I screwed up

You know how it goes. You hold an investment position through its point of no return -- you like it long term, after all -- and then watch as the shares continue to spiral down.

"Damnit!," you say to yourself, "Never again!" And then the next time the market presents you with the same exact situation -- not similar, the same (setup and pattern) -- you stop out, pat yourself on your back for your decisiveness... and then watch in horror as the stock fails to crumble, and instead soars.

Which is precisely what I did this week, and it is a doozy. I sold (stopped out) 100% of a Core Opportunity, as the shares breached my line in the sand and before the decline worsened. Or so I thought.

This post continues on Investment Poetry. See you there.
--David M Gordon / The Deipnosophist

The Market Decline of 2010 - A recap of my expectations

Confusion reigns re my market perspective and expectation; this occurs because readers (and my site's aggregator) do not bind my separate posts into one distinct thesis. This all is my fault, though. Please view this post as both a re-cap and FAQ (of sorts).

1) The general market should decline and base through the first 6-9 months of 2010;
2) Initial thrust down should carry to ~875 (S&P); the possibility exists for a deeper decline. (Ominous tops prevail, across all the periodicities.);
3) This particular oscillation (decline) is part of a (long-articulated) high level consolidation, now ~12 years old with 5-10 years left to run;
4) None of this action should qualify as a surprise; it is a part of the markets' omni-present oscillations;
5) Individual stocks, groups, and sectors should rise during the decline, even to new all time highs;
6) Sector analysis and timing should prove of paramount importance. Purchase the strongest sectors, the true leaders, during declines to short and intermediate term support;
7) Expect a positive (bullish) resolution later this year; possibly calendar Q3, probably calendar Q4.
8) Own the leaders, the best of the best, the crème de la crème.
9) Make money from your long investments.
10) Look back and smile at the balance in your life the decline created. You need not swing at every pitch, invest in all market environments.

These separate threads make up one giant tapestry; none stands alone and apart. Price vs value; risk vs opportunity; sector opportunity vs buy & hold. As an investor, I always seek investment opportunities; they always exist.

My comments re the markets, though, could become less frequent while I monitor market behavior. I anticipate few if any long side purchases in the coming weeks -- especially during February, which I expect will prove especially hellacious (difficult, tough... down hard). Nonetheless, I have articulated many investment ideas, and continue to favor several of them. One theme recently discussed is the notion of large cap multi-nationals: Colgate-Palmolive/CL and McDonalds/MCD are two excellent long term investment opportunities; each remains in its primary, long term up trend. Investors should expect a difficult row to hoe in the short and intermediate term.

Which means now is the time to perform due diligence on all those exciting investment opportunities... which is precisely what I plan to do in the coming weeks and months.

(This post continues with specific investment opportunities, timing, and conversation on Investment Poetry. Hope to see you there.)

Full Disclosure: Long Colgate-Palmolive/CL and McDonalds/MCD.
-- David M Gordon / The Deipnosophist

How America Can Rise Again

A brilliant, if very lengthy, essay by James Fallows in the January 2010 issue of the ATLANTIC...

"America will be better off if China does well than if it flounders. A prospering China will mean a bigger world economy with more opportunities and probably less turmoil—and a China likely to be more cooperative on environmental matters. But whatever happens to China, prospects could soon brighten for America. The American culture’s particular strengths could conceivably be about to assume new importance and give our economy new pep. International networks will matter more with each passing year. As the one truly universal nation, the United States continually refreshes its connections with the rest of the world—through languages, family, education, business—in a way no other nation does, or will. The countries that are comparably open—Canada, Australia—aren’t nearly as large; those whose economies are comparably large—Japan, unified Europe, eventually China or India—aren’t nearly as open. The simplest measure of whether a culture is dominant is whether outsiders want to be part of it..."

and

"America the society is in fine shape! America the polity most certainly is not. Over the past half century, both parties have helped cause this predicament—Democrats by unintentionally giving governmental efforts a bad name in the 1960s and ’70s, Republicans by deliberately doing so from the Reagan era onward. At the moment, Republicans are objectively the more nihilistic, equating public anger with the sentiment that “their” America has been taken away and defining both political and substantive success as stopping the administration’s plans. As a partisan tactic, this could make sense; for the country, it’s one more sign of dysfunction, and of the near-impossibility of addressing problems that require truly public efforts to solve."

I already can hear the wails from the FOX News epigones and the libertarians. Just read the article. It offers something for each reader; in fact, it offers riches.

Consider reading it to be your weekend homework assignment. :-)
-- David M Gordon / The Deipnosophist

A market update

Well, the Decline of 2010 that I anticipated, and have argued its merits the past 3 months, its inception included, has begun precisely as expected.

Even so, and perilous though it always is to bet against the larger periodicity's trend, the possibility exists for a brief rebound from today's lows that would endure for 2 to 3 days. Should it occur, I would treat it as an opportunity to sell your weakest portfolio holdings -- before the market decline resumes in earnest.

Please join the discussion at Investment Poetry, where we discuss specific investments and their timing.
-- David M Gordon / The Deipnosophist

Well worth reading...

Richard Russell, at 86, might be old, but is no fogey.

This recent article, while ostensibly about investing, in fact dares you to ask the big questions... About investing, yes, but also about life.
-- David M Gordon / The Deipnosophist

Pigeon Impossible

The six minute movie below is a wonderful gem: fun, crazy, clever, and with stunningly excellent animation. It qualifies easily as a delight, and one you want to share.

Enjoy!

-- David M Gordon / The Deipnosophist

The (coming) Decline of 2010

... is now upon us. All the periodicities (daily, weekly, monthly) have aligned in one clear trajectory: down. You can just feel this little rock-slide gather momentum, well on its way to avalanche.

The initial break occurs at S&P 1085. (Approximately 10,235 on the DJIA.) And if you were to ask me to be precise (always foolish; to name price and time), I would point to the July 2009 lows of S & P ~875 as support (an ~25% decline from recovery highs) within the next 6-9 months. If and when the market achieves (achieves?!) that objective, we then would seek new signals whether its decline would continue.

What does my market expectation mean for the casual investor? A 25% decline in an index is dissimilar from individual securities; they could decline either less... or more. And it is that last possibility that should concern you. I view a decline to 875 as likely, and a return to the March 2009 low as possible; the possibility for a deeper decline than 666 relies on the market's dynamics at 875.

No matter how inviolate you think your investment position, ask yourself this sequence of questions (now, while the comparative getting is good): "What would I do were xyz (insert here your favorite investment's ticker) to decline 15% over the course of the next 6-9 months? 25%? 35%? How about 50%?"

Your answers to that question-in-parts (now, before shares pick up steam) will tell you precisely how you will act when that terrifying moment occurs; you will be prepared for all eventualities -- and need not panic then. It also explains why, after 9 months (3 brief months shy of a long term holding) and constant bearish chatter all the way up, I finally sold Green Mountain Coffee Roasters/GMCR. Obviously, my sale presupposes that its decline should exceed the tax penalty of the short term gain. That the shares tagged crucial resistance at $86 helped make my decision. Multiply that decision by all other long term holdings.

But let's circle back to the beginning, before this post began.

You know by now my thesis: 
• The markets are in a high level consolidation that began ~12 years ago, and which could continue for another 5-10 years, in accordance with historical patterns;
• That group and sector analysis, and timing, trumps buy & hold-style investing during such periods. (See this recent article from McClellan for more info on the topic.) And 
• That the market's structure, its pattern, is not random; past patterns prove valid as to the reliability of future patterns following similar trajectories.

I quote Tim Villano often, but not recently; fact is, no other market analyst comes even close to Tim for his astute and savvy insights re the market's nuances and direction. Tim's comments from Friday morning, in part:

"It finally appears that the short-term technical picture, which is now topping, is coming in line with the larger-picture of weekly wave-4 retracements and counter-rallies. I would expect a rapid decline to the (ES 1115-1103) level to develop over the course of the next 2-5 sessions. Yes, it is possible this could be the start of a bigger decline or at least a process of topping and resistance, which evolves into an intermediate-term down-leg. Contributing to the negative short-term appearance of stocks is the positive short-term picture in the Dollar. The US Dollar Index (DX 7730) is expected to make new rally highs over the course of the next month in the (DX 7930-8350) range at some point in February. Accordingly, Gold and Crude are topping near current levels and are expected to decline, exerting further downside pressure on the S & P in coming weeks and months.

Inter-market analysis is crucial at all times, but especially at turns. Which is where the market appears to be here and now. And therein lies the opportunity, its creation. And why I grow increasingly excited about the opportunities to occur... after the decline is mostly complete, of course.

Let's get specific. This post, and its ensuing discussion, continues on Investment Poetry. See you there.
-- David M Gordon / The Deipnosophist

Cut This Story!

An absolutely brilliant essay (below) by Michael Kinsley. (At least I find it to be brilliant.) In its wake, I strive to cut the many locutions in my writing style, and instead get quickly to the point. Evidence #1, my market post to upload late tonight.

But Kinsley's essay has more value than my new writing style. No, it goes to the heart of why fewer and fewer people read newspapers. But, alas, his answer is only one step of several to address that dynamic.
-- David M Gordon / The Deipnosophist
~~~~~~~~~~~~~~~~~~~~~~~~~~
the ATLANTIC
JANUARY/FEBRUARY 2010

Cut This Story!
Newspaper articles are too long
by Michael Kinsley

ONE REASON SEEKERS of news are abandoning print newspapers for the Internet has nothing directly to do with technology. It’s that newspaper articles are too long. On the Internet, news articles get to the point. Newspaper writing, by contrast, is encrusted with conventions that don’t add to your understanding of the news. Newspaper writers are not to blame. These conventions are traditional, even mandatory.

Take, for example, the lead story in The New York Times on Sunday, November 8, 2009, headlined “Sweeping Health Care Plan Passes House.” There is nothing special about this article. November 8 is just the day I happened to need an example for this column. And there it was. The 1,456-word report begins:

Handing President Obama a hard-fought victory, the House narrowly approved a sweeping overhaul of the nation’s health care system on Saturday night, advancing legislation that Democrats said could stand as their defining social policy achievement.

Fewer than half the words in this opening sentence are devoted to saying what happened. If someone saw you reading the paper and asked, “So what’s going on?,” you would not likely begin by saying that President Obama had won a hard-fought victory. You would say, “The House passed health-care reform last night.” And maybe, “It was a close vote.” And just possibly, “There was a kerfuffle about abortion.” You would not likely refer to “a sweeping overhaul of the nation’s health care system,” as if your friend was unaware that health-care reform was going on. Nor would you feel the need to inform your friend first thing that unnamed Democrats were bragging about what a big deal this is—an unsurprising development if ever there was one.

Once upon a time, this unnecessary stuff was considered an advance over dry news reporting: don’t just tell the story; tell the reader what it means. But providing “context,” as it was known, has become an invitation to hype. In this case, it’s the lowest form of hype—it’s horse-race hype—which actually diminishes a story rather than enhancing it. Surely if this event is such a big, big deal—“sweeping” and “defining” its way into our awareness—then its effect on the next election is one of the less important things about it. There’s an old joke about the provincial newspaper that reports a nuclear attack on the nation’s largest city under the headline “Local Man Dies in NY Nuclear Holocaust.” Something similar happens at the national level, where everything is filtered through politics. (“In what was widely seen as a setback for Democrats just a year before the midterm elections, nuclear bombs yesterday obliterated seven states, five of which voted for President Obama in the last election …”)

It could be worse. Here is The Washington Post’s lead on the same health-care story:

Hours after President Obama exhorted Democratic lawmakers to “answer the call of history,” the House hit an unprecedented milestone on the path to health-care reform, approving a trillion-dollar package late Saturday that seeks to overhaul private insurance practices and guarantee comprehensive and affordable coverage to almost every American.

Give The Post points for at least attempting to say what the bill does, but take them away again for the bungled milestone metaphor (you don’t “hit” a milestone if you hope to reach the next one), and for allowing Obama to fill the first 13 words of the piece with tired rhetoric. The Times piece, by contrast, waits until the third paragraph to quote Representative George Miller, who said, “This is our moment to revolutionize health care in this country.” That is undeniably true. If there was ever a moment to revolutionize health care, it would be the moment when legislation revolutionizing health care has just passed. But is this news? Did anybody say to anybody else, “Wait’ll you hear what George Miller just said”? The quote is 11 words, while identifying Miller takes 16. And there’s more:

“Now is the chance to fix our health care system and improve the lives of millions of Americans,” Representative Louise M. Slaughter, Democrat of New York and chairwoman of the Rules Committee, said as she opened the daylong proceedings. (Quote: 18 words; identification: 21 words.)

Meanwhile, Republicans oppose the bill. Yes, they do. And if you haven’t surmised this from the duly reported fact that all but one of them voted against it, perhaps you will find another quote informative.

“More taxes, more spending and more government is not the plan for reform the people support,” said Representative Virginia Foxx, Republican of North Carolina and one of the conservatives who relentlessly criticized the Democrats’ plan. (Quote: 16 words; identification, 19 words.)

Quotes from outside experts or observers are also a rich source of unnecessary verbiage in newspaper articles. AnotherNew York Times story from the November 8 front page provides a good example here. It’s about how the crackdown on some Wall Street bonuses may have backfired. Executives were forced to take stock instead of cash, but then the stock went up, damn it. This is an “enterprise” story—one the reporter or an editor came up with, not one dictated by events. And the reporter clearly views the information it contains as falling somewhere between ironic and appalling, which seems about right. But it’s not her job to have a view. In fact, it’s her job to not have a view. Even though it’s her story and her judgment, she must find someone else—an expert or an observer—to repeat and endorse her conclusion. These quotes then magically turn an opinionated story into an objective one. And so:

“People have to look at the sizable gains that have been made since stock and options were granted last year, and the fact is this was, in many ways, a windfall,” said Jesse M. Brill, the chairman of CompensationStandards.com, a trade publication. “This had nothing to do with people’s performance. These were granted at market lows.”

Those are 56 words spent allowing Jesse M. Brill to restate the author’s point. Yet I, for one, have never heard of Jesse M. Brill before. He may be a fine fellow. But I have no particular reason to trust him, and he has no particular reason to need my trust. The New York Times, on the other hand, does need my trust, or it is out of business. So it has a strong incentive to earn my trust every day (which it does, with rare and historic exceptions). But instead of asking me to trust it and its reporter about the thesis of this piece, The New York Times asks me to trust this person I have never heard of, Jesse M. Brill.

Of course this attempt to pass the hot potato to a total stranger doesn’t work, because before I can trust Jesse M. Brill about the thesis of the piece, I have to trust The New York Times that this Jesse M. Brill person is trustworthy, and the article under examination devotes many words to telling me who he is so that I will trust him. (By contrast, it tells me nothing about the reporter.) Why not cut out the middleman? The reason to trust this story, if you choose to do so, is that it is in The New York Times. What Jesse M. Brill may think adds nothing. Yet he is only one of several experts quoted throughout, basically telling the story all over again.

In the current financial crisis, The New York Times and other papers seem to have given reporters more leeway than ever before to express their opinions directly. Editors may have realized that these issues are hard enough to explain without running into roadblocks at every turn labeled WARNING: OPINION TERRITORY AHEAD. But the old wordy conventions survive. Quotes from strangers restating the reporter’s opinion are one. Another is adding protective qualifiers to statements about which there is no real doubt (as when I wrote above that the bonus restrictions “may have” backfired). A third—illustrated by the headline on that story, “Windfall Seen as Bonuses Are Paid in Stock”—is to attribute the article’s conclusion to unnamed others. Somebody sees a windfall. We’re just telling you about it.

The software industry has a concept known as “legacy code,” meaning old stuff that is left in software programs, even after they are revised and updated, so that they will still work with older operating systems. The equivalent exists in newspaper stories, which are written to accommodate readers who have just emerged from a coma or a coal mine. Who needs to be told that reforming health care (three words) involves “a sweeping overhaul of the nation’s health care system” (nine words)? Who needs to be reminded that Hillary Clinton tried this in her husband’s administration without success? Anybody who doesn’t know these things already is unlikely to care. (Is, in fact, unlikely to be reading the article.)

Then there is “inverted-pyramid style”—an image I have never quite understood—which stands for the principle of putting the most-crucial information at the top of a story and leaving the details for below. Pyramid style is regarded as a bit old-fashioned these days, hence all those florid subordinate clauses at the top of both the Times and the Post versions of the health-care story. The revolt against pyramid style is also why you get those you’ll-never-guess-what-this-is-about, faux-mystery narrative leads about Martha Lewis, a 57-year-old retired nurse, who was sitting in her living room one day last month watching Oprah when the FedEx delivery man rang her doorbell with an innocent-looking envelope … and so on. (The popularity of this device is puzzling, since the headline—“Oprah Arrested in FedEx Anthrax Plot”—generally gives the story away.) But ruthless adherence to classic inverted-pyramid style can also lead to repetition of the story again and again, with one or two more nuggets of information each time.

And then, finally, comes the end, or “tag.” Few writers can resist the lure of closure—some form of summing-up or leave-taking. Often this is a quote that repeats the central point one last time, perhaps combining it with some rueful irony about the limits of human agency. The Times health-care article does this. “‘Our plan is not perfect, but it is a good start toward providing affordable health care to all Americans,’ said Representative Peter A. DeFazio of Oregon.” The same day’s story inThe Post does it too, with a quote too long to quote.

On the first day of my first real job in journalism—on the copy desk at the Royal Oak Daily Tribune in Royal Oak, Michigan—the chief copy editor said, “Remember, every word you cut saves the publisher money.” At the time, saving the publisher money didn’t strike me as the world’s noblest ideal. These days, for anyone in journalism, it’s more compelling.

Reading the Markets

I have discovered an excellent new blog for us all, with thanks to Harry van Beuningen for pointing me in its direction.

Reading the Markets ("Insights from Financial Literature") is everything I seek when reading other writers' thoughts about the markets and investing: intelligent, learned, literate, witty, loaded with qualitative (rather than quantitative) insights about the wonderful world of investing.

The site's author, Brenda Jubin, Ph.D., claims briefly -- nay, pithily -- to be "a philosopher by training (Yale), a trader and investor, a book lover." And even though I have only begun to mine her site's deep vein of riches, I know that her insights are of the type that I place at the top of my reading pile, awaited breathlessly.

You too should check out Reading the Markets, and bookmark it for regular reading, as I have done. It, and she (Brenda), are that good; well worth your time.
-- David M Gordon / The Deipnosophist

The checklist manifesto

Many readers might wonder why I post articles, such as the one below, that seem -- certainly, at first blush -- to have nothing to do with investing. But they do; oh, they do...

"That means we need a different strategy for overcoming failure, one that takes advantage of the knowledge people have, but somehow also makes up for our inevitable human inadequacies. And there is such a strategy—though it will seem almost ridiculous in its simplicity, maybe even crazy to those of us who have spent years carefully developing ever more advanced skills and technologies."

The "tool" mentioned in the snippet above is similar to an investor's plan; not the same, but certainly similar. Read on to discover how that might be.
-- David M Gordon / The Deipnosophist

~~~~~~~~~~~~~~~~~~~~~~~~~~~
The checklist manifesto
Human error might plummet, says surgeon Atul Gawande, if we all embraced a profoundly simple tool

I WAS CHATTING with a medical school friend of mine who is now a general surgeon in San Francisco. We were trading war stories, as surgeons are apt to do. One of John’s was about a guy who came in on Halloween night with a stab wound. He had been at a costume party. He got into an altercation. And now here he was.

He was stable, breathing normally, not in pain, just drunk and babbling to the trauma team. They cut off his clothes with shears and looked him over from head to toe. He was of moderate size, about 200 pounds, most of the excess around the middle. That was where they found the stab wound, a neat 2-inch red slit in his belly, pouting open like a fish mouth. They’d need to take him to the operating room, check to make sure the bowel wasn’t injured, and sew up the little gap. “No big deal,” John said. They had time, they determined.

Then a nurse noticed that the patient had stopped babbling. His heart rate had skyrocketed. His eyes were rolling back in his head. The nurse called for help and the members of the trauma team swarmed back into the room. They stuck a tube down his airway and pushed air into his lungs, poured fluid and blood into him. They still couldn’t get his pressure up.

So now they were crashing into the operating room—stretcher flying, nurses racing to get the surgical equipment set up, John grabbing a No. 10 blade and slicing through the skin of the man’s abdomen in one determined swipe. When John pierced the abdominal cavity itself, an ocean of blood suddenly burst out of the patient. “Crap.” Blood was everywhere. The assailant’s blade had gone more than a foot through the man’s skin, through the fat, through the muscle, along the left of his spinal column, and right into the aorta, the main artery from the heart. “Which was crazy,” John said.

Another surgeon joined to help and got a fist down on the aorta above the puncture point, stopping the bleeding. He said he hadn’t seen an injury like it since Vietnam. That description was pretty close, it turned out. The other guy at the costume party, John later learned, was dressed as a soldier—with a bayonet.

John still shakes his head ruefully when he talks about the case. The patient was touch-and-go for a couple days. But he did pull through. There are a thousand ways that things can go wrong when you’ve got a patient with a stab wound. But everyone involved got almost every step right—from the head-to-toe examination to the placement of a catheter to make sure his urine was running clear. Except no one remembered to ask the patient or the emergency medical technicians what the weapon was. “Your mind doesn’t think of a bayonet in San Francisco,” John says.

DURING MY SURGICAL training, I read a short essay on the nature of human fallibility that I haven’t stopped pondering since. The philosophers Samuel Gorovitz and Alasdair MacIntyre wished to describe why we fail at what we set out to do in the world. They arrived at some useful insights. One reason, they observed, is “necessary fallibility.” Much of the world and the universe is—and will remain—outside of our understanding and control.

There are substantial realms, however, in which control is within our reach. We can build skyscrapers, predict snowstorms, save people from heart attacks and stab wounds. In such realms, Gorovitz and MacIntyre point out, we have just two reasons that we may nonetheless fail.

The first is ignorance—we may err because science has given us only a partial understanding of the world and how it works. There are heart attacks we still haven’t learned how to stop, skyscrapers we do not yet know how to build. The second type of failure the philosophers called ineptitude—because in these instances the knowledge exists, yet we might fail to apply it correctly.

Thinking about the bayonet story in the context of the challenges that today’s doctors face, I was struck by how greatly the balance of ignorance and ineptitude has shifted in medicine. Sometime over the past several decades, science has filled in enough knowledge to make ineptitude as much our struggle as ignorance. In medicine, it is not money or the threat of malpractice lawsuits that are the source of our greatest difficulties and stresses. It is the complexity that science has dropped upon us. Consider heart attacks. Even as recently as the 1950s, we had little idea of how to prevent or treat them. Today, by contrast, if you should have a heart attack, we have a whole panel of effective therapies that can not only save your life but also limit the damage to your heart. But decisions have to be made quickly, and getting the steps right is proving brutally hard, even for those who know them.

The problem is not unique to medicine. You see it in the 36 percent increase over the past four years in lawsuits against attorneys for legal mistakes—the most common being simple administrative errors, like missed court dates. You see it in flawed software design, in foreign intelligence failures, in our tottering banks—in fact, in almost any endeavor requiring mastery of complexity and of large amounts of knowledge.

The capability of individuals in these fields does not appear to be our primary difficulty. Training in most fields is longer and more intense than ever. People spend years of 60-, 70-, 80-hour weeks building their base of knowledge and experience before going out into practice on their own—whether they are doctors or professors or lawyers or engineers.

The reason that our failures remain frequent is increasingly evident: The volume and complexity of what we know has exceeded our individual ability to deliver its benefits correctly, safely, or reliably.

That means we need a different strategy for overcoming failure, one that takes advantage of the knowledge people have, but somehow also makes up for our inevitable human inadequacies. And there is such a strategy—though it will seem almost ridiculous in its simplicity, maybe even crazy to those of us who have spent years carefully developing ever more advanced skills and technologies.

It is a checklist.

PEOPLE IN THE skyscraper-building business have long appreciated the value of checklists. Going back to medieval times, the dominant way people put up major buildings was by hiring Master Builders who designed them, engineered them, and oversaw construction from start to finish, portico to plumbing. But by the middle of the 20th century, the Master Builders were dead and gone. The variety and sophistication of advancements in the construction process had overwhelmed the abilities of any individual to master them.

At a construction site in downtown Boston, Finn O’Sullivan, a project executive, tried to explain to me one day how he and his colleagues made sure that the 250 people who were working at the site performed their tasks correctly every day, and how the 32-story office and apartment complex they were building would come together properly. But I didn’t completely get his explanation until he brought me to the field office’s conference room, where several butcher-block-size checklists were hung on the walls. Looking closely, I saw that they were a day-by-day listing of every building task that needed to be accomplished, in what order, and when.

Even more impressive to me was what I learned during a tour of the unfinished skyscraper—after I noticed something that didn’t look right even to my untrained eyes. The building had reached a height of only 14 stories, and on each of the upper floors large amounts of rainwater had pooled in the same place, up against the walls of the building’s inner concrete core. It was as if the floors were tilted inward, like a bowl.

“Yeah, the owners saw that and they weren’t too happy,” Bernie Rouillard, the project’s lead structural engineer, told me. He explained what he thought happened. The immense weight of the building’s concrete core, combined with the particular makeup of the soil beneath it, had probably caused the core to settle, he said. Meanwhile, the outer steel frame had not yet been loaded with weight—there were still 18 stories to be built up it. Rouillard fully expected the floors to level out once the steel frame was loaded.

The fascinating thing to me wasn’t Rouillard’s explanation. I had no idea what to make of his answer. What struck me was learning that these kinds of complications arise regularly in construction: Large complex structures are routinely allowed to go up in the midst of our major cities even though no one person, no Master Builder, can say with absolute certainty that the structure will behave as planned. Back in the conference room, O’Sullivan showed me a different checklist—called the submittal schedule—designed to address that problem. The submittal schedule didn’t specify construction tasks; it specified communication tasks. For the way project managers deal with the unexpected is by making sure experts speak to one another—on X date regarding Y process. The experts could make individual judgments, but they had to do so as part of a team that took one another’s concerns into account and agreed on a way forward.

I came away from my skyscraper tour with a kind of theory: Under conditions of complexity, not only are checklists a help, they are required for success.

HAVING HIT ON this theory, I began to recognize checklists in odd corners everywhere—in airline cockpits, of course, but also in the hands of professional football coordinators, and in the kitchens of high-end restaurants. At Rialto in Boston, chef and owner Jody Adams used checklists everywhere to ensure that her staff achieved an extraordinary level of excellence every night while serving 150 people in five hours. The most basic checklists of all were the recipes—typed out, put in plastic sleeves, and placed at every station. Adams was religious about her staff’s using them: Even when she is doing the cooking, she says, “following the recipe is essential to making food of consistent quality over time.”

Checklists even pop up in the world of arena rock. Listening to the radio one day, I heard the story behind rocker David Lee Roth’s notorious insistence that Van Halen’s contracts with concert promoters contain a clause specifying that a bowl of M&M’s has to be provided backstage, but with every single brown candy removed, upon pain of forfeiture of the show, with full compensation to the band. At least once, Van Halen actually followed through, peremptorily canceling a show in Colorado when Roth found some brown M&M’s in his dressing room. This turned out to be, however, not another example of the insane demands of power-mad celebrities but of an ingenious ruse.

As Roth explained in his memoir, Crazy From the Heat, “Van Halen was the first band to take huge productions into tertiary, third-level markets. We’d pull up with nine 18-wheeler trucks, full of gear, where the standard was three trucks, max. And there were many, many technical errors—whether it was the girders couldn’t support the weight, or the flooring would sink in, or the doors weren’t big enough to move the gear through. The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function.” So just as a little test, buried somewhere in the middle of the rider, would be Article 126, the no-brown-M&M’s clause. “When I would walk backstage, if I saw a brown M&M in that bowl,” he wrote, “well, we’d line-check the entire production. Guaranteed you’d run into a problem.” The mistakes could be life-threatening, the radio story pointed out. In Colorado, the band found that the local promoters had failed to read the weight requirements and that the staging would have fallen through the arena floor.

“David Lee Roth had a checklist!” I yelled at the radio. Everywhere I looked, in fact, the evidence seemed to point to the same conclusion. There may be no field or profession where checklists wouldn’t be tremen dously beneficial.

From the book The Checklist Manifesto ©2010 by Atul Gawande. 
Used with permission of Metropolitan Books, a division of Henry Holt and Co.

A Day in the Internet

Created by Online Education

Investment opportunities occur in all types of market conditions

Futures prices at this moment (545am pst) indicate the markets will open higher, whereas the US$ trades lower.

This theme has become a mantra for me of late, largely because I seek (various) signals at inflection points. The 'carry trade' of the US$ -- long commodities and stocks / short the US$ -- has been a lock-step relationship for a long while now. It also is an obvious trend, which has me looking for its derailment.

The up trend since March has lacked volume -- especially diminished since early-November -- which creates possible and potential problems. I typically do not home in on daily price swings, but I do focus especially closely for a possible negative turn when it appears imminent. Perhaps paradoxically, while many stocks appear increasingly bearish, some stocks manifest bullish postures. Interestingly, many of the most bullish chart patterns are in the large-cap, institutional stocks -- e.g., Colgate/CL, Johnson&Johnson/JNJ, McDonalds/MCD, and Wal-Mart/WMT.

This all means that the next decline, when it comes (never forget that declines are part of the process), could and should be a buying opportunity because:
1) The market nears the end of its high level consolidation (~12 years complete of a typical ~16+ years);
2) New leaders should (and do!) begin to emerge;
3) The decline, when it occurs, could be especially hellacious (thus gut-wrenching), but should be fractured; some stocks, groups, and sectors will decline, while others rise.

It is my task, as investor, to identify the bullish stocks, groups, and sectors, await moments of lessened (if not low) risk and high reward, invest appropriately, and hang on. My task and objective is not to play the relative performance game (how does my return stack up against the market or a benchmark) but to obtain for you, my clients and readers, the best quality investments at the best price and time. And await fruition. As is always the case, I believe I already have identified several investment candidates, and now I await the timing opportunity. (Please refer to InvestmentPoetry for specific investment opportunities and timing.)

Full Disclosure: Long Colgate-Palmolive/CL, Johnson & Johnson/JNJ, and McDonalds/MCD.
-- David M Gordon / The Deipnosophist

Capital City

No other way to state this, but baldly: The article, Capital City, is phenomenally brilliant and insightful. Its author, Kevin Drum, not merely knows his stuff, he did his homework and lays bare the connections for all to see.

And it comes with my strongest recommendation to read, despite its length. Not only will you learn a thing or two (I did), but it also is likely to bring your blood to a boil. 

(I do wish, though, that writers and their editors would learn the difference between "danger" and "peril" -- they are not synonyms for the same notion. When Kevin Drum says, "dangerous" in fact he means "perilous.")
-- David M Gordon / The Deipnosophist

CES 2010

The 2010 Consumer Electronics Show (CES) occurs this Wednesday evening (with Microsoft CEO, Steve Ballmer's keynote address) through Sunday.

I will be there on Thursday (away during market hours) and Saturday, the better to learn of new technologies (also here)... and future investment opportunities.

Please contact me, if you too will be there; I would love to meet up!
-- David M Gordon / The Deipnosophist

The Lost Decade?

Wow, if ever a concept meme took root and grew like a wildfire, the suddenly hot notion of a “Lost Decade” would be it. And none too soon either, now that the trading range is older than 10 years.

Most market commentators date the inception of this secular trading range to the market’s high of March 2000, which fails to agree with my perception that a trading range begins with its first breach above resistance, with subsequent tests to prove support. (Once resistance, now support.) We agree on the nature of the secular trend (sideways) and its typical length (16-20 years), but differ on how far along is the trading range, although we do agree the equity market, measured by the broad averages and indices, to be past the halfway mark of the process; I believe the market is ~75% through the trading range.

Moreover, I believe the first groups and sectors to enter their bear market will be the first groups and sectors to emerge into their new bull market. One theme that qualifies, but cuts across many groups and sectors, would be the large cap multinational companies. Almost to a one, their price high was achieved during Q2 1998, almost 12 years ago, so even from that inception, this trading range is 60 – 75% complete. Examples of the large cap multinational companies include Colgate-Palmolive/CL, Coca-Cola/KO, Johnson & Johnson/JNJ, McDonalds/MCD, and Wal-Mart/WMT among many possibilities. Bad news proliferates for many of these companies, but their stocks fails to make lower lows. I watch the lot of them for future signals of distress or success; the recent strength of Colgate-Palmolive/CL and McDonalds/MCD encourages me re the ultimate bullish resolution.

Folly, though, not to acknowledge the gathering weakness that cuts across groups and sectors: Apple/AAPL, Amazon/AMZN, Baidu/BIDU… well, this list could become rather lengthy, if not unwieldy. No doubt about it: global markets and economies are under attack on many fronts:
• Interest rates (now climbing in the US),
• The US$ (further rises augur more pain for commodities (oil, gold, etc),
• Terrorism (here and abroad),
• War (abroad),
• Etc
So many items to fret about. The bears who came late to the party (August/September 2008) caught correctly the hellacious decline that ended the trade across the range (to the lower boundary, and then some)… but then missed the near monolithic move higher of the past 10 months.

All good things come to an end, though, and the price rally of the past 10 months now withers quickly. An ending to the price rally need not equal a bear market, just a return of the trading range; just because the market rallied ~60% in 10 months, it remains bounded by its trading range. Which is another reason why all this talk of bull and bear market is so much nonsense; if you place the recent up trend within context, you are left with… a trading range. Trading ranges need not bounce from lower boundary to upper boundary, and then ricochet back to the lower boundary. In fact, most of the trading tends to be interior to the two bounds, a fact that Marty Pring captures exceedingly well in his recent reports, Are You Prepared For Another Lost Decade?

"Many investors and members of the financial press are only now recognizing that stock prices have lost ground over the last 10 years, labeling this period as the “Lost Decade”. In April 2003, Pring Turner Capital Group published an article which posed the question: “Whither the Secular Trend of Equities?” This piece laid out our case that the year 2000 was a secular or “long-term” peak for the U.S. stock market.The article also forecast a wide trading range market in the years ahead. Our goal with the forecast in this report is to help you prepare for the next ten years…"

To place within context a trend of any duration offers an initial step of pattern recognition, in addition to consistent success.

This post continues at InvestmentPoetry, with more distinctive insights from Marty Pring, in addition to specific recommendations, with annotated charts, from me.
-- David M Gordon / The Deipnosophist

What's Changed This Decade (1999-2009)

Excellent graphic display that says a whole heck of a lot...


Source: Online Education

-- David M Gordon / The Deipnosophist

Trading From Your Gut by Curtis Faith - A review

Curtis Faith's new book, Trading From Your Gut, is particularly excellent.

Now that assessment will strike some early readers as rather controversial, for complaints arise re the book's brevity, even that Curtis Faith fails to teach meaningful trading methodologies.

I disagree on all counts, although I would quibble with other aspects of the book. Sure, at ~190 pages, the book seems brief but then I prefer an author get to his or her point. And, as it regards insights and methodologies, well, Faith is no Scrooge, which I detail below. I do quibble that the editor seems missing in action: Way too many typos creep into the text, Faith relies overly much on analogies (although I understand his reasons), and that Faith spends too much time settling an old score with Michael Covel, which has no place in this book because its personal nature disrupts the book's narrative flow and offers no universal purpose.

Faith writes simply and directly to the 80% of his readership who lack basic investing skills; the other, more experienced 20% can glean insight from combining their experience with Faith's insights...

From pp 22-23:

Inexperienced traders commonly latch on to a particular trading guru's methods. These new traders often follow the guru's explanation for how to trade without bothering to build an internal rationale or model for why those methods will work. They follow the letter of the law without attempting to understand the spirit of the law. They attempt to learn the "what" but not the "why" for trading based on a particular method. The problem with this approach is that it is static: It can't adapt to changing markets. It also leaves no room for the gut. The best approach is to use each part of our brain for what it is best suited to. The left brain is good at building and understanding models for how the world of trading works, and the right brain is good at generating ideas and recognizing opportunities. This explains why master traders use their whole mind for trading. They prime their right brains with patterns that their left brains understand and categorize using carefully reasoned analysis.

Faith addresses the topic of tyro investors who focus monomaniacally to improve their skills, an important objective, yes; whereas master traders (professional investors, in my parlance) seek to improve their aptitude, attitude, and talent, in addition to their skill set. An investor can understand the hows and whys, but be unable to pull the trigger.

From p40

Master traders are always ready to change their opinions and perspectives. They consistently look for the reasons why they are wrong instead of trying to prove themselves right. Master traders don't suffer from mental inertia. Mental inertia comes from the prime lesson that new learning is retained for later use. When you form an opinion, it takes some specific impetus to change that opinion. The stronger your opinion, the stronger the impetus required to change that opinion. So when you have an idea that the market is not good for buying, it takes considerable motivation to change that idea. When a trader decides to place a trade, it often takes considerable drive to change course and exit the trade...

The beauty and wonder of this book is its final ~75 pages. Curtis Faith shares one of his core set-ups, his "rebound swing method," shows visually its set-up -- and then points out the precise bar that manifests as his entry signal. In essence, Faith's set-up is the double bottom (or top), and his entry is the second low (or high)... But that single, singular bar for the second low must conform to specific parameters.

Other investing books are available, but most of them dedicate to a single purpose: pattern recognition / analysis, investor psychology, evaluating company fundamentals, etc; the method by which Curtis Faith shares his insights (in this book) is especially inspiring, even for my old investor's eyes and mind. Trading From Your Gut marries the analytical with the perceptual and adds into the mix the notion that aptitude + attitude + skill set + doing the hard thing = trust in yourself, and thus consistent investment success.

Buy and read Trading From Your Gut to learn from Curtis Faith: a trading setup, an over-arching methodology... and how to achieve that elusive, but not illusive, goal of consistent investment success.
-- David M Gordon / The Deipnosophist

Adding It Up

Okay, no question about it; I keep odd hours. But I can be so much more productive while the rest of the world sleeps or slumbers.

Meanwhile, I find these quiet hours ideal to catch up on reading, for work and pleasure. And when I come across a poem as excellent as the oh-so-apropos, Adding It Up by Philip Booth, I not only am glad to be awake, but sit bolt upright, antenna quivering...

Adding It Up

by Philip Booth

My mind's eye opens before

the light gets up. I

lie awake in the small dark,

figuring payments, or how

to scrape paint; I count

rich women I didn't marry.

I measure bicycle miles

I pedaled last Thursday

to take off weight; I give some

passing thought to the point

that if I hadn't turned poet

I might well be some other

sort of accountant. Before

the sun reports its own weather

my mind is openly at it:

I chart my annual rainfall,

or how I'll plant seed it

I live to be fifty. I look up

words like "bilateral symmetry"

in my mind's dictionary; I consider

the bivalve mollusk, re-pick

last summer's mussels on Condon Point,

preview the next red tide, and

hold my breath: I listen hard

to how my heart valves are doing.

I try not to get going

too early: bladder permitting,

I mean to stay in bed until six;

I think in spirals, building

horizon pyramids, yielding to

no man's flag but my own.

I think a lot of Saul Steinberg:

I play touch football on one leg,

I seesaw on the old cliff, trying

to balance things out: job,

wife, children, myself.

My mind's eye opens before

my body is ready for its

first duty: cleaning up after

an old-maid Basset in heat.

That, too, I inventory:

the Puritan strain will out,

even at six a.m.; sun or no sun,

I'm Puritan to the bone, down to

the marrow and then some:

if I'm not sorry I worry,

if I can't worry I count.

Clever poem right up to those killer final two lines, which is when I sit bolt upright. Those two lines could have been a couplet, but are not; and how special is that final twist?

Anyway, back to work... counting, figuring, worrying, posting!

-- David M Gordon / The Deipnosophist

Introducing Il Mio Sogno

Il Mio Sogno is my sister, Josslyn's, blog. (Giosalina, in Italian.)

Laced with excellent photos, the blog is a journal of her quest to make a new home for herself in Florence, Italy. (Which, until now, had always been her second home.) Her posts are intensely private but universally applicable, as she shares the changes and personal growth she undergoes via the huge risk of relocating with no family, friends, or job that await her. Sometimes wary, often painful, but always joyous, her blog is a pleasure for all readers.

Whoever the author, whether my sister or another person, I know you will enjoy the trials, tribulations, and triumphs she details on her blog. Check it out!
-- David M Gordon / The Deipnosphist

The Pyramid of Capitalism

Toast