailout plan powers stocks (higher).

Even that correction, though, would be incorrect. Market movements are difficult to explain in three words, irrespective of the attempt to summarize for a headline that introduces an article that might offer a fuller, richer explanation. Alas, the article's remainder (the one that provides this post's topic header) stints on providing clarity, leave alone understanding.

Look, markets move this way and that; they oscillate. Typically, they oscillate within a trend, or continuum in my terminology. Investors seek to identify those trends -- if they even consider stocks to trade independent of the parent company -- and invest accordingly. As such, different constituencies have primacy at any given moment.

This sell-off, decline, panic, or Panic, was overdone; necessity (historical tendency) required a countervailing move, which began mid-day Friday... right on schedule. More on this topic in my reply to Matthew, once complete.

Meanwhile, onwards and upwards. But for how long...?
-- David M Gordon / The Deipnosophist


12 October 2008

A visual display that wows!

Even while pre-occupied with other tasks, I cannot tear my eyes away from trawling (not "trolling") the www for distractions from the mind-numbing news that strives to blinker our financial existence. This computer simulation is just one; 24 hours of jets criss-crossing the globe.

btw, the link takes you to the QuickTime version (*.mov file). Although available to view with Windows Media Player (*.wmv file), I refuse to install that program. (Sorry, Microsoft, but I must maintain my computer in full working order.)

Enjoy the view!

-- David M Gordon /The Deipnosophist


How the markets work, part 2

Another laugh, this time courtesy of reader, President of SNAFFU, and friend, James Taylor...

Once upon a time, a stranger appeared in a village, and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest and began to catch them. The man bought thousands of monkeys at $10 each; then, as the available supply of monkeys diminished, the man announced he would now pay $20 per monkey.

This higher price invigorated the villagers' efforts, and they again went out to scour the jungle to catch monkeys. With the supply of monkeys diminished to near zero, the local people returned to their farms.

The stranger announced he would pay $50 per monkey, an astounding sum! However, he had to go to the city on some business, so his assistant would now buy on his behalf.

While the stranger was away, his assistant told the villagers, "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35, and when the man returns from the city, you can sell them to him for $50 each."

The villagers thought, deliberated, rounded up all their savings, and bought all the monkeys. What a plan; what easy money!

They never saw the man nor his assistant again; only monkeys everywhere.

And now you understand how Wall Street really works.
-- David M Gordon / The Deipnosophist

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11 October 2008

Music for the rest of the weekend

Okay, I admit that current market conditions usurp my ability to post many items in a timely fashion -- but who cares about market-related posts when there is so much excellent music to share, and not enough weekends to share it all?! And even though this weekend now qualifies as half over (Really?!), what better time than now to share some fine, fun music?

I have listened to, and enjoyed immeasurably, Laura Marling's (My Space) debut CD, Alas, I Cannot Swim, for several months now...

The truth is that its many qualities keep growing on me. Does that not reflect a mature artist, one who wants her music to haunt you for months to come? (Rather than bop you over the head with the sheer power of her musical genius.) But can Laura be only 18 years old? Sheesh, a record contract with a major label, and a talent for catchy hooks so infectious that she actually down-plays them...

As was the situation with Amy MacDonald, I was hard-pressed to decide which song by Laura to share; in the end, I went with the first single, Ghosts. This song compares favorably with early Joni Mitchell, (in particular, Joni's For The Roses), a heck of a high bar to surmount, and which Laura hurdles with ease. Laura's writing displays an obvious playfulness, which the lyrics betray, as does her singing. Listen carefully to hear what I mean, albeit to other songs from her CD.

Ghosts - Laura Marling

He walked down a busy street
Staring solely at his feet
Clutching pictures of past lovers at his side

Stood at the table where she sat
And removed his hat
In respect of her presence.

Presents her with the pictures and says
These are just ghosts that broke my heart before I met you
These are just ghosts that broke my heart before I met you.

Opened up his little heart
Unlocked the lock that kept it dark
And read a written warning
Saying I'm still mourning
Over ghosts
Over ghosts
Over ghosts
Over ghosts
That broke my heart before I met you.

Lover, please do not
Fall to your knees
It’s not
Like I believe in
Everlasting love.

He went crazy at nineteen
Said he'd lost all his self-esteem
And couldn't understand why he was
crying, crying, crying, crying...

He would stare at empty chairs
Think of the ghosts who once sat there
The ghosts that broke his heart.
Oh the ghosts that broke my heart
The ghosts that broke his heart
Oh the ghosts that broke my heart
The ghosts the ghosts the ghosts the ghosts the ghosts the ghosts
The ghosts that broke my heart before I met you.

Lover, please do not
Fall to your knees
It’s not
Like I believe in
Everlasting love.

He says I'm so lost,
Not at all well

Do as done and there is nothing left to be
Turned out I'd been following him and he'd been following me
Do as done after it was over
We were just two lovers crying on each others shoulder
And I said

Lover, please do not
Fall to your knees
It’s not
Like I believe in
Everlasting love

Lover, please do not
Fall to your knees
It’s not
Like I believe in
Everlasting love.

So, what do you think...?
-- David M Gordon / The Deipnosophist

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The G-7 -- Geopolitics, Politics, and the Financial Crisis

The folks at Stratfor offer consistently interesting commentaries on many areas of interest -- except when the firm over-reaches their original remit (geo-politics), and stretches into matters beyond their core expertise, such as finance.

But even then the commentaries can be interesting. Consider the essay below, which enlightens the reader, even as it asks questions rather than (attempt to) provide answers.
"In other words, a crisis in the financial system is becoming an economic problem — and that means public pressure will surge, not decline. Therefore, it is plausible that they might choose to ask for what FDR did in 1933, a bank holiday, which in this case would be the suspension of trading on equity markets globally for several days while administrative solutions are reached. We have no information whatsoever that they are thinking of this, but in starting to grapple with a problem of this magnitude — and searching for solutions on this scale — it is totally understandable that they might like to buy some time."
-- David M Gordon / The Deipnosophist

Red Alert:
The G-7 -- Geopolitics, Politics, and the Financial Crisis

The finance ministers of the G-7 countries are meeting in Washington. The first announcements on the meetings will come this weekend. It is not too extreme to say that the outcome of these meetings could redefine how the financial markets work, certainly for months and perhaps for a generation. The Americans are arguing that the regime of intervention and bailouts be allowed to continue. Others, like the British, are arguing for what in effect would be the nationalization of financial markets on a global scale. It is not clear what will be decided, but it is clear that this meeting matters.

The meetings will extend through the weekend to include members of the G-20 countries, which together account for about 90 percent of the global economy. This meeting was called because previous steps have not freed up lending between financial institutions, and the financial problem has increasingly become an economic one, affecting production and consumption in the global economy. The political leadership of these countries is under extreme pressure from the public to do something to solve — or at least alleviate — the problem.

Underlying this political pressure is a sense that the financial class, people who run global financial institutions, have failed to behave responsibly and effectively, and have therefore lost their legitimacy. The expectation, reasonable or not, is that the political system will now supplant these managers and impose at least a temporary solution. The finance ministers therefore have a political mandate, almost global in scope, to act decisively. The question is what they will do?

That question then divides further into two parts. The first is whether they will try to craft a single, global, integrated solution. The second is the degree to which they will take control of the financial system — and inter-financial institution lending in particular. (A primary reason for the credit crunch is that banks are currently afraid to lend — even to each other.) Thus far, attempts at solutions on the whole have been national rather than international. In addition, they have been built around incentivizing certain action and increasing the available money in the system.

So far, this hasn’t worked. The first problem is that financial institutions have not increased interbank lending significantly because they are concerned about the unknowns in the borrower’s balance sheet, and about the borrowers’ ability to repay the loans. With even large institutions failing, the fear is that other institutions will fail, but since the identity of the ones that will fail is unknown, lending on any terms — with or without government money — is imprudent. There is more lending to non-financial corporations than to financial ones because fewer unknowns are involved. Therefore, in the United States, infusions and promises of infusion of funds have not solved the basic problem: the uncertain solvency of the borrower.

The second problem is the international character of the crisis. An example from the Icelandic meltdown is relevant. The government of Iceland promised to repay Icelandic depositors in the island country’s failed banks. They did not extend the guarantee to non-Icelandic depositors. Partly they simply didn’t have the cash, but partly the view has been that taking care of one’s own takes priority. Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.

This weekend some basic decisions have to be made. The first is whether to give the bailouts time to work, to increase the packages or to accept that they have failed and move to the next step. The next step is for governments and central banks to take over decision making from financial institutions, and cause them to lend. This can be done in one of two ways. The first is to guarantee the loans made between financial institutions so that solvency is not an issue and risk is eliminated. The second is to directly take over the lending process, with the state dictating how much is lent to whom. In a real sense, the distinction between the two is not as significant as it appears. The market is abolished and wealth is distributed through mechanisms created by the state, with risk eliminated from the system, or more precisely, transferred from the lender to the taxing authority of the state.

The more complex issue is how to manage this on an international scale. For example, American banks lend to European banks. If the United States comes up with a plan which guarantees loans to U.S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.

At the same time, there is no global mechanism for managing radical solutions. In taking over lending or guarantees, the administrative structure is everything. Managing the interbank-lending of the global economy is something for which there is no institution. And even with coordination, finance ministries and central banks would find it difficult to bear the burden — not to mention managing the system’s Herculean size and labyrinthine complexity. But if the G-7 in effect nationalize global financial systems and do it without international understandings and coordination, the consequences will be immediate and serious.

The G-7 is looking hard for a solution that will not require this level of intrusion, both because they don’t want to abolish markets even temporarily, and more important, because they have no idea how to manage this on a global scale. They very much want to have the problem solved with liquidity injections and bailouts. Their inclination is to give the current regime some more time. The problem is that the global equity markets are destroying value at extremely high rates and declines are approaching historic levels.

In other words, a crisis in the financial system is becoming an economic problem — and that means public pressure will surge, not decline. Therefore, it is plausible that they might choose to ask for what FDR did in 1933, a bank holiday, which in this case would be the suspension of trading on equity markets globally for several days while administrative solutions are reached. We have no information whatsoever that they are thinking of this, but in starting to grapple with a problem of this magnitude — and searching for solutions on this scale — it is totally understandable that they might like to buy some time.

It is not clear what they will decide. Fundamental issues to watch for are whether they move from manipulating markets through government intrusions that leave the markets fundamentally free, or do they abandon free markets at least temporarily.

Another such issue is whether they can find a way to do this globally or whether it will be done nationally. If they do go international and suspending markets, the question is how they will unwind this situation. It will be easier to start this than to end it and state-controlled markets are usually not very attractive in the long run. But then again, neither is where we are now.

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10 October 2008

A moment of grace and beauty

In light of the ugly, ugly market opening to occur soon -- and which should reverse easily (but how enduringly?) -- I find the need for a moment of grace and beauty; a separate peace. Perhaps you do as well, so please enjoy the video.

Meanwhile, I turn my attention to other matters: my reply (post) to Matthew's question and watching the markets' gruesome opening.
-- David M Gordon / The Deipnosophist


Google to Announce Q3 2008 Financial Results

Google/GOOG will hold its quarterly conference call to discuss third quarter 2008 financial results this coming Thursday, 16 October 2008 at 1:30pm pdt.

The live webcast of Google's earnings conference call can be accessed at The webcast version of the conference call will be available through the same link following the conference call.

-- David M Gordon / The Deipnosophist

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07 October 2008

Briefing: Wall Street’s hidden time bombs

The WEEK magazine (link embedded) offers a brief, but excellent, primer on the derivative securities that caused, and cause, the maelstrom on Wall Street.

Briefing: Wall Street’s hidden time bombs

The financial meltdown engulfing Wall Street would not have happened without the advent of complex financial contracts known as derivatives. Why were they created, and why were so many supposedly smart people fooled?

What is a derivative?

In a very real sense, it’s a bet. A derivative is a contract in which an investor agrees to pay for either a commodity or financial instrument at a set price today, in return for the right to take profits if that asset’s value rises. Some derivatives, such as stock options and commodities futures, have been used for years and are considered completely benign. A farmer, for example, can agree to sell a ton of wheat he’ll harvest in three months to a major grain buyer for $1,000. That deal enables the farmer to lock in the price of wheat as he’s growing it. In exchange for that guarantee, the grain buyer gets an assurance he’ll have a steady supply of grain while also safeguarding against future price increases. Both sides, in other words, reduce risk and future uncertainties. But in recent years, a new, highly toxic form of financial derivative has spread like wildfire throughout the financial system, ultimately laying waste to some of Wall Street’s oldest and most prestigious firms.

What are these new derivatives?

They’re called credit derivatives, and were designed to serve as a kind of insurance against borrowers defaulting on their debts. Credit derivatives first appeared on the scene in the boom of the 1990s, but really became popular in the early 2000s, when Federal Reserve Chairman Alan Greenspan sought to stave off a post-9/11 recession by slashing interest rates from 6.5 percent to 1 percent. Money became very easy to borrow, and tens of millions of people bought homes or took out second mortgages, many of which were offered to financially shaky buyers at “subprime’’ rates. Those mortgages were then bundled into securities, and firms such as Lehman Brothers and Merrill Lynch created credit derivatives to protect investors in case the securities defaulted.

Why were these securities so popular?

They provided above-market rates of return, and because these complex instruments were so poorly understood, they seemed more solid—and less risky—than they really were. Investors thought that they were getting AAA-rated securities. The sellers—caught up in the assumption that housing prices would continue to rise indefinitely—also thought they were safe from losses. Each security involved hundreds or thousands of individual mortgages, chopped into pieces, so that the risk of default appeared small. And by selling them, investment banks and brokerage firms made hundreds of millions in upfront fees and premium payments. That’s why global insurance giant AIG also jumped into the derivatives game. “It is hard for us, without being flippant, to see us losing even one dollar in any of those transactions,” Joseph Cassano, then AIG’s head of credit derivatives, declared last year, expressing a common sentiment.

Was everyone so clueless?

No. Concern about financial derivatives first surfaced in the late 1990s, and congressional Democrats launched a drive to bring them under federal oversight. The effort was beaten back by Republicans led by then­–Sen. Phil Gramm of Texas, who pushed through a law that explicitly exempted financial derivatives from federal regulation. By 2003, the pace of derivatives trading had exploded, leading Warren Buffett, one of the world’s most successful investors, to call derivatives “financial weapons of mass destruction.”

Why was Buffett alarmed?

Because the well-being of the entire global financial system rested in part on a hidden world of multitrillion-dollar bets that financial regulators couldn’t control or even monitor. Indeed, since 2000, credit default swaps became one of Wall Street’s most popular products, with firms such as AIG, Lehman Brothers, and Bear Stearns selling swaps covering trillions of dollars in bonds. At Cassano’s urging, AIG became the biggest player in the field, selling protection on $527 billion in bonds.

So what went wrong?

Home prices started to fall and interest rates started to rise. When rates rose, many subprime borrowers with adjustable-rate mortgages found themselves unable to make their monthly payments. They also couldn’t sell, because the demand for houses began to crash. Very quickly, as defaults mounted, the derivatives that had made so many bankers and investors rich lost their value. In turn, firms such as AIG and Lehman, which had guaranteed these securities, couldn’t meet their debts. It was a worst-case scenario, causing the collapse of many banks and investment firms. Despite the federal government’s rescue efforts, many financial executives worry that further damage is yet to come, because of bad debt hidden in other banks’ derivative holdings. “It’s not the corpses you can see that scare you,” says one Wall Street banker. “It’s the corpses you can’t see that could pop out at any time.”

Can derivatives be brought under control?

Washington and Wall Street are struggling to find a way. One of the most popular ideas is to set up a clearinghouse for all financial derivatives trades. Regulators would monitor the clearinghouse to be sure that no market player took on more risk than it could afford. And firms would have to keep money on deposit to show that they could honor their guarantees. The question now is whether safeguards can be put in place before another AIG-style meltdown unfolds. “If it all goes horribly wrong, it will not be just Wall Street that suffers,” says veteran investor Michael Panzer, who has warned against derivatives for years. “Those seeking a mortgage, a college education, a job, or even day-to-day sustenance will be left wanting.”

The derivatives in your portfolio
If some of your savings are in a mutual fund, you’re probably an investor in derivatives. Many bond funds, including the nine most widely held funds, use derivatives both to protect against losses and to increase returns, because these swaps can appreciate in value when the prospects for a company and the overall economy improve. Funds aren’t required to disclose derivatives holdings, although those that make them a major part of their strategy typically do so. To see if your fund holds derivatives, check its prospectus and the listing of holdings contained in Securities and Exchange Commission form NQ. Those forms can be accessed at If you’re still unsure about your fund’s holdings and don’t want to take the chance, financial advisors say, don’t hesitate to switch to an ultra-safe government bond fund. “Don’t be complacent,” says financial advisor Lawrence Glazer. “If you are uncomfortable with something, don’t be afraid to make a change.”


New Market Definitions

From reader (and friend), Ray Seakan, comes this list of investing definitions...

New Market Definitions:
-- A random market movement causing an investor to mistake himself for a financial genius

-- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

CFO -- Corporate Fraud Officer
VALUE INVESTING -- The art of buying low... and selling lower
P/E RATIO -- The percentage of investors who wet their pants as the market continues its crash
BROKER -- What my broker has made me
STANDARD & POOR -- Your life in a nutshell
STOCK ANALYST -- Idiot who just downgraded your stock
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves
MARKET CORRECTION -- Occurs the day after you buy stocks
CASH FLOW -- The movement your money makes as it disappears down the toilet
YAHOO -- What you yell after selling it to some poor sucker for $240 per share
WINDOWS -- What you jump out of when you are the sucker who bought Yahoo/YHOO @ $240
INSTITUTIONAL INVESTOR -- Investor now locked up in a nuthouse
PROFIT -- Archaic; no longer in use.

Thanks, Ray. I needed a good laugh!

-- David M Gordon / The Deipnosophist


06 October 2008


Reader Steve Albertson writes...
"Seemingly obvious question, but are you as bullish as you were a week ago before this huge drop, and a second question, could you share what you see in the pattern of GOOG that is so bullish to you? I see in the last year a lower high and a lower low for the first time ever. I noticed that Allan Harris has been calling for a major drop at the same time you seem so bullish. Since you are asking for questions, do you have any updated thoughts on AAPL and QCOM?"
'Interesting' questions, Steve.

Technical analysts attempt to measure how strong, high, and enduring a price move will be, and invest accordingly. The trick is to analyze the markets in a time frame appropriate to your (each investor's) tolerance for risk and objectives. Different time frames allow for differing perspectives. A plummet to many investors is a mere speed bump to others. Investors require a certain confidence, even faith, to see the other side of the decline, the consequent rise.

As an example, you repeatedly have requested my opinion during the past 10 years re Wal-Mart/WMT. In light of your history as a former employee, I understood your interest and concern that the sudden plummet in late-1999 (to ~$40 from its all time high of $70) occurred seemingly unexpectedly, frighteningly, and with ferocity. And that decline was followed by the nine (9) years of range trading -- $64 to $42 and back again, with the past ~3 years hovering in the low $40s. You could not understand throughout the past near-decade how I could foresee better days, even while the stock plummeted, nor could you accept that reality while the shares wandered about Wall Street's desert, seemingly aimlessly. But that wandering never was aimless; not then, not now.

The same holds true for today's market, despite (in spite?) of its fearsome look and set of jaw. Remember that I fretted, feared, and warned for years about the very events that transpire today. My colorful (and beloved) metaphors pointed the way: the US would be the "epicenter" of the coming decline, one that finds us standing, one foot dangling, at "Mather Point." It tickles me that, years on, The ECONOMIST chooses to visualize my metaphor with the cover art for its current issue.

I have believed for some time that all is not right with the global financial system. The fact that the markets decline today as they catch up with my fears from yesterday does not gratify me; I would prefer to be wrong. Yes, current market circumstances prove enervating; in fact, global markets decline hard as I write this post late-Sunday night -- pointing the way to yet another ugly opening 'rotation' (to borrow a term from the options markets). But in these difficult days, remember the many investing axioms I have shared, and especially this one: Seek the inflection point, the moment of extreme, obscene weakness. In a (seemingly) perduring (thanks to entropy, nothing truly perdures) down trend; part of that moment will occur as a large gap down at the opening.

While this decline is dissimilar from declines previous in its extraordinary set of circumstances, it also is similar to all other declines predicated on a set of facts that become increasingly familiar:

• The Mexican debt crisis of 1982, where that country's starvation for liquidity and solvency caused us to pump money, and more money, into the financial system. And thus ended with an explosive bang the 16 year high level consolidation described previously;
• The SE Asian currency crisis of 1997, when we thought the meltdown of the Thai baht, Malaysian ringgit, et al would infect the rest of the world, and
• The meltdown of Long Term Capital and Russia's debt default of 1998, when chaos rocked the global markets.
• And other declines, based on a similar circumstances and equally horrific.

Check the charts for those epochs; perhaps of note is that the worst pain adminstered to the greatest number of people occurred during the summer and early autumn months. (June through September.) Each decline prompted fear that the end days were upon us. Guess what? The markets recovered from each of them. And here we sit to discuss the (de-)merits of this decline. Which all adds (but does not sum), as to why the markets do not frighten me, now or ever.

Dorsey Wright:
"The market will not bail you out of mistakes and we would rather lose opportunity than lose money. Of course during these times, magazines and media try to make it look ten times worse, which doesn't help customers' psyche. During the bottoming process, we always find that new sectors emerge and provide leadership. There is always opportunity. We look for those opportunities to emerge among the rubble by looking for higher bottoms compared to the market. While it seems that everything has been going down over the last couple months, the reality is it hasn't been. Good things occur even, if you look under the surface. Despite another week of extreme volatility and a move to new lows by the broad market averages, there are some positive things occurring underneath the surface. More specifically, as the image below shows, we have seen relative strength emerge in some of the Sub-sectors and Mini-sectors. For example, on the Sub-sector level, we have recently seen the Diversified Financials reverse on their RS chart vs. the market, as has Household Goods. If you drill down a little deeper, to the Mini-sector level, you can see for example that Food Products has shown a similar positive upside reversal on its RS chart vs. the market. This is good information to have as you develop your Shopping Lists of ideas for when we move back to an offensive posture."
(My apologies to readers, Dorsey Wright Analytics included, for the lengthy quotation; it includes much fodder for deep and lengthy thought.)

On a related but separate note, an illuminating moment occurred during Thursday's debate. (For me, at least.) Biden and Palin bloviated on about this and that, and ignored blithely the chaos in the financial markets. And then it struck me: each candidate assumes this moment in (financial) history shall pass; heck, they have heretofore. (I recognize the candidates prefer to ignore the chaos for political reasons, as well.)

Markets come and go, prices rise and fall (and sometimes trend), but through thick and thin, value always is there; often elusive and sometimes illusive, but prices are each always. Value always wins out. Imagine, if you can, an ideal world, one in which business and continuing enterprise value predicate stock prices rather than the less meaningful (meaningless) price per share, and you will have a sense of what Oscar Wilde bemoaned so many years ago.

I invest long term, in companies that have continuing enterprise value, and excellent executives; moreover, I prefer and attempt to purchase these companies during intermediate term declines within a continuing long term uptrend, at or near price support, and retain some cash for times such as today. Finally, I do not worry overly much about long term investments whose share price declines only in sympathy with the market rather than from the pillaging of their business from lazy or crooked executives, disciplined competitors, or a diminishing opportunity in its chosen field of endeavour.

I acknowledge that perspective, experience, and the ability to discern what could occur next -- and a large helping of confidence! -- helps long term investors weather the frequent storms. But from such storms, such declines, as occurs today are borne the phenomenal buying opportunities of tomorrow. A tomorrow that will come, as certainly as the sun rises in the east and that night follows day.
-- David M Gordon / The Deipnosophist

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