| me,you and the market (this one is for mike arena) |
portrait of Deuel
the boss, his wife and julie
the receptionist
Columbia West College
the receptionist
Columbia West College
The Los Angeles writer Charles Bukowski had three interests: women, drinking, horses. He loved the track and many of his stories occur at the track or relate to it in some way. I dont visit the track. When it comes to pissing away my hard earned money my preference is for the stock market. But I have often noted some obvious parallels between the two activities— or obsessions. Here they are: 1) The need for a system. There are two ways of losing money. You can throw it away—like betting win on a 60- 1 shot--or you can figure a way to somewhat improve the odds--as Bukowski was fond of saying—to make them beat you. Thats where a system comes in--a process of analysis—to learn from the mistakes and also, very important, to consider how much risk you are willing to accept. There are many sins to be committed by the horseplayer and investor both but the sin to be most avoided is the sin of losing sleep. 2) Research. Analysis requires the gathering of information and for the horseplayer its the Racing Form, The Daily Handicapper, the NTRA and the stock investor has The Wall Street Journal, Barrons and Investors Business Daily (and of course the internet). 3) Tips. Horseplayers and investors both understand that tips are for losers and yet the temptation is always there and a powerful one it is. But its best to heed the words of Peter Lynch who said: If you get inside information from the president of the company you will lose half your money and if you get it from the chairman of the board you will lose all your money. 4) Praying to Jesus. There is something called luck. Lets not forget the element of luck. The greatest horseplayer or stock investor who ever lived would readily admit that once the call has been made what happens next is entirely in the hands of Jesus and for this reason prayer is essential. Bukowski summed all this up in a piece called Some Non-Horseshit Advice for Horseplayers and I have decided to perform a similar service for investors. Ill keep it short because this isnt brain surgery. Here we go. There is something called the business cycle. Its as certain as night follows day or the ebb and flow of the tide. Bull markets are followed by bear markets—always, 100% of the time, no exceptions. Thats what makes the market the market. But the exact moment of high tide, that we all strive to anticipate and profit from remains something known only after the fact. It is unpredictable, capricious and inclined to generate many false signals before and after. That is the nature of markets. For example: You may recall the bloodbath of 2000-2002 when the S&P plunged a tasty 54%, likewise the DOW and the NASDAQ exceeded both to score an unspeakable dive of 78%. As I say-- a bloodbath and I participated full steam ahead—as simple-mindedly as the rest of my investing brethren—or chumps. But then, recovering from the shock I did a wise thing: I decided not to blame the market. I lost half my money because I lacked the smarts— or balls—to get out when there was still time--to cut my losses. The market started to tank and it continued to tank and it continued to continue and I stood by observing this evil phenomenon in a paralyzed state, a zombie, incapable of taking action. Why? Good question. I dont know. But when I emerged from the trance I made a vow. I said: that isnt going to happen again. Fast forward to 2007. The market has recovered from the carnage as it tends to do and its going full blast with the DOW pushing 14,000 and I am pleased but its a bull market entering its 6th year and I anticipate the next downturn we all know is on its way but not when and beginning to plan various exit strategies. My preferred strategy is to get out with both feet. I am in with both feet and I plan to get out with both feet. The year starts off well enough but now we enter a period of huge price swings causing the volatility index— the VIX-to become a staple of the evening business news on CNBC chaired by Maria Bartiromo—the money honey—I would dearly love to bang. All this volatility may be a clue. In 2001 the culprit was the internet stocks—companies like Global Crossing with 9 straight quarters in the red and a market cap of 14 billion. Now we have a housing boom on our hands that doubles the price of a house in 3 years and something called a sub-prime mortgage has entered the vocabulary of finance designed in a particular way to qualify a homeless type living out of a cardboard box on San Pedro street for a $400,000 mortgage on a house in north Van Nuys (true story) and now its time for the speculators to get into the act—or those who aspire to be--such as my friend Doris in San Francisco who rings me up in a frenzied state to tell me she has just sprung for 2 condos—in Vegas and Florida—she plans to flip and turn a juicy profit and I am reminded of the immortal words of Joseph Kennedy in 1929 who said: when you get a tip on the market from the kid selling you the morning paper—its time to go short. The only thing we can be certain of is: if the housing boom implodes the experts will be wise after the fact and if none of this occurs and the market continues to climb—the DOW to 25,000 as one retard predicts--the experts will be wise after the fact of this one as well. But my mother, who loved the market and followed the example of John D Rockefeller who said: dividends, dividends, dividends, had a saying of her own which was: better safe than sorry. Now its December of 2007 with the DOW in a slide, down a 1000 points from the November high and it follows this one with a 3 day mini-bloodbath to hack off another 650 points and I thought of my mother and the next day at 6:30 LA time/9:30 NY time I went on line to my account at Schwab and sold everything and when I did I felt better—at least for the moment. There were two possibilities: I could be right or wrong and if I was wrong and the market recovered from the drop I could always get back in. But as it turned out I wasnt wrong but right and the market continued to slide. Down it went, down, down, down and then it went back up for a bit but it was a feeble effort, lacking conviction and then it was back down with conviction big time and 14 months later the DOW stood at 6670 and I had saved myself $61,000. I am the first to admit it was a lucky call but as Branch Rickey, general manager of the old Brooklyn Dodgers was fond of saying: luck is the residue of design. Thats the story and now with the ranting and raving out of the way I will summarize for you a few do’s and donts I have arrived at during the many years of taking my lumps like everyone else—Warren Buffet included. 1) We are in the market to make money— not break even. In a bull market we are all heroes. Its who loses the least during a downturn that separates the men from the boys. Thats money in the bank. 2) The preservation of capital is the cardinal rule. A loss on any investment should never exceed 8 or 10 per cent tops. Remember—to lose 50% on an investment means you must double your return to get back to even. 3) There are no geniuses in the stock market. There are only pros and amateurs. An amateur can never beat the market because he is the market. 4) You dont need too many ideas. One good idea can make you rich. 5) All good investors are contrarian investors. A contrarian investor is someone who thinks for himself. Here is a quote from Jim Rogers ( co- founder with George Soros of The Quantum Fund) Talking to other people only got me more confused. Things seemed to work out much better when I did my own reading and thinking. To figure things out on my own and come up with absurdities—no matter how absurd they were. Because they were my absurdities. There is a lot of wisdom in that statement. 6) Do not average down—also known as throwing good money after bad. A tanking stock is tanking for a reason. If you didnt own the stock and it was tanking—would you buy it— and why would you buy it? Thats the question you must ask yourself. 7) Its earnings that drive a stock. This is what Wall Street looks for. Also look for accelerating earnings. 8). Three market truisms: 1) The public is always wrong. 2) the market is never obvious. 3) There is one way and one way only to learn about the market: by losing money. That is a lesson you never forget. 9) Always make the assumption the person on the other end of the trade is smarter than you. 10) There are no bargains in the stock market. A stock is exactly worth the price it is selling for at that moment. 11) Read a good book about the market. Here are three: Dance of the Money Bees by John Train. How I Made 2 Million Dollars in the Stock Market by Nicholas Darvas. Reminiscences of a Stock Speculator by Edwin Lefevre. 12) Jesse Livermore—AKA the great Jesse Livermore. Why the AKA? Because in 1929 when other of his investment brethren were hurling themselves out the windows of a tall building Jesse had been short for two years and made $100,000,000. He had his own vault at the bank and formed the habit of salting away a mil or two from time to time because you never know and every year on Dec 31 he would visit his money. He sat in a chair inside the vault to gaze with satisfaction upon the stash stacked in piles neatly about and he looked at it and played with it for a bit not because he was a sick human being but to feel the money in his hands confirmed its existence, that it was real and served to remind him what the game was all about. 13) The greatest investor of all time is Jesus. Why? Because he is the only one who knows what is going to happen tomorrow. |
the nasdaq
2000-2002
2000-2002
