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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!

26 August 2008

More re Animoto

Last week, I talked up, and showed why, Animoto could be the Web's killer app. And now comes Michael Arrington (of TechCrunch) re Animoto...

"... creates videos that combine music and your photos. You upload photos directly to the service or authorize it to grab them from Flickr, Facebook, Photobucket, Smugmug or Picasa. Then it adds music you upload or that you select from the site and creates a video. It’s a variant on Slide, RockYou and similar services who for the last year have been much more focused on their Facebook Application business. The service now has 250,000 users in 200 countries and 4 million or so videos have been viewed 50 million times..."
Eric Rhoads' (of Word Tipping) offers a fascinating reply, "Animoto is by far the best Web 2.0 site (emphasis mine -- dmg) I have used yet. Its simple to use and works like magic. I like that they add features very slowly, but when they do, they work perfectly. The new HD downloads are a great example. Not only do you get a HD Quicktime file, but you also get a pre-packaged ISO. This may not mean much to tech savvy people but for the average user, being able to download this and burn it onto a DVD without file conversion hassles is simply priceless."

So, okay, only one reader of this (my) blog has actually signed up with Animoto; at least, to date. 'Tis a shame. Life and investing share so many similarities; investing really is nothing other than a subset of life itself.

Be early, and pay less, or be late(r) and pay more.

Full Disclosure: A proud and happy user of Animoto.
-- David M Gordon / The Deipnosophist

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23 August 2008

Iron out the wrinkles -- or irony?

I consider often the work of Peter Drucker, but this recent TechCrunch article re Apple's growth-related woes really has me thinking... and although its author, Michael Arrington, does not come right out and stipulate Apple's recent miscues to be the result of its torrid growth, that is how I perceive the problems he bemoans:

"But recently I’ve had a string of bad apples come my way, so to speak. It’s time for Apple to stop screwing around and start paying attention to product quality. I’ll excuse the one hour of battery life I seem to be able to get out of my iPhone. An arrangement of extra power cords (USB, car, wall) and external batteries gets me through the day. I’ll also excuse the fact that iTunes seems hell bent on not syncing applications from my desktop to my iPhone, and inexplicably removing apps from my phone without any notice. I love that damn phone, and it will take a lot more than lost apps and dropped calls to get it out of my hands. But I don’t have the same blind dedication to other Apple products, and a string of costly problems has left me more than frustrated..."

I recall how Steve Jobs whooped it up 2 1/2 years ago, when Apple/AAPL shares finally surpassed Dell/DELL in total market cap. We all could hear his peals of excitement as they ricocheted off the walls of 1 Infinite Loop. Steve, too, had a quest; personal and corporate. So what reminds me of Peter Drucker? Peter would regularly admonish business executives, "Don't fix problems; pursue opportunities!"

Please recall that I am not an Apple computer user yet, so I cannot speak knowledgeably with regard to its products. (Although I love my iPod, and am impatient for my iPhone!) Nonetheless, the company will attend to (iron out) the problems Arrington notes, and will clean up its public relations act with the media and the company's customers.

It is, after all, human to make errors -- we all make errors often (me, all the time!) -- but it is rare to learn from our errors, and rarer yet to learn from our successes. Jobs is feted for his incisive intelligence and imagination -- just about as often as he is noted for his incendiary temper -- but I believe that, when all is said and done, he learns. Jobs and Apple, Inc will rectify these problems, stat.

Certainly, my intention is not to diminish the importance of these problems, but to note the irony of it all. "All" what, you might wonder? Well, that Apple/AAPL is approximately midway through its 4th quarter, and will report revenues and earnings numbers on approximately 20 October that, in my informal estimation, will prove leaps and bounds beyond its best quarter ever. Despite the company's claim last month, during its Q3 conference call, that Q4 would show sluggish growth, and which caused the stock to embark on a 4 session 'plummet'.

Meanwhile, through it all, Apple/AAPL shares lurk just beneath their all time high trade of $202.96; to my eyes, it looks increasingly likely the stock will explode into new all time highs soon. The question, then, re the stock is whether new all time highs occur before, or as a result of, the earnings report -- despite (in spite of?) the news that swirls about the company (the problems Arrington articulates), Jobs's health, the parlous state of the global economy, etc...

Stated as a syllogism...

If the company reports the blow-out numbers for Q4, as I expect, and
If the stock does not trade at new all time highs prior to the earnings report,
Then we could expect a large price gap up, subsequent to the earnings report.

Oh, sure, I could be wrong, and the bears [be] correct -- the stock could instead decline $10, $20, or $30 -- but that possibility looks increasingly remote. Which qualifies as the irony of all ironies.

Full Disclosure: Long the shares of Apple/AAPL.
-- David M Gordon / The Deipnosophist

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22 August 2008

The Choppiest Environment in 50 years

Yet another positively brilliant, and helpful, commentary by Rob Hanna...

"If you trade trend or breakout strategies and have found the market difficult in the last year or so, I’m about to show a prime reason for that diffuclty. Below is a strategy that..."

Read the entire article, How To Trade The Choppiest Environment In 50 Years. And then include Rob's site, Quantifiable Edges, among your daily reading.
-- David M Gordon / The Deipnosophist

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A brief market update

In early trading -- a mere 20 minutes into the session -- the market averages and indices, among them the Dow Industrials, Transports, and Utilities, and the S&P 500, each build upon their increasingly bullish foundations.

And while some are farther along than others in the process -- e.g., the NASDAQ Composite vs the DOW and S&P -- the latter averages nonetheless enjoy important and crucial upside breakouts this morning. Of course, today being a Friday, closing levels are of paramount importance.

In similar vein, and just as an example, Google/GOOG nears an important, albeit not crucial, internal breakout. Ideally, that breakout would occur this coming Tuesday (the 26th) to form a double upside breakout. The breakout, when it occurs, would demolish the "obvious" ugliness of its chart pattern, a fact I alluded to in my Tasseomancy post.

As always, only time will tell -- although the (correctly perceived) charts betray all.

-- David M Gordon / The Deipnosphist

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18 August 2008

The web's killer app, finally!

I enjoy photography, as you know. No pun intended, but I perceive each of the many components that comprise a great photo to be a challenge to my intelligence and my impatience. From the photo's composition -- its forground, mid-ground, and background -- to 'framing' the scene via the use of other objects to help tell the photo's story, the Rule of 3s, and by shifting the placement of the subject (if possible) or even shifting my position to rid the frame of unwanted objects. Should I use flash...? Is my photo's story best told arty-farty, or as a snapshot...? Etc.

The fact is that everything that occurs before I snap the shutter intrigues me... but everything that could be done afterwards with the computer bores me. Go figure. Many of you probably enjoy using Photoshop or other software to manipulate your digital photos, but I do not; most likely to the detriment of my photos' quality.

How many of you enjoy the process of making a movie from your still photos? Certainly a task that fatigues me just thinking about it.

Until now, that is.

I traveled to Santa Cruz, CA late last month to attend, and participate in, the wedding of my good friend, Jim D, to his luminously beautiful bride, Kim. Also in attendance were the great and powerful from the technology companies of Silicon Valley (Jim's friends and colleagues), professional dancers (Kim's friends and colleagues), and, in a personal surprise, the highly-regarded, Dick Fabian. (Dick happens to be Kim's grandfather!) I enjoyed the honor and privilege to talk with Dick for a good 30 minutes before he had to return to his wedding-day duties.

So I snapped some photos. And some more. And when I returned home, I used a new web application called Animoto that relies on... yep, cloud computing. (Amazon is the host service, though; not Google.) With Animoto's software, I made the movie below...


Animoto transforms even a nincompoop such as me to seem a veteran Hollywood director and editor wrapped into one person. Unfortunately, YouTube imposes a stringent compression ratio, which compromises its quality. But watch the video (and turn on your speakers), and you will get the idea.

I originally used Animoto's service to familiarize myself first hand with this notion of cloud computing; now I use it to make movies of my photos -- and have fun in the process. Click here for more info. btw, you receive $5 off an all-access pass ($30 for 1 year), if you sign up from the link in the previous sentence, or the graphic link near the top of the sidebar.

So about this post's subject header -- really, the web's killer app? Well, my point is arguable, certainly contestable, but consider that Animoto's software solution utilizes completely Amazon's cloud computing infrastructure, you use bandwidth to upload the photos and music files, and again use bandwidth to download the finished product, and finally use your email client -- whether desktop or web application -- to share the finished movie. Of course, and to its credit, Animoto does not require you to be a member to view the completed movie, so it lacks the multiplier effect that comes with this trickery. No, Animoto prefers to grow the old-fashioned way -- by earning your favor via a superior product.

Oh, and consider this tidbit: Jeff Bezos, the founder of Amazon.com invested his money into Animoto after learning of the company during a joint appearance at a cloud computing conference.

Try the fun and possibly even game-changing software, and you might agree.
-- David M Gordon / The Deipnosophist

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Tasseomancy, or Black Fridays, black Wednesdays, black everyday... black markets! Part 3

Even my clients have grown despondent in their concerns and fears that the market's triumphal march higher has ended, and with its ending chimes the death knell of the investment opportunities I favor (and guide their portfolios toward). Certainly, the ~9 month decline calculates as among the more unbearable, but "the market you are in always feels like the worst."

I attempt to keep my readers (and clients' portfolios) on the right side of the market; for example, warning and assuming a defensive posture last October and November, then counseling in late-March that what then was ballyhooed elsewhere as a double-bottom in fact was not. And, finally, that this decline, too, would end. They always do.

Point your finger at this cause and that effect, and their follow-on problems -- for the markets, for your portfolios, for the economy, etc -- loom large. The problems never really disappear, especially not the type that we suffer today, but the markets themselves continue. And because we are human we create the problems and the opportunities -- even the vaunted portfolio management done by computer algorithm, because their programming comes from the fallible minds (and emotions) of humans. So slough off your despondency; the times they are a changing.

While my trades might appear random, they are anything but. Stocks always oscillate, so long term investors provide sufficient leash for those oscillations. Each investor has his or her own preferred methodology that presumably achieves consistent success; I prefer an investment opportunity that remains within its long term up trend but merely pauses for the intermediate term. The intermediate term can stretch on for months, sometimes years, and sizable price and percentage declines and rises could occur regularly and repeatedly during the consolidation phases, but the bases -- assuming you identify them correctly -- always offer fantastic investment opportunities.

Excellent companies, with a strong executive team, and an exciting, interesting product or service, make for great long term investments -- and are not difficult to find. Alas, it is the process of investing that trips us up, fraught and beset as it is by our emotions and expectations. I do not attempt to sidestep the inevitable bases that occur. I monitor closely each of the investment opportunities I favor for signs of long term change, and whether that change, should it occur, might endure. Consider only four of my Core 9 Opportunities...

1) Apple/AAPL could -- not will, but could -- decline to ~$145-135, or lower, as other traders posit. (Go here for yet another bearish opinion.) And even if it does, so what? Perhaps it comes as no surprise, but I disagree with their (chart) analysis; I perceive Apple/AAPL to qualify easily as a buy. (In fact, I purchased more shares just 2 weeks ago at ~$153.)
2) Google/GOOG scares many investors, including those who have been wrong -- habitually, congenitally wrong -- on the company, and its stock. I look at the company, and see more than a "one trick pony"; I look at the stock, and despite the obvious ugliness of its chart, see fantastic opportunity for it to rise, and dramatically so. Soon.
3) Intuitive Surgical/ISRG is a great opportunity to show how wrong most chart readers can be when they attempt to analyze chart action, which is one reason why chart reading has a bad reputation (and gets a bad rap from me). The failure, though, lies not in the chart, but in the chart's so-called readers. Rather than use ISRG as this post's lesson, I will use...
4) Johnson & Johnson/JNJ. Sheesh, what can I possibly add to what I have stated here, ad infinitum, ad nauseum? I have singled out JNJ as the "poster child" for the type of growth stock I favor and seek, and that its current base is "profoundly bullish." (Search this blog for those two terms for more information, and understanding.)

First, the perfunctory explanation of the company...

Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies. The Company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Sales of the Company's two largest products, Risperdal and Remicade, accounted for approximately 6% and 5% of Johnson & Johnson’s total revenues, respectively, during the fiscal year ended December 30, 2007 (fiscal 2007).

Hmm, that précis of the company offers little to help guide the investor, although for the investor not familiar with the company, her or she learns quickly that JNJ is more than baby powder and skin lotion. Perhaps investors might glean some measure of truth from the company's products and services? Its pipeline of new pharmaceutical products...? Or its history? How about, then, the company's fundamentals...? Certainly, the company's valuation...?

Being familiar with the company in advance of an investment certainly helps, and knowing how stocks trade helps even more, for the very reason that we express our interest in a company via our investment in its stock. And, being human, and thus emotional, we attempt to purchase at optimal moments. (Read: The stock screams skyward immediately after our purchase.) In the attempt to illustrate this point, piece together the 3 separate parts of this post...

Johnson & Johnson/JNJ categorizes within the health-care sector, and that the company's deep and broad product line cuts swaths across all the groups of the health-care sector. Health care is among the hotter sectors of late, as I note the positive price action of health care brethren: Abbott Labs/ABT, Auxilium Pharmaceuticals/AUXL, Baxter/BAX, Becton Dickinson/BDX, Express Scripts/ESRX, and Intuitive Surgical/ISRG (oops, how did that company slip in here?!) to name only a handful that confirms group and sector strength. Okay, I can qualify the expected strength in Johnson & Johnson/JNJ, but can I quantify my expectation...?

The effort requires the correct analysis of its chart...


[click on charts to enlarge]

In the chart above, I circumscribe the 3 1/2 year intermediate term base, or high level consolidation. (The better for you to see it.) Do 3 1/2 years seem too lengthy for the intermediate term? Than substitute interlude for intermediate term. Fact is that such bases create the bouts of despondency that plague most investors, whereas I view them to be opportunities. While the market raced higher during 2005, 2006, and much of 2007, seemingly JNJ went nowhere fast. Note well, however, the higher bottoms (areas 1, 2, 3, and 4) within the high level consolidation; demand subtly gathered strength against dwindling supply. I will return to this point in the chart (two) below.


The same intermediate term base, but this time drawn with a point & figure chart (above); a methodology that helps most investors elide one key problem, their emotions. But why do I delineate the base as beginning from the high of March 2005? Because that is when the long term up trend halts, albeit temporarily. Yes, it is obvious now for all to to see (chart below), albeit after the fact... and especially obvious after the upside breakout of 2 weeks ago. But I have shown previously how to identify the changes as they occur real time via use of the subtle clues that betray the next direction.

But it is the chart above that helped me, over the past 3 1/2 years, to perceive this chart -- as it built its setup and pattern -- to be "profoundly bullish." The high level consolidation pattern betrays itself to be part of a 15 year ascending triangle. The ideal breakout from this pattern would occur approximately 42-47 months from the inception of the base, or 67-75% of the way to the apex of its pattern (June 2010), which calculates as now to March 2009; in fact, Johnson & Johnson/JNJ broke out 2 weeks ago. Remember from the first chart that JNJ made higher bottoms throughout its high level consolidation, showing, albeit subtly, that supply was slowly giving way to increasing demand for the shares. The ideal entry point in Johnson & Johnson/JNJ would be a test back to the 67-69 area, a short term price oscillation for a stock in a long term up trend and that has just broken above its major intermediate term base, but my upside objective counts as ~$125. Assuming my chart reading ability and follow-on expectation to be correct results in a downside risk of ~$5, and a possible and potential upside reward of ~$55, an 11:1 reward:risk ratio. And in a company that is about as blue as blue chips can be.

I admit that price oscillations, in particular, the downswings can be frustrating, can even cause investors to wax despondent, but they also create potentially profitable opportunities. Although I detest superlatives when writing these posts (the use of superlatives choke off discussion), always try not to buy into the ubiquitous news of the day, broadcast to all via the mass media. (Which includes CNBC.) Price oscillations -- down, up, sideways -- serve only to create your opportunity to invest... and to profit. Despite the news, or even in spite of it.

To reiterate, the investments I seek are only those in which I want to invest long term. I do not chase stock action; i.e., I do not rely on a stock's chart to tell me whether I should consider it as an investment opportunity, but instead first research the company, its products and services, its management team, etc, and then, and only then, wait for the stock to come to me -- when my time frame and the stock's periodicty match off like hand in glove. All true patterns are replicable in all periodicities.

So I can only wonder... Why the despondency?

"I can feel guilty about the past, apprehensive about the future, but only in the present can I act. The ability to be in the present moment is a major component of mental wellness."
-- Abraham Maslow


Full Disclosure: Long the shares of Apple/AAPL, Google/GOOG, Intuitive Surgical/ISRG, and Johnson & Johnson/JNJ.
-- David M Gordon / The Deipnosophist

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12 August 2008

What is that song... and who is the singer?!

You probably wonder precisely that, if you have seen the General Motors/GM ad that airs during the Olympic Games. In fact, I know you do, because the hits to my blog have been fast and furious, after a search points users here.

Here...? To a blog that talks about investing? Yes, because I featured Brandi Carlile, her phenomenal talent, and that very song (The Story) almost 18 months ago. So music and investing are not dissimilar, after all; the quest is to know what the masses will want before they have even an inkling.

Want to know more? Then click on this link to read that old post.
-- David M Gordon / The Deipnosophist

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04 August 2008

Away

Blog posts will be scarce late-Tuesday, 5 August through Monday, 11 August, as I will be at Denvention, where I will enjoy the company of old and new friends. Let's you and I meet up as well, if you will attend the Con or live nearby.

And, of course, I will check in on the markets from time to time.

-- David M Gordon / The Deipnosophist

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03 August 2008

Proft From the Peak - a review










Brian Hicks' and Chris Nelder's recently published book, Proft From the Peak, comes as a complete surprise, and a pleasant one at that.

A surprise to me, certainly, as I suffered the pre-conception that this book would be a quickie -- written and published hurriedly to take advantage of a topical issue. But it is, instead, well-argued, provides an in-depth analysis of the full cohort of issues, and does it all logically, consistently, coherently, and patiently.

The book's subtitle, "The End of Oil and the Greatest Investment Event of the Century" states the authors' intentions clearly and starkly, and sets out their far-reaching effort:
"... we take a hard look at the future of oil and gas, and how to invest in what's left. Then we explore the potential (and the limitations) of each of the energy alternatives, and the carefully considered investing angles on each one. Although this is a study in how to profit from the peak, we hop it is also more than that: a sober look at the future of humanity as a whole. On current trends, humanity could reach the peak of food, water, and all forms of energy by 2020..."

A massive effort, theirs; by and large, they succeed. Oddly, as I read the book, I thought Chapter 2, "What is peak oil?" would prove to be my favorite, as it digs deeply for what oil is, where it comes from, how we drill for it, and distill, process, refine, market, and use it. The chapter satisfies my interest in knowing the etymology (to misuse a word) of all things.

But the authors surprised me again; that chapter, excellent though it is, is only one of many excellent chapters. The authors dissect exceedingly well the questions and answers of energy -- finding, obtaining, using, and the many (proposed) alternatives -- and from so many perspectives that I suspect they cover them all. They do so fully from the question of supply, though, with no proportionate interest in the demand side of the equation; specifically, how to lessen demand to extend the lifespan of abundant, available, and inexpensive energy. I consider this a wise decision: better to investigate how to increase supply by new technologies and new products than to venture toward the hornets' nest of social engineering via decreasing users' demand for a product in diminution..

"My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel."
-- popular Saudi Arabian aphorism


Profit From the Peak serves admirably well my interests as a private consumer, selfish investor, and your fellow global citizen. Kudos to everyone involved with Profit From the Peak, which receives my highest recommendation.
-- David M Gordon / The Deipnosophist

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01 August 2008

Ever wonder how they do that?

When I see a magic act, my reaction and interest is no different than most people, "How did they do that...?!"

In the video below, Penn & Teller do precisely that; first they perform the magic, and then take it apart, step by step...


video

Fascinating!
-- David M Gordon / The Deipnosophist

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