Deep Value Letter - Banner Ad / Email Capture

Wednesday, December 14, 2005

Lacks brilliant post this morning started many of the wheels turning in the Melvin noggin today,especially the need to be aggressive yet patient. It would seem to me to be one of those ah-ha statements that contains several layers of truth.In markets, in poker and in just about every area of life I can think of, its is aggression that wins the day.but unchecked aggression also contains the seeds of sudden and complete annihilation. One of the places where aggression is the order of the day for victory is of course, Military warfare. But then I think of the civil war and all the battles lee and longstreet won by playing great defense and aggressively defending their position on the high ground. It was only on the attack they were beaten, first at Antietam and then again at Gettysburg.Again, some historians suggest that had Lee listened to old pete and swung around to the high ground, abandoning Gettysburg but blocking the union army from the capital, the north may well have sued for peace. In the revolutionary War, Washington and the colonials nipped at the heels of the British, only attacking when they had clear advantage and surprise. Had he met them full scale on the battlefield early in the war, he would have beaten resoundingly and all the founding fathers hung in the courtyard of Independence Hall. In World War two it was the pure attacking aggression in both Europe and the pacific that won the war for the allies. But not until the gears of the US war Machine were at full force, with factories spewing out machines and ordinance did we retaliate in any strong fashion. The first landings in North Africa were almost a year after Pearl harbor. The first counter attack in the pacific was in August of 1943 at Guadacanal, nine months after the Japanese surprise attack. We were aggressive, but on our terms, at times and places of our choosing with the strength to back our play.As for agression unchecked with no plan or patience..well just google “custer, general george”. The new craze of televised poker features the pure aggression needed to be a winning poker player. They show the check raises,all in bets and stunning calls that are the hallmark of a great poker play. What they don’t show, however is the 500 hands the great ones folded to get into position to make the aggressive play.It takes not only aggression but patience and buttocks of iron to make a great poker player. Ed Gross wrote a brilliant piece on this subject called overlay?play(I think its in the archives and it is a good piece to read) on the list a few years back outlining how he sized up the room and looked for the edge before he played. I have hung around just enough casino card rooms in my time to see the new tv poker fanatics walk in thinking they can play like Layne Flack or daniel Negreneau and sit down at a table way above their limit and get crushed by being loose aggressive and trying to make good tv instead of playing winning poker. We ve seen in markets a thousand times. A guy tries to get too big and crashes and burns. Regardless on underlying trends, valuations, stats they plunge in up to their necks thinking what they learned in B-school or the success they had being accidentally long in a bull market(please see 1995-1999) meant they actually knew what the hell they were doing. I see guys trying to squeeze the last juice out of extended markets such as high yield and emerging market debt and levering it to the sky to make it work rather than waiting for the spot.hedgies are laying 10 times leverage on risk arb deals with a 1% spread trying to get back the juice of bygone years on this overtraded market. They may want to check in with the convert arb guys and see how that worked for them.In my mind one of the smartest plays out there is to sell puts on an individual equity you would like to own at the lower price. It does not make sense to just sell the puts any time but on down days when the volatility and pricing of the puts is at its highest( I am far from an option genius. Vic, Phil and many other here are MUCH better at options that I could ever think of being.but this DOES make sense to me overtaxed little value guy brain). In other words, wait for the spot and then be aggressive. How do most people put on this trade? Pretty much any old time regardless of price and rather selling as many puts as they are willing to own stock, they sell them to limit of their margin balance. Improper aggression applying a good idea at the wrong place and time and its “hi, uncle , Ned..I ah have a slight problem here…couldya help a brother out?” I don’t think time frame matter here either. Those of us who have been in the Weston trading room have marveled at how Victor sits and waits, and waits and waits…when it hits his spot, however he is as aggressive as anyone I ve even seen..lessons learned as Lack pointed out, From 40+ years of studying markets.There was reference earlier this moth to studies of whether waiting until the market has a down month or not matters concluding that the difference was so slight as to not matter. True enough on the face but irrelevant if your holding period is less than a year as I suspect is true of most on the list. In individual stocks there are countless studies show as the works of charles brandies and joseph piotroski that buying shares of reasonably financially strong companies after a large decline has a dramatic positive impact on returns.If your time frame is a week, buying after 5 straight up days might not be such a great idea..likewise selling after straight downs is probably not a well though out move. My point..yes be aggressive but know your market, your time frame and your entry point. Being aggressive isn’t maxing out your margin level on every trade but only doing so when you have the clear cut, well defined edge for it to make sense. One must also realize that there is a time and place to realize that waiting and aggression isnt working. You were wrong on the trade. If theres an ace on the board and someone re-raises you it might be far wiser to fold those pocket queens instead of pushing all in.Likewise, slow playing a strong position with the thought of building a pot gives an opponent a chance to draw out on your aces. Just as many times I ve bought a few shares of a stock I knew was a good selection with the thought of adding more later only to have it taken over at a massive premium and I miss a chance to really score.If you have the edge and you know it, get your money in.If it becomes clear you re wrong at some point. Get as much back out as you can. Swing around and take the high ground,rebuild your strength until the next opportunity comes along.It always does. This simple aggressive..but wait until you have the clear edge would seem to apply to all areas of our lives(and I mean all areas, anyone wishing to have a discussion of the ill effects of the aggressive pursuit of the wrong woman need only stroll to the seedy dock bars of Maryland and purchase the author a tumbler of fine irish for a PHD level education in the subject. For the reverse, and the many benefits or aggressive pursuit of the right woman I suggest talking to Jason Thompson,lackey or Kevin Depew. Jason will take scotch but kevins to his discredit will want bourbon. Lack doesn’t drink so I think you may get off cheap there). Every move forward I have made in my life has been because I saw the chance and took it,like cortez burning my ships on the beach so that was in fact no retreat.Most of my regrets have to do with opportunites I let slip and didn’t pursue hard enough as soon as I saw them thinking the window would be open forever.It didn’t. Many thanks Lack for pushing these thoughts to the forward in my feeble brain.

No comments: