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!

29 November 2009

The Complete Guide to Investing in Index Funds - A review

The Complete Guide to Investing in Index Funds
Craig W Baird

Craig Baird begins his book, THE COMPLETE GUIDE TO INVESTING IN INDEX FUNDS by offering definitions: definitions of Wall Street jargon, definitions of acronyms, definitions of concepts. And a lot of history of financial products. If Baird offered only the definitions and history, the book would qualify as a good volume for tyro investors.

With investing in index funds as his primary thesis, Baird should devote most of the book to definitions (check), history (check), how to invest in index funds (check), why to invest in index funds (um, no check). Baird sprinkles his book with many value judgments that are open to vociferous argument; his worst precept, though, is his contrast between "active" and index investors. Consider the three snippets below that illustrate this problem:
• "An effective way to understand active investors is to compare them to gamblers. Their style of investing often goes on a gut feeling. Most active investors believe they have a special understanding of the market that others lack, which gives them an edge over everyone else. No different than gambling, active investing can be a hectic ride for investors that [sic -- dmg] enjoy the feeling of excitement through risking it all on the chance of the stock market." (p 57)


• "Active investors can be considered gamblers in disguise. Investing can turn into an addiction that can cost them everything, much like playing roulette can." (p 100)


• "Index fund investors can enjoy a relaxed state of mind because they are not pressured into beating anything, and they can approach the market by buying and holding globally diversified portfolios of index funds. This method of investing is supported by University of Chicago Nobel Prize winners." (p 60)

Baird's distinction is a cheap trick of argumentative logic; gosh, don't you want to align your portfolio efforts alongside a bunch of Nobel prize winners? Surely a group of smart guys, in any field (of course, Baird does not mention the discipline this group of people won their Nobel prizes, although he implies it), achieve fantastic rates of return on their investment portfolios. Right...? And any investor who invests with a plan and methodology can "enjoy a relaxed state of mind"... Right? I know many active investors whose methodology does not rely on gut feeling, but reasoned analysis. And disciplined investors invest dispassionately, never emotionally. Yes, amateur investors rule the roost, but that merely helps create the pricing inefficiencies Baird ignores, and that endure longer than a nano-second. Whoever Baird interviewed before writing this book, he missed the narrow field of professional investors, who know the what, where, when, why, and how of their profession.

One insight you will not find in his book: indexing has grown to become the tail that wags the dog, precisely because index investing has grown like a weed the past ~38 years, and especially the past 15 years. To his credit, Baird notes this phenomenon; unfortunately, he misses its effect. Index funds now are more the market than the market itself. Also is the phenomenon of a stock spiking on the rumor (or news) of its inclusion to an index. The active investors Baird disparages profit from the ephemeral pricing disparity that results, while index investors pay the higher price.

Which obliquely points out the true disparity between types of investor, time. The more time an investor grants while he or she awaits fruition of the investment, the less stress results from short term oscillations of price. (Price smoothing of risk via elapsed time.) But that effect is the same for all investors. Know your true investing objective helps you to invest successfully, and not gamble.

Fact is, any form of investing can resemble gambling, index investing included. We investors complicate the process to such a degree that we only confound and confuse ourselves. Investing, otherwise a simple process, thus becomes akin to gambling:
• We lack understanding, which results in
• No control of the process, which results in
• Losses.

This is where Baird's The Complete Guide to Investing in Index Funds really shines, as introductory text for investors who lack the rudiments of successful investing. What Baird offers his readers, he does well; with the book's many definitions, explanations, history, and brief biographies, this book makes for an excellent holiday gift for beginning investors.
-- David M Gordon / The Deipnosophist

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26 November 2009

Always expect the unexpected

Non-recognitionRecognition Opportunity
Investing in the markets is rarely easy, and often fraught with financial peril; thus, assessments of risk and opportunity must be made, and appropriate action taken. And when the financial markets have trended mono-directionally for too long, and success occurs too readily, an especially suitable moment to pay particular attention is at hand. "Always expect the markets to do the unexpected."

The secret to successful investing is a function of knowing when to exit a position in order to keep the expectancy as high as possible, the amount an investor can expect to make on average over many trades per dollar risked. And to know how large a position to assume to meet objectives, coupled with the discipline to follow these tenets. (Most investors have no set objectives, leave alone any defined money management plan.)

While some scoff at basing one’s investment decisions on past price (chart) action, the shrewd investor recognizes that to follow an investment methodology asymmetrically, or one-sidedly, is akin to having no methodology. To invest based solely on fundamental analysis ignores the medium to transact the purchase, the market, whereas to purchase shares based solely upon technical analysis ignores the fact that the investor purchases shares in a company. It is the foundation of growing sales and earnings that builds a successful company and investment. To conflate this notion, the investor who performs only fundamental analysis would sell his investment based solely upon changes in the company’s fundamental dynamics. The investor who performs only technical analysis would sell his investment based solely upon how the company’s shares trade, and ignore changes in company fundamentals. To take this idea even further, the investor who performs technical analysis only and who purchases weakness will, in turn, sell strength. If he instead purchases strength (or breakouts), then he would sell chart weakness (or breakdowns). To obey each correctly identified signal (or alert) helps assure the investor of the potential for consistent success.

Too, the investor must learn to question each decision, especially his erstwhile decision to buy without its complement, when to sell. “Why purchase this company’s shares over another?” is a good initial question; better would be, “Why do I purchase this company’s shares? What is my objective?” The first question is generated by external factors, the market, and is not as important as the second, which is generated by internal factors, us. This is a notable difference that speaks to why investors assume risk. After all, for whom does the investor invest?

Further, consistent success requires the trader or investor to take his work seriously. Competing interests – career, family, etc – generates the incapacity to pay the necessary attention to a field of endeavor that requires no less. Investing is a business of numbers and psychology, not economics. The successful investor must live the numbers and practice the psychology. Legendary bond trader, Charlie DiFrancesca, believed the best discipline for tyro investors was spreading — taking long positions in one contract against short positions in another, to exploit changes in relative prices. Once the trader was fairly consistently profitable in this low-margin methodology, he would likely succeed at the trickier methodology of scalping — taking positions in one contract to catch waves of price motion. Perhaps without realizing it, scalping is what most investors do but without the added rigors the spreader’s discipline offers. This failure of discipline results in the investor’s inability to transact the other half of the trade: to sell, whether for a profit or to prevent a small loss from becoming a large loss. Human nature causes people to deny their mistakes. We become loyal and hang on too long to losing investments. It is difficult to resist the lure of too quickly taking profits.

Such traders or investors will transact, in general, one or the other of two methodologies, mechanical or intuitive. The mechanical style is for those investors who lack study time, desire, and a firm hold on his or her emotions. The successful mechanical trader accepts the recognition that this method is a compromise between eliminating the poorest trades and retaining the best trades. The intuitive style is for those investors who have a plenitude of study time, desire, and emotional control. Zen and the Art of Investing would characterize this method. The successful intuitive investor will trade what he or she sees, not thinks; patient and disciplined, willing to wait for the excellent opportunity and to ignore marginal opportunities. This investor does not trade for excitement, or to fulfill any element missing from his or her personal life. If the sole lesson the investor gleans when reading this passage is that he or she is unwilling or unable to devote the time and effort to generate consistent success, and this recognition includes the idea that said investor prefers to purchase shares only during uptrends in periods when the market is itself trending higher... well, this is not a deficiency but a strength. To invest outside of this core recognition is detrimental to the investor’s other efforts.

In general, there are two types of investor: those who sell volatility, in essence, a bet that prices would not move much (small profits times large bet size, thus requiring markets with huge amounts of liquidity), and those who buy volatility, or axiomatically, “The trend is your friend.” These investors expect to overwhelm frequent small losses with less frequent but larger profits, and could not care less about macro- and micro-economic factors. They presume all such factors as “already priced in” and hedge the potential for surprises via stop loss orders, etc. To stay safe, investors should always know in advance when and why he or she will exit an investment to preserve capital, and have enough self-discipline to follow through on this notion. If the investor rigorously applies this, then he will no longer fear the market and its oscillation, and recognize that those oscillations are what create the potential for consistent profits.

Knowing what you don’t know
Some investors will learn about the details of what they do through years of experience, but for many a lack of knowledge can be a primary cause for taking large losses early on. Without the necessary capital to sustain through these times, most investors’ career is finished as soon as it begins. These investors not only take losses because they lack specific technical knowledge or understanding, but also because his or her lack of knowledge impacts their psychology. Successful traders argue that even though the tyro investor might lack some information, he or she can still prevent losses if they have the right mental approach, a solid investing plan, and can respond quickly and effectively to changing dynamics. Of course, it's not really possible to know everything, but if a successful investor considers something as "basic," then that basic knowledge is necessary to know. The investor must get to a point where he is sufficiently confident in his knowledge that he can successfully invest, even though he lacks superior knowledge. When inexperienced traders are told this, they often ask, "But if you don't have the knowledge, how can it affect your psychology?" They overlook the fact that you know that you don't know. And consequently, it is their lack of knowledge that directly impacts the confidence in their abilities.

Trading Psychology
The investor’s biggest enemy is himself. Success comes when the investor learns to control his emotions. Excitement (and fear of missing an opportunity) often persuades investors to enter the market before it is safe to do so; exercise caution. After a downtrend, a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the extant trend is reversing. Wait for the right market conditions before investing. Exercise patience. There are times when it is wise to stay out of the market and observe from the sidelines. Remain emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: to continually check prices or stare at charts for hours is a sign that you are unsure of your strategy and are likely to suffer losses. Concentrate on the technical aspects rather than the money; if the investments are technically correct, then the profits will follow. Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends. Investing involves dealing with probabilities, not certainties. Always expect the unexpected. No one can predict the market correctly every time. Use stop-losses to protect portfolio funds, and act immediately when the stop loss is triggered; don't hesitate.

It is perhaps the quality of patience that separates the successful investor from the unsuccessful investor. Able to "watch and wait" for market generated signals, this investor then aligns his interests with the market’s trends; i.e., the investor listens to the market for the proper signal to get in, get out, move a stop, close a position, stand aside, or wait for a better opportunity. Time and again, the market provides invaluable clues and signals. Judgment and results will suffer the moment the investor decides he knows more than the market, and throws aside patience, giving in to fear or hope. Exercising patience requires that investors recognize they cannot fight the market’s major trend, irrespective of how exciting the opportunity seems. Success requires following the prevailing major trend, waiting until a new trend develops. Most important, the successful investor will not trade or invest when he does not understand the market. When in doubt, do without.

Bases manifest as repeated testing, or backing and filling — until the buyers get the upper hand, and the share price breaks above resistance. Or vice-versa. As a chart pattern builds via adding each new trading day’s price bar, one would expect declines to test the bull’s thesis… and resolve. It is here that the observant investor discovers that the notion of ‘support’ is commonly misperceived. In fact, support works primarily within a rising trend and resistance works primarily within a declining trend. Hence, for a true change in trend direction, the patient investor will seek this new dynamic: after a lengthy decline, new short-term price declines halt at identifiable intermediate and long term price support, aborting continued weakness (new lows). Contra, after a lengthy advance, fresh short-term price rallies encounter resistance to continued strength (new highs). Remember to identify and align both the markets’ trends and your time horizon.

The realities of investing
There is no person, committee, indicator, wave count, or Holy Grail that can consistently and accurately predict tops and bottoms in any market. Over the long run, the knowledge and understanding that there are no predictions only probabilities will be much more useful than a thousand forecasts. Too, losing trades are a natural part of trading, just as losing investments are a natural result of investing. Realizing these losses is a positive step because it allows the investor to consistently limit his losses to a manageable amount, if the investor gives short shrift to losing trades. This allows him to return the next day with capital and no pre-disposed emotional bias. Keeping individual losses to a minimum helps prevent a losing streak from overtaking both the investor’s portfolio and emotions. 

The Path to the Plan
To avoid this from occurring, the investor must have a plan. Most traders understand that it's critical to have a solid trading plan that works in collaboration with their trading personality and is completely their own. What many traders don't understand is how to actually do this. How do you create an effective trading plan and how do you use it? Unfortunately, there is no step-by step process to follow. Based on their strengths, most investors will incorporate analysis methods they are naturally good at. And for their weaknesses, they will develop their plan to include safeguards against those weaknesses. This plan would serve as a road map. This mean the investor knows before he enters a position why and when he would exit that position, which helps to remove the investor’s emotional biases, especially to unforeseen events. To perform less would help usher in portfolio failure.

Answers the following questions, otherwise investing is tantamount buying on hope.
• Which markets to trade/invest?
• What criteria to use to enter a trade/investment?
• What criteria to use to exit a trade/investment with a profit?
• What criteria to use to exit a trade/investment with a loss?
• How much capital to risk per trade/investment?
• How much margin to use, if any?

Most investors primary concern is, “What is my expected gain?" rather than “What is my possible loss?” If the possible loss is half the portfolio’s value, two consecutive bad trades wipe out the investor. The larger the portfolio value, the worse the dollar impact a given percentage decline will have on portfolio equity. Too, it requires a far greater percentage gain to make up for a given percentage loss; for example, a 100% gain is required to amend a 50% decline. More onerous is the portfolio that, after having scored three consecutive annual gains of 20%, suffers a loss of 45% that serves to reduce the portfolio equity to less than the starting amount. To keep losses contained at small amounts is therefore critical for consistent success.

To decrease the dollar amount of risk per position, the investor has four choices:
1. Close (or never open) the position;
2. Sell part of the position or take a smaller initial position;
3. Move up the stop until the dollar risk is reduced to an acceptable level;
4. Purchase the position as close as possible to the stop point.

While it is true that many investors do not plan to fail they do fail to plan. The absence of a good risk control plan is perhaps the primary reason that most tyro investors grow discouraged, give up, watch hard earned profits dwindle away, or crash & burn. To view each investment as a working hypothesis is a worthy start. Too, does there exist an optimal position size, expressed in percent, for all portfolios? For example, should the investor’s portfolio consist of five 20% positions, ten 10% positions, or twenty 5% positions...? How does the investor make that decision? Does holding too many positions promote over-diversification? Some studies suggest that there is a limit to the benefits of diversification, with the best effects of diversification best offered at ~9 companies; more, and the investor’s insights are diluted, less, and the portfolio remains tied to the market’s yoke. Of course, this begs the question of diversifying across assets. Nobel Prize winner Harry Markowitz demonstrated that holding a portfolio of assets with high standard deviations but inverse correlations (when one rises the other declines) could lead to a higher rate of return with a lower aggregate standard deviation. This disproved the widely accepted idea that increased return comes only with increased risk; that an asset by itself appears risky might paradoxically reduce a portfolio’s risk. For example, within any asset class, to hold several positions is less risky than to hold an equal dollar value of just one.

To diversify beyond the number of portfolio investments would include diversifying across systems, or developing core competencies in various market patterns and setups, or oscillators, or to make price action conform to investors’ sentiment, even the passage of time. Critical diversification is also offered by the type of investment: insurance or annuities, real estate, precious metals, and alternate currencies.

What to do when things go wrong
Take action! Do not hesitate, do not belabor the matter, do not grieve, do not shift responsibility, and do not hope. The market has sent a signal that the wise investor either heeds for his benefit or ignores at his cost.

To exercise the proper level of patience, the investor must await the market’s signal, and only then does he invest in the specific opportunity that beckons him. For example, when looking for an entry level to purchase in a down trending market, always purchase as near as possible to critical, major, and correctly identified support. Correctly identified does not necessarily mean that the position will work out as projected or preferred. Investing is about probabilities, not certainty. Was the line of support correctly identified, or would some other price level have been more correct?

I accept, as an investor, the likelihood of (small) loss -- but only as the entry ticket to make sizable returns.
-- David M Gordon / The Deipnosophist

PS: Please visit Investment Poetry for specific investment opportunities, price and timing included.


25 November 2009

Happy Thanksgiving!

-- David M Gordon / The Deipnosophist


The US$ Bubble

It goes without saying...

... but this video makes it pretty clear who speaks sooth and those who attempt to hoodwink.
-- David M Gordon / The Deipnosophist

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24 November 2009

As the US$ turns

The dangers of a weak dollar

A prolonged, uncontrolled decline in the dollar could reignite inflation in the U.S. and cripple the efforts of America’s trading partners to rev up their own economies

It’s not every day that Federal Reserve Chairman Ben Bernanke offers “an unusually strident defense of the dollar,” said Emily Kaiser in Reuters. Ordinarily, Fed chairmen “avoid the subject altogether,” letting the Treasury secretary handle currency issues. But these aren’t ordinary times. Over the past three years, the dollar has fallen 30 percent to 50 percent against most of the world’s major currencies, and it could fall even further, because trillions of greenbacks are sloshing around the globe as a result of the Fed’s efforts to fight the recession by putting a lot of money into circulation. A prolonged, uncontrolled decline in the dollar could reignite inflation in the U.S. and cripple the efforts of America’s trading partners to rev up their own economies. Bernanke’s comment during a speech this week that the Fed is “attentive to the implications of changes in the value of the dollar” was an attempt to reassure our trading partners that he understands their worries and won’t let the dollar fall too far.

Bernanke timed his comments to coincide with the beginning of President Obama’s first visit to China, said Benn Steil in He sought to smooth over a major source of friction between Washington and Beijing—the value of the dollar versus the renminbi. Both countries are trying to keep their exchange rates low in order to make their exports more attractive to foreigners. But there’s a complicating factor: China, with two trillion U.S. dollars in its vaults, has a lot of incentive to root for the dollar to stop its slide. Bernanke’s remarks were a signal that he takes that concern seriously. But one speech won’t arrest the dollar’s fall. Unless the two countries reach an accommodation on their currencies, “financial crises, protectionism, and political conflict are inevitable.”

It’s not just China that’s alarmed by the cheap dollar, said The Wall Street Journal in an editorial. Other Asian countries are angry “about what all those greenbacks are doing to their economies.” With short-term U.S. interest rates near zero, financial speculators are borrowing U.S. dollars cheaply and investing them in higher-yielding Asian stocks and bonds. The influx of dollars pushes up the value of those stocks and bonds to unrealistic heights, creating an asset bubble. Bernanke so far has acted as if those bubbles are Asia’s problem, not America’s. But “asset bubbles that build and burst in Asia will eventually cause trouble here.” Obama and Bernanke should heed Asia’s call “to run a more cautious monetary policy,” by draining excess dollars from the financial system before they trigger another worldwide financial meltdown.

But China has to do its part, too, said Paul Krugman in The New York Times. By holding the value of the renminbi at artificially low levels, thus making its goods cheaper on world markets, China is boosting its own export-led economy at the expense of other exporting countries—including the U.S. Yet at the same time, Beijing is urging Bernanke to raise interest rates to stop the dollar’s slide. Don’t the Chinese realize that raising U.S. rates would stall the economic recovery and “make our unemployment problem even worse?” That’s no way for the Chinese to treat their biggest market. Before “lecturing the United States” about the dollar, China should set a more realistic value for its own currency.

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15 November 2009

An investing conspectus

In God We Trust…
To invest requires faith: faith that the markets are fair for all, faith that company executives do not abscond with corporate assets, faith that share prices, in general, trend higher over time. A breach of any one of these beliefs can cause a rupture in systemic confidence, and, as a result, share prices would tumble. This is one reason that, in the wake of The Great Panic of 2008, the balance sheets and income statements of all companies are more closely scrutinized than perhaps ever before, which represents a positive change.

… All Others Pay Cash
Global security, in the form of lessened societal risk (not increased surveillance) is of paramount importance today. With the fabric of global society frayed, financial investments play the important role of canary in the coal-mine, warbling of increased risk. To purchase shares as price approaches or touches the drawn line of price support remains a buying opportunity; until, that is, the market averages break down beneath the circumscribed crucial line of support.

 volatility is the process of pricing in all known (current) and unknown (future) risk -- which notion includes financial markets woes such as declining earnings, high PEs, negative chart patterns, even exogenous events such as acts of terrorism, increased trade tariffs, or even World War III (as has been mooted elsewhere) -- until the moment the market averages and indices finally break out (up or down) from their high level consolidations. (Today's high level consolidation is now 12 years, and counting.) The news response syndrome would dictate financial market reaction: Buy on the rumor; sell on the fact. No market prediction inheres in that comment; certainly everyone is aware of the dire state of global affairs and financial markets.

That said, the US$ finds itself at a critical juncture. From an investor’s perspective a continued decline could usher in an increasing investment preference for big-cap consumer companies with a multi-national,  international, or global bias. I note the increasing strength of institutional blue chips such as Coca-Cola/KO, Colgare-Palmolive/CL, McDonalds/MCD, etc. For these companies’ shares, a lower US$ value equals potential and probable higher earnings; thus, a rising share price. As global buyers of last resort, American consumers receive the windfall benefit of lower prices via the greater purchasing power of a rising US$. (Americans who travel abroad would realize cheaper prices as well.)

Unfortunately, a falling US$, especially should that decline become precipitous, has the potential to create global financial havoc.

The United States and American corporations must provide global financial leadership today -- and embrace the relative domestic hardship that a strong US$ would present for American citizens. Yes, this would result in a continued lack of corporate competitive pricing power (a higher US$ means higher prices for US products when purchased in a native currency), and yes, the USA will import the products of other countries to the detriment of American employees. (Fewer jobs at home; more abroad.) Yet, the global community needs now, arguably more than ever, is the encouragement that a strong and strengthening US$ would provide. The global community looks today for overt, straightforward, reliable expressions of leadership; the USA and American citizens must say to the global community, “Export your ills, troubles, and products to us. We accept your hardships as ours.” This quality of leadership — the ability and willingness to assume hardship — is crucial, especially if Americans prefer the US$ to maintain its status as global reserve currency.

Heaven Can Wait -- But Will The Impatient Investor?
Price oscillations are a natural part of the investment process and create the investor’s opportunities. But the market marches to the beat of its own drummer. Self-doubt, self-recriminations, and the inability to trust his decisions finally leads to the investor’s inability to pull the trigger, to purchase shares, when the appropriate time is at hand. The responsibility of each investor is to make informed, educated decisions; to trust only his decisions. Always do the hard thing. The difficult decision is almost always the correct decision.

A perdurable source of amazement is how the many view the few. Quick to buy and slow to sell vs. slow to buy and quick to sell is an interesting paradox. The former is the perceived domain of the investor, and believed somehow preferable, even nobler, than the latter, the perceived domain of the trader. To know his investing objectives before purchasing portfolio positions is tantamount to the investor’s knowing himself. The investor who makes the deliberated purchase knows why he buys what he buys, thus he knows why he sells when he sells. To know less is folly.

Some claim to focus on a very small number of investment opportunities they “… really understand and believe in, and just buy and hold on, sometimes for dear life. I would guess that the ratio of my profits to the number of trades executed is about as high as it gets.” Well, of course it is: a portfolio structured in that fashion is one usually laden with losing positions (“Hold on for dear life…”) while the winners have been since sold (“ratio of profits to… trades executed…”). Where is the nobility in this process?

Syncretic Reality
No one right way exists to make money via investing. An investor can trade, speculate, or invest; he can buy breakouts or pull backs; he can day trade or swing trade; he can purchase value or growth; small cap or big cap, etc. To affix labels provides more salve for the person’s ego who brandishes the label than it does to further the true goal: to make money.

No investor is an island; no single investor has unlimited capital. To deploy his limited resources in loss-pocked investments — i.e., in the company’s sector, the economy, or the market — is to confuse fool’s gold for the real item. “All that glitters is not gold.” The reader, market student, and investor learn that volatility ultimately can beget trends, and those trends can become investments... but that trends finally die, across all periodicities; the trend is not always your friend. To recognize only true market patterns better enables the investor to align his portfolio objectives and personal goals with market oscillations. The high-level consolidation is one opportunity that recurs regularly, is readily apprehendable, and can generate many different techniques to generate profit.

Is any one moment better than another to invest? Recall that, because the investor is more appropriately concerned with time, his objective is to buy at moments rife with high reward and low risk, which, paradoxically, often appear to be moments of high risk and low reward.

Many investors prefer to purchase at or near the historic low price, or at symmetrically proved major price support lines; unfortunately, the investor must recognize that the investment behaves in accord to its own life cycle, not his. Is it trending down, sideways, or up, and in what periodicity? Does that periodicity conform to his?

Try to differentiate between the market’s cycle and that of the possible investment. If the company experiences corporate or economic difficulty, then recognize that it is captive to cyclical forces. To purchase shares in companies that experience this type of difficulty (bad or worsening corporate fundamentals, bad or worsening economic environment for this company’s sector, bad market conditions for this company’s sector), watch out, land-mines abound!

Sometimes, the investor learns of an investment opportunity too late to accumulate the investment during high-level consolidations or bear market declines. Perhaps the possible investment has already experienced a break out from its high-level consolidation. How, then, does the investor (not the trader nor speculator) treat the possible new portfolio position?
1) By realizing that former resistance becomes support, and renewed opportunity;
2) By re-sizing the position to account for increased risk due to a higher share price (price = risk);
3) By adjusting his time frame to match the incestments aging trend.

Declines often manifest as a low volume drift with little price concession because a company’s shares are aggressively, although quietly, accumulated. It is advisable to purchase some shares during moments, or episodes, of weakness. If the investor has properly identified the trend lines, the opportunity, and finds the moment true to his particulars, he will invest in a goldmine, not a land-mine.

Any particular breakout litters the trail with doubt as to how vibrant, how robust, it will be. You seek opportunities in which volatility can and will transmute to trend -- a healthy and enduring trend. The past 8 1/2 months prove my point.

Full Disclosure: Long Colgate-Palmolive/CL and McDonald's/MCD.

PS: For specific investment opportunities, price and timing included, please visit Investment Poetry.
-- David M Gordon / The Deipnosophist

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11 November 2009

Announcing Investment Poetry!

My new website,, is now ready for prime time. Thank you to Dan Hung, The Curious Investor, for creating a wonderfully useful site for investors.

Please visit, make suggestions for improvement... and subscribe, if the site proves of interest.

-- David M Gordon / The Deipnosophist

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08 November 2009

Of trends and traditions

Support and Resistance
Think of share price fluctuations as a skirmish between buyers (bulls) and sellers (bears). The price at which bears and bulls reach a consensus and a trade takes place is the clearing price. There is a level at which bulls think the price will move up and which bears are not willing to sell. From that point, below which bears won’t sell and bulls are willing to buy, the purchases are the kinetic energy that generates higher prices, and trend. And, of course, vice-versa.

Thus, support levels indicate the price where the majority of investors believe that prices will move higher, and resistance levels indicate the price at which a majority of investors feel prices will move lower. Resistance is the opposite of support. It’s the point at which sellers take control of prices and prevent them from rising higher.

But, over time, investor expectations change, often abruptly. When a share price rises above the correctly identified resistance level, they tend to do so decisively, resolutely, and with alacrity. A significant increase in volume accompanies the breakout (above resistance), and convinced that the share price would remain above its breakout, more investors are willing to buy at higher levels, thereby creating the new trend; i.e., both price and volume rise. Similarly, sellers who previously sold when prices approached resistance also begin to expect prices to move higher and are no longer willing to sell, and instead began to purchase shares. More buyers, fewer sellers, and fewer shares for sale sum as a powerful new trend!

Supply and demand
There is nothing baffling about support and resistance; it is supply and demand. Supply manifests the quantity — i.e., the number of shares — sellers are willing to supply at a given price. When prices increase, the quantity of sellers also increases, as more investors are willing to sell at these higher prices. Demand shows the number of shares that buyers are willing to buy at a given price. When prices increase, the quantity of buyers decreases, as fewer investors are willing to buy at higher prices. And, theoretically, as prices decline, the quantity of buyers should increase… but fails to; likely because human nature takes hold, and subverts the symmetry of this notion.

As investor expectations change, so do the prices buyers and sellers believe are acceptable to satisfy their objectives. A breakout above a resistance level is evidence of an upward shift in demand as more buyers become willing to buy, and at higher and rising prices. Perhaps the best method to track changing expectations following a breakout is with volume. If prices break through the support/resistance level with a large increase in volume relative to its recent average volume for the examined periodicity, it implies that the new expectations will reign. Low to moderate volume — again, relative to that  periodicity’s average volume — on the breakout implies that very few investor expectations have changed, and a return to the original expectations — and original, if not lower, prices — is likely.

Resistance becomes support
When a resistance level is successfully breached, that level becomes support. Similarly, when a support level is successfully penetrated, that level becomes a resistance level.

Knowledge and portfolio management
To generate consistently successful investment results the investor must consider the following...

: the macrocosmic, or geopolitical, social,and economic perspective. This type of analysis is more than mere mind candy; the investor gives thought to those factors that are larger than his specific portfolio needs but have a direct bearing on his investment’s corporate results. In the present market environment, arguably the most critical geopolitical factor is the next major direction for the US$.

: the microcosmic, or market perspective. The investor who studies and understands market cycles and history has an advantage. Attention paid to greater epochs —periodicities measured in decades — can offer substantial reward. This means the belief that the market’s rising trend continues forever is folly. That  moment was the appropriate time for the shrewd investor to re-think his or her strategy, and to follow through with new, more correct portfolio tactics. And there is the truth of it: when I enjoined, "Prepare to have your assumptions shattered, or have the market shatter them for you…” I referred to the general predisposition for a bullish mindset, which continues today.

: the implementation of strategy, or day-to-day perspective. Portfolio management follows the investor’s market strategy. Either the investor patiently awaits the next major market trend, or he proactively determines a portfolio strategy and a market strategy. If the market perception is bullish, the investor will purchase each dip or breakout. If the market perception is for one that trends sideways, the investor would purchase dips and sell rallies.

A key requirement for successful portfolio management is the ability to make decisions, and finally to abide by those decisions without self-recriminations. Investing in all market conditions, but especially in fast markets, entails split second judgments based upon rapid recognition of the problem at hand and how best to deal with it -- without second guessing the decision. To adapt and embrace changing market conditions, to embrace change itself.

Critical thinkers and successful investors are honest with themselves, can resist manipulation, overcome confusion, ask questions, look for connections between subjects, make judgments based on evidence, and are intellectually independent.

Barriers to effective decision-making
Indecision: To avoid making decisions in the hope of sidestepping risk, fear, and anxiety;
Stall: Obsessive gathering of endless facts; refusal to face the issue;
Overreact: Let a situation spin out of control; allow emotions to assert control;
Vacillate: Reverse decisions; half-heartedly commit to a course of action;
Half measures: Muddle through.

Errors of omission vs. errors of commission
Unfortunately, it seems that most market participants either lack deep market understanding, do not deploy a sense of perspective (market history), ignore the market’s perdurable oscillations, do not explicate their investing strategies, or suffer a failure of imagination. Investing is not done in a vacuum — awareness of geopolitical, social, and economic factors is critical, as well as apprehending where the market is within its current cycle, the age of its current trend.

So is the awareness of the possible unreliability of his portfolio investments; bad or wrong decisions — corporate risk, market risk, event risk, etc — do occur, and must be corrected. After having discerned his objectives and goals, understood the market’s mechanisms, discovered those companies whose shares will help achieve specific investment goals, it is insufficient to hesitate and not act decisively and resolutely, instead praying that a (or any) market trend will remedy errors. Having made the initial investment decision (purchase or sale), the responsibility, the decision, is the investor’s to make. To make one decision ("I am an investor") is wholly insufficient to the task at hand. Decisions must be made always; i.e., whether or not to take profits, stop losses, buy this, sell that, even that a specific investment is proceeding nicely but a new one seems to offer greater potential profit. To shrug off the importance of these necessitous and omnipresent decisions is tantamount to poor money management — itself a term that denotes the process rather than the event.

If breaking up the one decision (to take action) to a sequence of smaller decisions is helpful, then do so. The decision process is now more emotionally digestible because it is more holistic, no longer monolithic. No longer fraught with having to make the one right decision but a series of smaller ones better enables the investor to forge ahead to his true goal — to make money, not be right.

Minor periodicities
Though there exist distinct minor trends within greater periodicities, no market leader will break out and trend to new all time highs without the market emerging from its high level consolidation. Of course, the market will not emerge from its base without the new market leaders commencing their new trends. Critical to this notion is the understanding that the new leaders must emerge as a group (drugs, grocers, telecom, et al), sector, or theme. Isolated instances of new highs during a lengthy high-level consolidation or bear market are common — as is the inverse — and are not a true signal. How do the other companies in that group or sector fare? The example of one company’s shares (in a sector of ten) emerging to new highs is insufficient to generate a true signal.

Because all true patterns are replicable in all periodicities, the investor should time purchases at optimal moments of low risk and high reward. Recognize, though, that the half-life of any trend is directly proportional to the studied periodicity. To accumulate shares with full recognition of the market’s trading range. It is not always necessary that markets decline in  devastating bear market fashion. It is probable that the current instance of a now 12-years lengthy high-level consolidation evident in the Dow 30 Industrial Average and S & P 500 will continue, at least until corporate earnings can catch up to current valuations to again create an undervalued and perhaps under-appreciated market. The prerequisite for success is not to know precisely where prices will be in the future — but to improve the odds. So the shrewd investor not only seeks market leaders, but simultaneously pays heed to the market’s message; if the market is discerned to be trading in a high level consolidation and at the top of the correctly identified range, not only is risk present, it is heightened.

Determinism vs. deterministic behavior
"Psychology is both the reason for the consistently superior performance of the methods the financial academics cannot explain, as well as the consistently poorer results of those approaches that fail.” -- David Dreman

Our world is neither static nor absolute. Everything is relative. Change is the only given, nothing remains the same, and all standards are relative. We are born, we mature, we grow old, and we die. Only the fact of change itself is unchanging, the sole reality. So it is with our investments. Buy low, sell high; buy cheap, sell dear. The investments we consider do not come into being the moment we first notice them. In some form they have always existed. Recognition of this continuum allows the investor to place appropriate emphasis on what is important and critical, not merely urgent.

Charting and technical analysis offer neither science nor black art of predictive ability, tiresome claims of the naysayer notwithstanding. These analyses are the science and art of observation. Of discipline, patience, and diligence. Samuel Johnson said, "What we hope ever to do with ease, we must learn first to do with diligence.” This moment — here, now — is equally good for the tactical and strategic investor to learn how the market works, to set into place that recognition as foundational portfolio behavior, and to profit from the increased percipience that recognition brings.

When a market or company shares breakout from a High Level Consolidation, that sudden volatility has the potential and possibility to transmute as a new trend — either up or down, but no longer sideways. And then age accordingly.

Markets are not living proof of determinism. However, trends do have a discernible life that age in a time-tested manner. The ability to discern trends — how they birth, live, age, and die — helps alert the investor to heightened risk or increased opportunity. As a result, it is not the ad absurdum claims of determinism in the markets but the investor’s deterministic behavior that ushers in portfolio success. Investing is about odds, chance, actualizing possibilities. None of this is possible without choices selected, decisions

Where now, blue DOW?
As bull markets crescendo, the investor must change his time frame and focus on the signals generated by the lesser periodicities. Conversely, at bear market or trading range lows the investor seeks guidance from the greater (longer term) periodicities. These tell-tales offer alerts far in advance of market pundits whose prognostications are too-often awry. Though market and share volatility can help with minor, short-term errors, do not allow these errors to magnify beyond proportion. Think before investing. Develop a contingency plan. “If (the market does) this, then (I do) that.”

For the past ~12 years, it is the high-level consolidation that best exemplifies the current placement of the Dow Industrial Average and S&P 500, assuming correctly identified trend lines. For however long this condition persists, this trading range manifests as opportunity for the patient investor. Low risk/high reward opportunities prevail at Major Trend Lines. Particularly tempting are those company shares found either near their own Major Trend Line, or now experience an important and actionable breakout. The investor who recognizes this pattern will be better placed to apprehend the shift in reality before it occurs; that is, the understanding that the major channel lines are inflection lines but the maximal and optimal inflection points occur on breakouts through these correctly identified lines. All else is noise, in any periodicity.

Don’t pursue opportunity; allow opportunity to come to you
To gaze at a chart of financial assets can be, for most, an experiential moment of consternation, even heterodoxy. “What do I see? What am I supposed to see…?” might best sum the tyro investor’s first glance at a stock chart. Too many investors erroneously identify volatility for a trend; they are not synonymous. When the understanding that specific patterns recur across the spectrum of investment assets but especially publicly traded shares, then the cardinality of the relationship between volatility and trend becomes clear: within any studied periodicity, all volatility is circumscribed by the extant trend but it is only volatility that can end that trend. Because most investors require certainty, they jump aboard the trend late. How many data points are required to delimit a trend? Hence, watching for increased volatility as a harbinger of a trend’s end is critical to improve the investor’s odds for success.

What is the value of correlating news to current prices when the data is already old, only now collated, and the market has already factored this news into current prices? The markets are a discounting mechanism — the investor buys today to sell tomorrow for a profit because the invested company is perceived to make more profits in the future than today. The investor that considers insufficient data or studies an insufficient periodicity exposes his portfolio to added risk. To chase after a rising share price (bid up) to purchase what is, in all likelihood, mere volatility can be hazardous. More helpful is to discern where the shares lie within its trend, and the age of that trend.  So the patient, disciplined investor allows the price of his considered investment to come to him, to gravitate lower to his eager, strong hands. Again, know thyself. What are your goals and needs?

PS: For specific investment opportunities, price and timing included, please visit Investment Poetry.
-- David M Gordon / The Deipnosophist

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06 November 2009

Update re McDonald's/MCD

Business Week (via reports McDonald's/MCD missed this year's robust stock market rally. While the is up S&P 15%, shares of the co are off 3%. But some savvy pros regard the lag as an opportunity.

"McDonald's is the only new name we added this year to our portfolio," says Edwin Walczak, U.S. portfolio chief at Swiss bank Vontobel.

From a 52-week high of 64 on Jan. 6, the stock has slipped to 60.34. Part of investor concern is McDonald's lower forecast for store openings, mostly in China, Japan, and Eastern Europe. At this depressed price, says Walczak, "the stock is a bargain as McDonald's continues to innovate in its core menu and business structure." He figures that with estimated earnings of $4 a share in 2009 and $4.50-$5 in 2010, it is worth 75. Using its "prodigious excess cash flow," he notes, McDonald's has been buying back its shares.

Sara Senatore of Sanford C. Bernstein, who rates McDonald's outperform, says the modest decline in store openings simply reflects a temporary weakness in demand. She's encouraged by McDonald's decision to expand in its growth markets, including Australia, France, and Russia. "We see ample room for unit expansion in most of McDonald's markets."


01 November 2009

Market Volatility, Liquidity, and You

Electronic Communication Networks (ECNs) now account for approximately one-third of all NASDAQ trading, especially with the advent many years ago of deep-discount commissions via on-line transactions. A battle back then began to brew between the buy-side (pension and mutual funds) and the sell-side (old-line wirehouses such as Merrill Lynch). When the buy-side began demanding drastically reduced commissions on executions and the sell-side tired of caving in, the sell-side began to whisper to those who might listen, “Hey lesser commissions are great; but really, just how good is the quality of your execution?” Terms such as slippage, the concession over the current market quote to buy or sell the investment, gained greater currency. In time, both sides commissioned academic studies to support their argument. Ultimately, a consensus was reached that was perceived as elegant, but which, in practice, is anything but.

The theory now widely accepted is a default strategy wherein a variety of techniques will be employed to average the acquisition or disposition of assets, thereby ensuring there would be no bad executions. Of course, the Law of Unintended Consequences dictates the inverse: no bad executions means no good executions. The most commonly utilized of these strategies is VWAP, or Volume Weighted Average Price.

To determine whether the sell-side did, in fact, provide fair executions, the academics decreed that at the end of a trading day, the stock in question should have its price range averaged, and weighted. Then the claimant could state: 

“If you executed my order at a price worse than the VWAP — well, consider yourself and your firm as fired!"

This means the buyers or sellers have become interested in getting average prices, only. When coupled with the desire to make transactions only with the herd, one begins to understand the difficult position each side found itself in. These strategies are counter-intuitive in that they remove the decision from a decision-making process. The buyers pass up bargains because they cannot buy when alone. The result? Their indecisiveness makes the market less efficient.

Akin to VWAP is the participate order, which means: “I want to buy/sell XYZ at $50 -- but only if someone else is buying or selling at that level. I know I am not good enough to decide on my own to buy XYZ, but if someone else as credible as me buys as well, then I cannot be criticized for my decision.”

Compare how Wall Street actuates its buy/sell decisions with how you transact your own.

Market makers and specialists

Though we, as retail investors,  might believe we enjoy a pleasant and profitable relationship with NASDAQ market makers and NYSE specialists, we do not. Unfortunately, since the Crash of 1987, market makers have been issued a mandate to be less a service provided and more of a profit center. The result is an adversarial relationship between the needs of market makers and specialists, and our own.

There is a very clear difference in responsibilities between market makers and specialists. Yes, market makers are there to execute your trade but that is not their sole job responsibility. They do have a decree from the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) to maintain orderly and continuous markets. To the degree that the market makers are required to take the other side of a one-sided market, they risk their own capital by doing so. Their position obviously is not risk-free. However, NASDAQ market makers buy on the bid and sell on the offer; you and I, on the other hand, must buy the offer or sell the bid. That is one way market makers make their profit — by trading the spread between the bid and ask. When working with the retail investor, the market maker will always get their vigorish — the extra money from the spread or other arcana — usually via the retail investor’s misunderstanding of the following: 

1) The mechanics of market and limit orders;
2 ) "Fast” markets; 

3) Rotation (churn of the order book); and
4) The dynamics of the market’s opening and closing hour.


A market order is one in which a trade execution is guaranteed, but not a price.
A limit order is one in which a price is guaranteed, but not a trade execution.

This major difference is not as startling as these orders’ similarity; each allows the market makers discretion as to when (time) your trade execution is reported, which in turn grants the market maker the opportunity to report the worst execution to the customer, retaining the best executions for himself.

This can happen to you. Next time you place an order during a busy market day and your broker says: “ACORN!” (Advise Customer, Our Responsibility None); or fast marketfast tape, orders ahead, and assorted variants, you will understand your order’s importance, the bottom of the pecking order.

During “fast markets”, the market’s opening rotation can be especially hectic. Due to an order imbalance, the NYSE specialist will delay opening the security for trading until a clearing price can be found; NASDAQ market makers simply raise the bids or lower the offers till a trade occurs. This is one reason for the changing pre-opening prices one sees on NASDAQ.

The market’s closing rotation is commonly referred to as being for professionals. Why? Because market professionals know why they buy a security and so are comfortable holding that position overnight. Too, the market professionals trust themselves to do the right thing, should their position be working against them. This is one reason a strong market or stock might open down but close higher. Of course, it follows that a weak market or stock is one that opens higher but closes down.

Remember, three parties participate in any transaction: 

1) Your broker, who gets commissions;
2) The brokerage that executes your trade, and which profits from the spread between bid/ask; and 

3) You, who hopes to profit from the trend.

Far and away, you have the most potential for profit -- or loss.

It once was true that buyers and sellers would place orders with their brokers who would route those orders to market makers for execution, matching the orders one-by-one, by hand. Today, orders are matched by computers; however, market makers can and do trade for their own accounts based on this critical information. Market makers know how high the bidders will bid, and so can profit from that knowledge by trading against us, their clients. Imagine knowing how many orders exist at any given price level. With this knowledge, market makers know the stock's short-term trend.

Consider the profit centers known as payment for order flow and internalization. Each is a means of making more money for the brokers at the expense of the individual investor.

Payment for order flow is the practice whereby ECNs and some market makers pay brokers to route your order their way – it does not necessarily follow that your order will receive the best prevailing price. For example, imagine XYZ currently trading at $50 bid by $50 ¼ offer when you enter your market order to sell. To you, market order means $50/share or better; but to your broker, the best bid might be a market maker or ECN with whom he does not have an existing payment for order flow scheme. What will he do? He will route your order to the market maker with whom he does have an existing relationship, even though your market order has now been executed at $49 ¾/share. Though he makes only $.25/share, these hidden charges do add up. For example, Knight Securities paid, in prior years, $.005/share for American Stock Exchange orders and $.0225/share for orders on the S&P 100. These seemingly insignificant pennies aggregated to $139 million in order flow payments during a recent year.

is another practice whereby your broker matches your order against his inventory, in effect acting as a principal to the transaction, rather than as your agent.

Neither of these schemes has your interests at heart. You can halt them by issuing specific instructions with your broker.

The cost of liquidity
Market makers will argue that payment for order flow and internalization are the payback they (market makers) deserve for providing necessary liquidity to the markets. But remember, as mandated by the SEC and NASD, the market makers must risk their capital to ensure continuous pricing and continuous markets; however, ECNs need not guarantee liquidity because their raison d’être is simply to match existing limit orders.

Liquidity is a coward

Ray DeVoe said this many years ago and it is as true now as it ever was: Money will flow to where it is best treated. If the markets should be declining, then the potential buyers can step aside, allowing the markets to fall into a vacuum created by their absence. This process becomes self-actualizing as lower prices generate margin calls, which begets forced selling, more impatient (and frightened) sellers, and ever-lower prices.

This process can result in market (price) discontinuities, wherein prices gap from trade to trade, sometimes on very few shares actually being traded — an opportunity for the astute, patient investor who has time and cash on hand. The markets’ price trends are not something that happen to us; rather we are the market. Since we are the market, we can regard these discontinuities as times to act, rather than sitting passively. In other words, you are in charge of the market. The market is not in charge of you.

are in essence a function of The Law of the Marginal Buyer/Seller. This Law states that when an order is paired — say, 10,000 shares to buy, 10,000 shares to sell — it is the marginal (additional) shares that tilt the clearing price to a specific price level. In the example above, the 10,000 shares might be paired at $50 but an additional 100 shares to sell might cause the entire block to trade at $49 ¾, which impacts the quality of execution for the larger lot size.

Impatience affects both buyers and sellers, but for different reasons. Sellers grow impatient because they are time sensitive: there are margin calls to be met, Rule 144 and 145 Sales, etc. However, buyers can become impatient because they are price sensitive. The stock's rising price trend often manifests as incaution on the part of many buyers.

So where are we now?
Due to their flexibility, the institutions have bollixed themselves; they have taken a subset of price momentum theory and refined it, now unable to act decisively and in a timely manner. Previously, buy orders would be placed in stages below the market so as to be executed as the decline progressed, if a tradable were declining in price. This was helpful, as it smoothed volatility (and the intra-day charts), and lessened the opportunity for extreme market moves.

Today, however, when a stock is declining in price, most institutional buyers simply step aside without entering any orders to purchase. The result is a vacuum, a black hole down which prices plummet in gaps from one trade to the next. These institutions will not re-enter the fray with buy orders until the intraday chart shows a clear bottom, and the price now rises. For the markets, this means declining prices becomes one-sided, as buyers step away and the market is left to the sellers. When, instead, it rises, the buyers then, and only then, step in to buy, causing the price to move higher in gaps as the sellers now step aside. (The sellers are sold out anyway.) Though popularly termed volatility, in fact it is the market’s mechanisms and dynamics at work.

In their desire for better executions, lesser commissions, and lessened volatility these strategies which the institutions have deployed have had the diametrically opposite effect from what was originally intended: the markets now suffer from more volatility, less efficient markets, and worse executions.

So what’s an investor to do?

In brief, during each trading day, one is presented with the following possible actions:
1) The opportunity to buy;
2) The opportunity to sell;
3) The opportunity to do nothing at all;
4) The opportunity to panic.

The market does not control us and we cannot control the market, but by knowing ourselves as investors, and as individuals, we can take advantage of the occasional mess the markets become. Accept the fact that no matter what you do, you will be wrong. Remember that both sell-side and buy-side institutions are captive to a cage of their own design. We, you and I, can profit from their misguided notions. We can learn how to read these opportunities, and to seize them as they occur. As such, we remove ourselves from being the victim of the market’s vagaries.

There are some other things you can do to become an investor who embraces the uncertainties of the market. 

1) Stop watching CNBC. Stop scanning for news. Moreno’s Law states, “You will always be the last to hear the news/rumor,” so why insist upon confirming that fact?
2) Remember that the markets’ pricing mechanisms are a reflection of what we do not know, not what we do know. We invest today based upon our perception of tomorrow —for the company, its product, the sector, and the economy. Price itself is merely the memorialization of what occurs underneath the surface. There are market constituents who do the necessary investigative work to determine true value. Price itself is not value; it is risk. 

3) When you assess your investment opportunities, remember that profiting from the market’s trends is only one road to wealth, as it offers the opportunity to sail with the wind at your back. 
4) Begin to determine exactly why it is you purchase stocks. If your answer is because “they go up,” then consider what you will do when go down. Discern who you are so you can better invest your money/savings. As Warren Buffet asked, “Why should I risk what I have and what I need for what I don’t have and don’t need?”
5) Remember, too, why you are here. Incredible as it seems, not everyone invests or trades for the purpose of making money. Some prefer to spell profit as prophet.

Determine who you are. When you know who you are, the pain of being on the wrong side of the market will dissipate. You then can view all trends and Wall Street’s various schemes as opportunities that provide you with better executions than their elegant (but ineffectual strategies and solutions) ever could.

PS: For specific investment opportunities, price and timing included, please visit Investment Poetry.
-- David M Gordon / The Deipnosophist

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