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!

28 November 2010

The wonders of Danny MacAskill

Danny MacAskill, the phenomenally talented bicyclist, has a new video. Check it out, as Danny is (almost) unbelievably good...

You might remember Danny's first video.

Thank you to Harry van Beuningen for sharing Danny's new video!
-- David M Gordon / The Deipnosophist


25 November 2010

Happy Thanksgiving!

And if your family is anything like my family, pictured below...

(click on image to enlarge)

... then I am on my way over for leftovers -- of which I bet there will be a lot! :-)
-- David M Gordon / The Deipnosophist

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21 November 2010

Of disposable leads, and new leaders

To invest, even to trade, requires a risk of loss (of capital). And of ego, "I was wrong. How horrible!" So we each identify some analytical tool (fundamental, technical, valuation, top down, bottom up, etc) to derive some measure of comfort -- er, on which to base our investment decisions. Most analyses of the market, of opportunities, is of the worst type: they seem to offer insight, but really do not.

One part of my investing methodology is to select  potential investment opportunities from among high growth, small cap companies. Not so easy to find small cap companies these days, even after the horrific bear market of 2007-2009: a low share price does not necessarily equal a small market cap. And news about companies disseminates more quickly to everyone at mostly the same time, which means largely that only from the gleanings can an investor discover a true small cap opportunity. A related part of my methodology, explicated previously, is not to invest in penny stocks; in fact, I stay away from stocks that sell under $15-20 threshold. And a second part of my investing methodology is to identify the stocks that perform the best within its group, its sector, and the market: the leaders.

My template is the high level consolidation (HLC), defined and described previously. Prices rise and fall, rise and fall, but remain bounded by the HLC. That pattern ultimately will give way in one direction or the other. The oddity is the expectation almost always is for the break to be down; what with the bearish news that typically prevails throughout the secular version of this pattern, the decline from the top of the range to its lower boundary, most people expect more of the same price action. The quirk, and our opportunity as investors, is that the break almost always is opposite the widely-held expectation.

Such as now. I have argued ad nauseum for 11 years now that the market is in a high level consolidation that would perdure for 15-20 years. Yes, things look perniciously ugly out there – as occurs during any secular HLC. I agree the news is horribly bearish. I agree fundamentals do not favor a sustained market rise. I admit I expect another damaging decline to occur sometime next year (2011). But, with the exception of the last item, this all is well-known. Markets factor into price future unknowns and uncertainties, not the knowns and certainties, which were priced-in long ago. Please explain Apple/AAPL's absolute and relative chasm of a valuation discount, if you disagree. Or explain the strength of the retailing sector, across all its constituent groups, for the past 18 months (since the March 2009 low) in the face of what we all knew was the most dire period for retailers in... well, forever. Even now, still; after all this out-performance.

We all, being human, are subject to all the fallibilities and foibles that reality engenders. The crucial recognition, to me, is to recognize that these sideways-trending periods come... and go. Sure, they could endure for weeks, months, years, even a decade or two, but it is our task to identify these periods and invest around their limitations. And the opportunities they create. So frustrated is okay, but never flustered. Assemble your list of possible investment candidates, and via the process of due diligence and market performance, which includes declines, continuously whittle the list to find those few opportunities that have potential to be long term investments.

So how odd is it that my new investment recommendation below violates one part of my investing methodology, share price? Not so odd when you consider it: the company is under the radar for most investors. Not for long, though. Only one reason I recommend this largely unknown company that offers excellent potential to be a successful, long term portfolio investment...

This post continues on InvestmentPoetry. See you there!
-- David M Gordon / The Deipnosophist

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It’s Sunday Morning in Early November

It's no longer early November, but it is still November, and I will love the poem below just as much no matter the day, month, or season. (I thought to quote this or that snippet as representative of the whole, but the entire poem is epigrammatic... and brief!)

It’s Sunday Morning in Early November

and there are a lot of leaves already.
I could rake and get a head start.
The boy's summer toys need to be put
in the basement. I could clean it out
or fix the broken storm window.
When Eli gets home from Sunday school,
I could take him fishing. I don't fish
but I could learn to. I could show him
how much fun it is. We don't do as much
as we used to do. And my wife, there's
so much I haven't told her lately,
about how quickly my soul is aging,
how it feels like a basement I keep filling
with everything I'm tired of surviving.
I could take a walk with my wife and try
to explain the ghosts I can't stop speaking to.
Or I could read all those books piling up
about the beginning of the end of understanding...
Meanwhile, it's such a beautiful morning,
the changing colors, the hypnotic light.
I could sit by the window watching the leaves,
which seem to know exactly how to fall
from one moment to the next. Or I could lose
everything and have to begin over again.
-- Philip Schultz

See what I mean?
-- David M Gordon / The Deipnosophist

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13 November 2010

Two Important Market Indicators to Watch

Two Important Market Indicators to Watch
Gerald Appel
Marvin Appel, PhD, CEO
Signalert Corporation

Two simple short-term measurements have proved to be effective and reliable indicators of the risks associated with investing in the stock market. Following these indicators isn’t a way to get rich quick. But over time, they can help save you from being too optimistic and getting burned or being too fearful and missing out on potential profits...

·        10-day high-low average: This indicator tracks the number of New York Stock Exchange stocks hitting new 52-week highs in price divided by the total number making new 52-week highs and lows.

Example: If 100 stocks reach their highest prices of the past year and nine hit their lowest, then the high-low average is 92% (100 ÷ 109) -- where we were recently, down from 99% in early 2009.

Why it is useful. You want to be heavily in the stock market whenever this indicator is rising and hits 90% or more. That’s because more and more stocks are participating in the rally, investors are pouring money into the market and it’s gaining strength. However, when the indicator drops below 80%, it’s historically been a good time to reduce your positions.

You can find these figures each day at The Wall Street Journal online market data center (, click on "Markets," "Market Data" then under "US Stocks," click on "New Highs & Lows").

·        VIX: This is the ticker symbol for the Chicago Board Options Exchange Volatility Index, which is a popular measure of how much fear investors have about the future direction of the S&P 500.

When a large number of traders become fearful and sell indiscriminately, VIX levels rise. The index hit an all-time intra-day high of 89.53 on October 24, 2008. When market conditions improve, stock price movements generally become more orderly and the index declines. The end points of market declines are frequently signaled when the index rises to very high levels, perhaps 40 to 45 or more, and then turn down, indicating a reduction in market instability.

Why it is useful: A gradual decline from levels in the 20s or higher down to levels of 20 or below usually indicates a more stable stock market and may be a bullish signal. However, if the VIX declines to very low levels, perhaps 10 to 12, this often is an indication that investors have become too complacent, and it may be a bearish sign for stocks.

Example: The VIX dropped to as low as 10 in 2007, just a few months before the start of the 2008-2009 bear market. Recently, the VIX has been between 18 and 20, which generally indicates a stable market. Investors should get nervous if the VIX drops again to 10 to 12 or rises above 25. You can find the current VIX reading at


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