Tuesday, September 19, 2006
whither goest the market?
Damned if I know. A look around shows me that stocks, although off slightly today, have been moving up continuously since July, oil is down well of its highs, gold has started moving down, bonds are up, the economy show signs of weakening (which according to the sadistic bastards in the now imaginary bond pit is a GOOD thing), the dollar is flat, the times predicts strong retail sales ahead, while the journal predicts weak, there is a coup in Thailand, Iraq continues to be the same type of raging success experienced in Indochina while North Korea and Iran make nuclear postures. All this of course is reflected in the VIX which even after a 6%+ move today stands at the ridiculously low level of 12.Having thoroughly tapped out his home equity the consumer seems to be relying on the change found in his couch to drive spending. The SP 500 is only at 16 times earning points out pundit a. Ah-ha retorts pundit B, but profit margins are twice the historical norm. So it we revert to the mean, we are at 32 times actual earnings potential. Unless of course the shift to less capital-intensive technology and service industries away from heavy industry means the profit margin metric is changed forever. Confusing times at best. My best guess is that with signs of the economy slowing and a market that hasn’t had a 10% decline since Maryland had a good football team, there is more risk to the downside that opportunity to the upside in the broad market.I of course don’t trade the broad market but spend most of my time looking for bargain stocks ala Ben graham and his ilk. Ordinarily the only Buffet I pay attention to is Jimmy as I am more in agreement with the concepts of life is just a tire swing and ousters and beer for supper every night of the year than those espoused by the super lefty from Omaha, but cousin Warren was quite correct when he said those running something less than 50 billion could be doing very well with the type of bargain stocks he was seeing but couldn’t buy. The more people buy into indexing, and the semi indexing of the mutual fund industry, the more opportunities are created for vultures and special situation guys like myself. Right now the coal industry for example seems to be stupidly priced. It is true that right at the moment we are producing more coal than we burn but as the drop in prices to a multi year low forces marginal mines to shut down, this situation could change quickly. This along with a more normal northeastern winter and the potential for goal to liquid and coal to gas projects create a more promising long-term picture for coal producers. We re seeing single digit multiples here, cash flow generation that has slowed but not stopped, stock buybacks, insider buying and private equity and activist hedge fund industry in the group. As a falling ship could well sink all boats including my coal barge, I prefer selling slightly out of the money puts a month out on these names. The fact that the current weak outlook from the street has pumped vol in these names helps. I like ICO, JRCC, MEE and CNX in here as candidates for cash secured put writing.Speaking of barges a name that really catches my eye is Aldabra Acquisition. ALBA is a SPAC, a blank check deal. Routinely in these deals management has somewhere around a 20% interest in the form of warrants which are virtually free. Why would insiders be buying shares in the company for cash money? This is real money not options and could be spent on more meaningful stuff like bar tabs, green fees or gas for the boat, important stuff. So when the company showed up my insiders list I got real interested. Heres what I found. They are reverse merging into Great Lakes dredging. There will be about 37 million shares out when the deal is done and ALBA holders will have about 27% of the deal. The rest belongs to PE firm Madison Dearborn. Great Lakes as restructured will have an enterprise value of about 450 million. They will do in the area of 60 million ebidta. The fleet of dredging ships has a replacement value of a billion bucks. They have a40% market share and are the largest dredging firm in the country. While they have overseas work including Bahrain’s enormous projects, US dredging markets are protected from foreign competitors. I come up with at the 500 million mark, a little over enterprise value and about 8.5 times ebidta and 38 million shares outstanding, a value of about 13 bucks. The stock is 5.55 giving me an enormous margin of error. More interesting, the warrants sell for 76 cents, are due in 09 and .55 since in the money with 3 and ½ years to run. There are no guarantees and I may well be missing something but the insider and hedge fund activity in this stock make me think not. There is a pretty good market in the warrants.Two other stocks that are cheap and have strong activist funds pushing for action, including the possible sale of the company are athletic footwear retailer FINL and family restaurant FRN. My guess that both are worth picking up a pullback of any sort. FRN does not have options but FINL does and again, Volatility is up after recent weakness.It was trader extraordinaire and wife lottery winner Jason Thompson who last month firmly declared that being long volatility was the way to go. Given the state of the world, more than a touch of economic uncertainty and very low volatility markets I tend to agree. I have been trying to construct the trade by buying long dated very cheap puts on etfs such as xly, consumer discretionary and xlp, the financials spdr and selling short dated high volatility put premium in the value and special situation stock I like. In addition to the coal stocks I have been using names like SIX, TRN, MIR,CHk,S,WON and NYT to stitch the trade together. We ve been fighting the tape a little bit with the long puts but the premium taken in on the value names keeps us well in the game. The only downside that I see here is being out shares of stocks we don’t min owning in the first palce. Of course the market could keep going up between now and next march with no rise in volatility or significant declines. I ll put that right up there with a Green Bay vs. Houston super bowl in probability.The world turns on. Navy is winning, Notre Dame is more vulnerable than we thought, and the Ravens defense is off the chart again this year. Summer is over and we are headed into fall, that glorious season of football, the world series with the biggest drawback being the women go back to slacks and sweater packing up the halter tops and shorts for another year. Leaves fall, boats come out and we settle in anticipation of the winter ahead. The market is calm and unafraid; no one is worried which of course worries the hell out of me.
nascar in the market
I have had occasion over the past few weeks to spend much time thinking on models of success in life as well as markets. As I continue my voyage into the 4th decade of life, my original plan of marching to the sounds of a swing band playing in the mood straight from adolescence into retirement seems to need some minor modifications...dont get me wrong, I ll keep the band playing and the day the dancing stops so do I, but some of the things I planned out a few years now need some tweaking. I had ample opportunity for reflecting, first driving to NYC for the junto and back, a long walk along the backroads of CT with a wise friend and advisor, all in the past week. After a long weekend back home, I hit the couch on a dreary Sunday, grey, overcast and nothing much to do kind of day. True to my quasi, urban yuppie redneck roots, I flipped the channels around until I heard the familiar tones of good old darrell waltrip,”boogity, boogity , boogity, lets go racing.....and therein I found a model for much of what it takes to succeed in life and in markets.....
Full out competition......a constant effort, all the time with everything on the line the whole race. There are no 3 martini lunches at 200 mph. Drivers on a nascar track run pedal to the metal for the full 4 or 500 miles every Sunday. Brakes are applied only for throwing the car through the corners and to avoid accidents. The engines are designed and built to withstand the constant high rpm running and to win, you must extract every ounce of horsepower not just for a qtr mile but for hours of continued running...focus is everything. Barreling into a turn at 190mph with 42 other cars around you, and the guy next to you close enough that you re sharing paint, its no time to be wondering whats on the happy hour menu at the dew drop inn. We all have day to day concerns but when the market opens or your daughter has her first broken heart its no time to dwell on them. When something goes wrong and you find yourself going backwards at incredible speeds or you SO wants to know how come you dont talk anymore its probably not the time to be wondering what time the orioles game starts tonight.....
Constant adjustment...its not enough to just to build a great car and throw it on the track. During the day the suspension is going to change, the track is going to heat up, tire pressure will change, annoying little stuff will go wrong....an understanding of whats changing(the switches) and the ability to change it in less than 15 seconds in the pits is critical to winning. We can all build decent models that trade great on paper and even run well for the first few laps around the market track. Or start relationships that in the first bloom of like and lust run like JR in the last 10 laps at talledega , but everything life changes. Pressures build up, assumptions are challenged and sometimes in life and markets we cut a tire in turn 3. The ability to adjust, refine and get back on the track is critical to winning. And note that without a pit crew, the average stop would take an hour or so instead of 15 seconds...the support people, friends, assistants, relatives etc who surround us and help keep us on the track are critical to success in any venture. And choose them wisely..like a tire changer who cant figure out how to turn on an air wrench, the wrong people around us can cause up to lose a wheel at 200 mph.......select the support people wisely because in the heat of the moment, you will have to depend on them.
Testing on Friday wins on Sunday..how many times on the list have we heard test and count? Far from being just a bunch of unenlightened rednecks with souped up chevrolets, the drivers today spend a lot of time in wind tunnels and on test tracks with sophisticated monitoring equipment testing their ideas, their cars and themselves long before they take the green flag at Daytona to start the season. Every spare moment is spent testing and refining new set ups and combinations to wring extra speed out of the motor. Everything is measured and tested to the finest possible degree to give the greatest chance to win.The chair and others exhort us to test and count, not just once but always. If you can it,think you can test it.
You must adapt. Every day will not be the same, and all the tracks are different. There are superspeedways, short tracks,road courses,flat tracks, banked tracks. Rockingham chews up tires, California has no banking, dover is concrete, richmond is asphalt, bristol has difficult pits, pocono looks like a 4 lane highway coming down the lane. You have to have a book on each track each week because conditions will be different.markets, marriages, careers, kids, there are cycles to it all. The tracks will be different every week,every month every year. I f all you know how to do is day trade tech stocks or drive superspeedways, you ll spend a lot more time, you ll spend a lot of time driving around At the back of the pack when conditions dont suit you.If all you know how to do is drive left or you re only good at the pickup stage of a relationship, road courses and day to day life will spin you off into the sand pits
You will make both friends and enemies. Friends are more important.Your enemies may not like you or speak highly of you..there is really very little they can do to hurt you without damaging themselves. Feuds between nascar drivers are legendary ..waltrip and earnhardt, gordon and wallace,pearson and petty. These guys have tangled up on the track and are really not that fond of each other but theres no way to take vengeance in a meaningful way without wrecking your car as well or suffering a stiff penalty from the regulators
Full out competition......a constant effort, all the time with everything on the line the whole race. There are no 3 martini lunches at 200 mph. Drivers on a nascar track run pedal to the metal for the full 4 or 500 miles every Sunday. Brakes are applied only for throwing the car through the corners and to avoid accidents. The engines are designed and built to withstand the constant high rpm running and to win, you must extract every ounce of horsepower not just for a qtr mile but for hours of continued running...focus is everything. Barreling into a turn at 190mph with 42 other cars around you, and the guy next to you close enough that you re sharing paint, its no time to be wondering whats on the happy hour menu at the dew drop inn. We all have day to day concerns but when the market opens or your daughter has her first broken heart its no time to dwell on them. When something goes wrong and you find yourself going backwards at incredible speeds or you SO wants to know how come you dont talk anymore its probably not the time to be wondering what time the orioles game starts tonight.....
Constant adjustment...its not enough to just to build a great car and throw it on the track. During the day the suspension is going to change, the track is going to heat up, tire pressure will change, annoying little stuff will go wrong....an understanding of whats changing(the switches) and the ability to change it in less than 15 seconds in the pits is critical to winning. We can all build decent models that trade great on paper and even run well for the first few laps around the market track. Or start relationships that in the first bloom of like and lust run like JR in the last 10 laps at talledega , but everything life changes. Pressures build up, assumptions are challenged and sometimes in life and markets we cut a tire in turn 3. The ability to adjust, refine and get back on the track is critical to winning. And note that without a pit crew, the average stop would take an hour or so instead of 15 seconds...the support people, friends, assistants, relatives etc who surround us and help keep us on the track are critical to success in any venture. And choose them wisely..like a tire changer who cant figure out how to turn on an air wrench, the wrong people around us can cause up to lose a wheel at 200 mph.......select the support people wisely because in the heat of the moment, you will have to depend on them.
Testing on Friday wins on Sunday..how many times on the list have we heard test and count? Far from being just a bunch of unenlightened rednecks with souped up chevrolets, the drivers today spend a lot of time in wind tunnels and on test tracks with sophisticated monitoring equipment testing their ideas, their cars and themselves long before they take the green flag at Daytona to start the season. Every spare moment is spent testing and refining new set ups and combinations to wring extra speed out of the motor. Everything is measured and tested to the finest possible degree to give the greatest chance to win.The chair and others exhort us to test and count, not just once but always. If you can it,think you can test it.
You must adapt. Every day will not be the same, and all the tracks are different. There are superspeedways, short tracks,road courses,flat tracks, banked tracks. Rockingham chews up tires, California has no banking, dover is concrete, richmond is asphalt, bristol has difficult pits, pocono looks like a 4 lane highway coming down the lane. You have to have a book on each track each week because conditions will be different.markets, marriages, careers, kids, there are cycles to it all. The tracks will be different every week,every month every year. I f all you know how to do is day trade tech stocks or drive superspeedways, you ll spend a lot more time, you ll spend a lot of time driving around At the back of the pack when conditions dont suit you.If all you know how to do is drive left or you re only good at the pickup stage of a relationship, road courses and day to day life will spin you off into the sand pits
You will make both friends and enemies. Friends are more important.Your enemies may not like you or speak highly of you..there is really very little they can do to hurt you without damaging themselves. Feuds between nascar drivers are legendary ..waltrip and earnhardt, gordon and wallace,pearson and petty. These guys have tangled up on the track and are really not that fond of each other but theres no way to take vengeance in a meaningful way without wrecking your car as well or suffering a stiff penalty from the regulators
life is a gamble
Life is a gamble. I d like to take credit for that statement, but its been said many times by many much brighter and articulate than I.As far back as 1780. Edmund burke in a speech before the house of commons states "Gambling is a principle inherent in nature”. It does seem that the taking of risks in order to reap rewards is not only inherent to mans nature, but the source of much f human progress over the years. My handy websters defines gambling as betting on the outcome of an uncertain contest, to expose to risk or venture. I would propose that the earliest life forms crawling from the primordial ooze were in fact betting that there was a better life, richer food beyond the ooze..and that they could actually breathe away from the slimy pool that gave festering birth to them. Columbus setting sail for what many believed was the edge of the world, cortez burning his ships on the beaches of mexico,Marco Polo setting forth for the unknown eat were basically betting on themselves and their compnaions in a quest for fortune and glory.Edison bet his future and reputation on the success of his lab tinkerings, leading to television,,light bulbs,henry ford’s bet on himself in auto race was the foundation of the ford motor company and the modern amercian automotive indistry. The list in intelligent,spectacular bets of not only money but minds and reputations is too lengthy to attempt and list them all...but they form the cornerstone of much of human progress.Indeed the author Mario puze said it best” It can be argued that man's instinct to gamble is the only reason he is still not a monkey up in the trees”
Military history is filled with dramatic gambles by great leaders..some such as D-Day and farragutt at new orleans paid off leading to great victories, others such as napoleins ill fated invasion of russia or picketts charge lead to equaly spectacular defeats.The history of warfare is filled with examples of commanders taking calculated risks to advance their position ,win battles and wars.The daring raid on trenton by an ourmanned our gunned and underfed infant american army under george washington did much to boost the sagging morlae of our fledgling nation and aloow tht e fight to continue on the road to eventual independence.george apttons mad dash across europe to reinforce the 101st airborne at the battle of the bulge pushed back the last germna attack of the war and shortened the war in europe by some many months.Erwin rommels calculated mad dashes across the desert earned respect as a military genius and the title odf desert fox.Rommell addressed the issue thusly in his writings “A gamble, on the other hand, is an operation which lead either to victory or to the complete destruction of one's force. Situations can arise where even a gamble may be justified ..."
Gambling is part of our history, or heritage., there is something about gambling in general and poker in patricular that fascinates us..Gambling and poker show in our culture as well, with such film classics as the hustler, cool hand luke,californai split, the sting, rounders,oceans 11,casiono and the cinncinati kid. Many of the James Bond movies have at least a portion of the film set in a csino as the suave mr bond sip martinis and indulges in games of chance and romance.Songs as well with segers ramblin gamblin man, kenny rodgers(of course) the gambler, lint balck and good run of bad luck,sinatras luck be a lady,merle haggarsds kentucky gambler/..the list of songs associated with gambling cards is extensive.Two of the greatest broadways plays of all it me, showboat and guys and dolls feature gambling as the center of the story. L:iterature as well is filled with gambling stories including the classicThe Gambler by Fyoder dostoyevsky , as well as countless popular novels by such as jackie collins, harold robbins and mario puzo. Many of american historian and wit, mark twains novels and short stories featured gambling as well.
Poker images, from the card rooms of the wild west, wild bill hickocks aces and 8’s deadmand s hand, a host of riverboat gamblers and roving card sharks, the best known being doc holliday with a deck of cards and six gun at the ready, harry truman playing poker with reporters while making the decision of the useof the atom bomb, Richard nixon earning a stake playing cards in the service, the games of poker and its variations show up throughour our history and our legends. There is something about betting your stake on the cards and your ability to read and out fox the others at the table that captures our imagination.Poker is played in sparkling new casinos, grungy roadside cardrooms, living rooms ,barrooms and everywhere in between across the unite states and indeed the world.
The fascination with poker continues to grow. The recent advent of the world poker tour televison series on the travel channel has been a huge success and interest in the annual world series of poker continues to grow with more entries into the main event each year.Recent books such as positively 4th street by mcmanus have made the new york times beastseler list. Entering the word poker into the yahoo internet serch engine returns over 6,2000,000 hits.Searching amzon.com for poker books returns a list of over 350 titles in stock and ready to ship.Poker has spread into the electronic age with card rooms online, and indeed an online player just beat some of the worlds best to become the world series of poker champion for 2003.
All games have rules. Some are complex, such as risk or dungeons and dragons. Most, like checkers, candyland, even chess and poker have fairly basic, simple rules. The very simplicity of the rules (candyland excepted..the basic rule of thumb here is that it is virtually impossible for anyone over the age of 6 to win this game., I have many memories of my daughter as a little girl with that viscous mischievous grin taunting” I win again daddy..I guess you re just not very good at this”) allow for extremely complex strategies. even chess, widely considered to be the most complex challenging games in the history of the world has a fairly basic set of rules governing how pieces may be moved and how victory is achieved or lost.Im sure some of you think perhaps checkers belong on the candyland list(you re probably the same ones who buy mutual funds because you think stocks are too risky). I suggest you read the immortal tom wisewells Science of Checkers or Draughts or walk into one of the old fashioned barber shops where old men still play and offer to play for cash. the rules of texas hold em for instance are very simple:
The basic principle behind Texas Hold'em Poker is that each player gets only two cards (which only he can see). The winner is the one of the remaining players at the end who can put together the best five-card poker hand as a combination of his two cards and five open cards (so-called "community cards") on the table.
The rules of trading markets are also very simple. You can buy. You can sell. You can sell short. You can trade, stocks, bonds , futures options.The mechanics of opening accounts and entering orders is fairly simple and straightforward. Any idiot can do it and indeed as we saw in the late 1990s, many of them already have.
Most of these games, simple as the rules my be, have also developed complex playing strategies as well as proverbs and cautionary tales that govern the game and distinguish the weak and the strong players. Walk into the average book store and look in the games and gambling section. There are dozens of books on chess, poker,backgammon and virtually any other game you can think. Different authors suggest different strategies and tell different stories of famous games and the players therein. Now walk over to the investing section. Here we have hit the jackpot of contradictory opinion. There are thousands of books, each espousing a different method of playing a simple game. Everyone has an opinion, and they all seem to be different. Graham doesn’t agree with prechter who doesn’t agree with buffet who doesn’t agree with elder and Niederhoffer doesn’t agree with any of them.
Both poker and investing share some maxims in common and we think its important to delve into a few of these shared concepts and proverbs. First however I want to make clear as we move along that neither of the authors feel that trading and investing is gambling when defined as most do. When we sit down to play we are not betting on outcomes we believe to be uncertain or strictly up to the fates. Drawing heavily on theories of probabilities, the use of statistics and practical experience whether playing at the 10-20 table at the mirage or entering orders for S&P futures or small cap stocks, we expect to win over time. When walking into a casino,most of the games are stacked against the player and it is virtually y impossible to beat over time the games of craps, roulette, keno or baccarat over time. They are games of pure chance with a mathematical edge for the house. The edge,even when small will grind you into dust..dust with no cash at that, over time.It is amazing to me that books are sold on how to win a t roulette, at craps,(ever want a free room in Vegas, just tell them you re there to play your new roulette or crap system)even at such statistically challenged cash killers as keno(know the safest place to stand if a casino roof ever collapses while you re there? The keno parlor, nothing ever hits there).,slots(friendly slots only pay back 98 cents of every dollar bet..you do the math) and lotto when from a pure math point of view, all you can ever hope to do over time is minimize the bleeding. Only poker and blackjack create the possibility of an edge over time for the player. As one of us is barred from damn near every casino on the planet for counting cards and the other is too lazy to memorize all the possible card combinations and track the count, finding memorizing the top 10 or 15 hold em hands to be easier, we shall concentrate on poker.it is our firmly held belief..and we bet our livelihood and our lives on it pretty much on a daily basis that both poker and markets can be beaten consistently by a combination of math and psychology. Further we believe that with study and practice the skills needed can be learned and mastered, As much as this book is an attempt to educate you, the reader on some of the things we have discovered in card rooms and trading floors, it is also a continuing step in our educational process and continuing effort to improve our game.It is no accident that great traders and investors such as buffet ( simple homespun image be damned, the man is a mathematical genius and heavy trader of distressed and arbitrage situations. Apparently his 20 punch card for a lifetime homily doesn’t apply to him), soros,druckenmiller, both the niederhoffers, roy and victor,tudor jones, brett hull have much in common with great poker traders such as doyle brunson,david slansky,phil hellmuth,johhny moss,andAmarillo slim. It is a thorough understanding of the odds and how other participants in the game perceive the odds that has made them succesful.We are always aware that like tax laws, the laws of probability are very bendable and we will experience streaks that defy the numbers. There will be bad beats ,poor players will fill an impossible gut shot draw on the river, someone will hold pocket aces to our pocket kings, treasury secretaries will say regrettably and fed chairman will mention irrational exuberance and the Enron’s of the world will trap us at times. But we play with faith in our research and the basic concept of reversion to the mean, knowing that in the end knowing the game and the players, the odds will be in our favor.
The first maxim we want to look at it as it applies to trading and poker is one of the most important. NEVER GAMBLE THE RENT MONEY. This should be self explanatory. The only thing harder than dragging home at 2 am and explaining to the wife you lost the rent money or mortgage payment playing cards would be explaining that your brilliant combination of Enron, WorldCom and the internet fund has lost the kids college fund and most of your retirement as well(you might as well do this one at 2am as well. When she finds out she’s working the late shift at Denny until she’s 73 to pay tuition, you re a dead man anyway. Stopping at the bar for some liquid courage and preventative pain killers would be the only right choice here).It is highly suggested that some basic planning be done before trading or playing cards as a for profit enterprise.
Some will try to try to convince you that you need..drum roll please...a financial plan. Merrill Lynch, American express. Morgan Stanley and most other firms will be happy to sell you for 300 or so bucks a nice plan with charts,graphs, projections and strategies. Just because yours looks just like the family next doors and all the suggestion involve products manufactured and sold by the firm in question makes them, in their mind, no less valuable. I might however, beg to differ. 15 years experience on the sell side of the investment industry, including a stint as a financial planner in my misspent and uneducated youth,have taught me one universal truth about financial plans. They are sales tool, designed to relax the buyer, create an atmosphere of trust and gain access to complete information about where your money is so it can be relocated. One of the best defintiotn of the process I have ever seen was in aols dilbert crtoon in which ratbert describes financial planning as the transfer of useless assets to valuable commission dollars .The last few years should have taught us all that most projections based on current conditions are worthless and the long term future is unknowable.There are exceptions to this statement of course, but as a rule it holds up more often than not. We hate to be general in nature, but for most of us a good plan comes down to a few simple steps:
if you have a spouse, kids and a mortgage, for gods sake..or more accurately for theirs, but life insurance, lots of it. Enough to pay for college,pay off the house and replace your income at 5% interest. Its hard enough to loose a loved one and have to raise children alone in the world without worrying about how you re going to pay for it all. I f your divorced, have enough to give your kids the life they deserve even if you should pass early. It would be nice to deprive the ex of the income and support money but its not fair to the kids. Term Insurance is cheap so you buy lots of it.
I f you have kids, set aside a college fund and put money into it every month, There are many options for doing this on a tax favored basis. Don’t pay someone 100 bucks an hour to review them,. The internet is a wonderful place and has all the answers you need. You use low rate of return assumptions and invest them money religiously.
Have a budget. Keep in track of the money flowing in and out of the household. Your not always going to stick to it but be aware of where and why you deviate from. Keeping track of how much you spend and where, finding and eliminating wasteful spending is critical to long term financial success for most of us. Bill gates might not need a household budget, you do.
I f you have a 401k at work, put in the max allowed pre tax, This helps meet two major goals..lowering taxes and funding retirement. If you don’t, put as much into Roth IRAs and IRAs as you can afford. Retirement will happen some day, or at least we hope it will. The federal government has generously provided several tax favored way to save for this event. Use them
Also make use of any benefits offered by your employer for paying medical insurance, daycare and other expense on a pretax basis. Read the tax booklet they send you every January and take every deduction and credit you are eligible to take. Less tax is better, Always.
Establish a reserve fund.A few months expenses in the bank makes a good shield against the unexpected. Layoffs happen, roofs leak, cars breakdown, and medical emergencies may occur. Even worse they my happen to your spouse favorite siblings obnoxious spouse. Better you have few extra bucks to send them than they come live with you until the storm blows over..which of course is two days short of never. Save some money, put in a bank, get the best available but dont obsess about it. The goal here is liquidity and security.
.Tim’s immutable law of personal finance..Life is short. When doing your budget, overestimate leisure expense and include a line item for vacations every year, especially if you’re married.NO date nights, time together and no fun makes live a rather boring, dull affair..somehow I doubt the point of our existence.We need time to enjoy life and quality time with those we love To save like a squirrel and then drop dead before you can enjoy it is pointless.your widower or widower should not have more fun after you die than you did before. This happens to more of us than we like to think If you re single include money for dates. The month you do not include money for dates you will meet the person of your dreams and not have enough money to buy him or her a drink and she ll leave with the muscle bound with capped teeth, or the buxom blonde with too tight jeans and an extra twenty to spend .
There will be exceptions to the above. If you have inheritance issues, property transfer concerns, a large percentage of your net worth in a closely held business there are issues where you are going to need professional help. If the issue is too complex to understand, get help. If you re losing sleep over whether or not you ve done it right, get help. Interview the professionals you need, attorneys accountants, financial services providers, maybe even a life insurance agent. Just make sure the person on commission ( I can say this, I earn my living from commission. The salesperson should not drive the process) does not lead the process or formulate the plan. You my need their products or expertise to implement your plan but let the lawyers and accountants ..the hourly or flat rate guys...formulate the strategy.
2. ne The author nelson Algren penned the saying as one of his original rules for life... Never play cards with a man called Doc. Never eat at a place called Mom's. Never sleep with a woman whose troubles are worse than your own. It seems that in days of yore, the good doc always had a card or two up his sleeve or some other trick to separate you from your cash by less than totally honest means. The other axioms we shall leave alone for now, except to verify that the gastronomic damage done in a road side joint named Moms is the blue light special of stomach disorders. And as all the authors problems are usually generated by the fairer sex, we have never found one who has less troubles than ourslelves..not being infatuated by the celibate life, we choose to ignore that particular rule.
It will shock you to find out that their are people out there who want your money. They dont want to work for it, trade for it, or even gamble for it. They just want to take it by whatever means necessary. They will cheat, they will lie, they will withhold information, feed your greed, exploit your fear, and in the end they will steal your money if you are not ever vigilant.
For some reason, involving I am sure some strange twist of the american psyche, we tend to glamorize con artists. Films such as The Sting,catch me if you can, paper moon, the Hustler, and color of money show us the fast talking but basically good hearted operator. In the Music man, we celebrate the con artist who reforms in the name of love.there is something about the living by your wits, outsmarting the world character that appeals to us. It is however a lot less appealing when it is your money that disappears and skips out of town.
Federal and local government spend millions of hours and dollars trying to educate the public and track down fraudulent operators. Yet, year in and year out billions re pilfered by tricksters who separate us from our cash with promises of high yields and fast profits. Its not trouble with a capital T that rhymes for P which stands for pool that they warn us of but coming global economic collapse and the need for precious metals, low bank yields when by using little known techniques of the rothschilds and Rockefellers we can get prime bank notes yielding 18%...sometimes a month. The claims are ludicrous and rarely hold up to investigation but the old twins of human psychology, fear and greed suspend our disbelief and send us to the mailbox checkbook in hand.For some reason, no matter how many articles are printed or how often the sixty minutes people show us the ins and outs of cons, investors still send their checks to modern day versions of Professor Harold Hill.
There are some basic things you can and should do to prevent being taken in by the professor and his friends...after all you cant count on Shirley Jones to always save us from our baser instincts. For starters..if it is too good to be true, its too good to be true. There is no free lunch, There is no super secret investment plan used by the rothschilds that is available to you for a low-low price. There is no trading methodology beyond blind luck that can turn your 2000 into 2 million in two weeks or less. The Us treasury does not have a secret trading room now magically available to you and your 3 grand. No one in Nigerai is going to share their 33 million dollars of oil money stolen form a corrupt and evil dictator with you. Its not going to happen and after you send in the money, robert redford going to clean up the fake blood and he and Paul newman are leaving town with your dough never to be heard from again..until the sequel in anew town with a new name.
The internet is the source and home of a lot of todays new scams. Using the anonymity of message boards and email, worthless shares are touted as the next microsoft.every day it seems I get several offers to teach me the secrets of investing, build unlimited wealth and increase my penis size overnight. One is as likely as the other to be a successful venture.
Use your common sense and do your homework. Investigate before you invest. Realize that you probably do not need to invest in cattle breeding, Guatemalan llama farms or secret energy sources.The SEC suggest that if you see an offer on the internet, it is best to assume it is a fraud..their guidelines reproduced here give excellent suggestions for avoiding high tech modern fraud:
Avoiding Internet Investment Scams: Tips for Investors
You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet – whether it's on a company's website, in an online newsletter, on a message board, or in a chat room – you should assume it's a scam until you've done your homework and proven otherwise.
Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking – and getting answers to – these three simple questions:
Is the investment registered?
To find out, check the SEC's EDGAR database. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator. You'll find that number in the government section of your phone book. Or call the North American Securities Administrators Association (NASAA) at (202) 737-0900 or visit NASAA's website.
Many online investment scams involve unregistered securities. But the fact that a company has registered and files reports with the SEC doesn't guarantee that the company will be a good investment. Likewise, the fact that a company hasn't registered and doesn't file reports with us doesn't mean the company is a fraud. You may be asking for serious losses if you invest in a small, thinly traded company that isn't widely known solely on the basis of what you read on a bulletin board posting or saw in an online newsletter. One simple phone call o your state regulator could prevent you from squandering your money on a scam.
Is the person licensed and law-abiding?
Find out if the person or firm selling the investment needs to be licensed. Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. You can also get this information by calling NASD's public disclosure hotline at (800) 289-9999 or visiting their website.
Does the investment sound too good to be true?
If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. Watch out for claims of astronomical yields in a short period of time. Be skeptical of "off-shore" or foreign investments. And beware of exotic or unusual sounding investments, especially those involving so-called "prime bank" securities. To learn more about "prime bank" securities, visit the Division of Enforcement's Prime Bank Fraud Information Center on our website.
Make sure you fully understand the investment before you part with your hard-earned money. Always ask for – and carefully read – the company's prospectus and latest financial statements.
In addition to the outright con, one must be ever diligent to avoid what I call the soft con. The legions of newsletter writers, gurus prophets and pundits who for 299 dollars a year will give you he secrets to investing as handed down by either WD gann or god his own self, use the stars to predict the paths of the markets or have some super successful technical approach with a 98% win rate..and if you subscribe now they ll throw in bonus volumes. Heroes a hint...if you posses a true edge in the markets you would never share it with anyone, much less at the bargain price of 299 a year. Just as Ed will never tell anyone where a table of full of rich fish play lest the table become full of well off card sharps thereby ruining the game offering widespread dissemination of a market edge would eliminate the edge.James Simon, George Soros, Luis bacon, Paul tudor Jones...they dont write newsletters, they dont advetrise and they wont tell you how they trade. The really good ones don’t.
Another soft con cons from the main say and white shoe houses of the street. No direct commission.trust me on this one, I ve worked as a broker for 14 years now. There is always a fee. It may be well hidden..and the deeper its hidden, the higher it is. Back end loaded mutual funds, or better yet annuities that require a doctorate in finance to figure out how much all those bells and whistles are costing to you, special reofferings of stock. They are not free. None of us on the street will come to work for free, Some of us are nice guys but we are not benevolent institutions. There is a commission. You just have to find it..or better yet if you hear the no direct fee claim..hang up, walk away and forget the whole deal.
Bot the Sec and US treasury department have excellent web sites full of thoughts and ideas for avoiding fraud. The treasury’s section on Prime bank Loans should be read by anyone whoever invests for income and is getting frustrated by todays low rates. Read the information on these sites carefully. But, in reality it comes down to common sense.
Investing on the ground floor with someone you ve never met is almost always a quick trip to the financial basement.
Nothing is guaranteed.
There is always a fee.
No one who really knows of an easy poker game or successful market trading technique is going to tell you for any amount of money
There is no safe way to earn 20% a year.
Banks that pay everyone else 3% a year are not going to pay you 15% in a special deal engineered by the trilateral commission or anyone else.
You probably cant quit your job and become an instant day trading millionaire.
There is no free Lunch...and never play poker with a man named doc.
never Play poker with a man named Doc
3. Have an Edge
Any time you sit down a t a poker table or put on a trade, you need to do so with a strong indication that you will come away with more money that you used to buy in. We re not talking about a gut feel that you re really gonna get them this time, but a practical well thought out advantaged, one developed by testing and by experience that you can beat this game, or that this trade has a high probability of success. There are a lot of traders and card players we have met over the years who trade and play on what they call instinct or gut feel. Most of them are broke.
You need to have a testable tradable edge to persevere in the markets over long periods of time. You need to be one of the best players at a poker table...and know it before you sit down and post a blind or ante...to win over time. It is worth keeping in mind that you probably cant beat every game or trade every market.We hear tales of the great macro traders and think we should be able to trade all markets all the time and win. The stories of soros,druckenmiller, robertson, et al leave out the fact that they have 50 to 100 people on staff to help with the voluminous analysis that goes into shaping their success. One of the best S&P traders we know will not go near the bond or currency markets. A good friend is an extraordinary trader of small illiquid bank stocks. He cant value or trade an option if his life depends on it. A couple of good nights at the local game playing follow the queen and stud with 2s and one eyed jacks wild is not the basis for entering the World series of Poker. A good hold em player may not the best choice to win at Omaha eight or better.
Deciding which markets to trade and how you are going to trade them, or which games you are going to play and in what style, are the biggest decisions one must make in developing a playable edge.The skill set to trade indexes interday is completely different from that to trade liquidation arbitrage. The education needed to trade currencies is not the same as needed to trade equities. Traders who use technical analysis need to concentrate their attentions on studies a world apart from the fundamental investor. Quantitative analysts need to stay up the latest mathematical approaches and be ever aware of disappearing anomalies. In poker, winning at limit games does not automatically make you a no limit champion. Stud and Omaha with their community cards are a different animal than stud and low ball. To have an edge, one must specialize. One must study. One must practice and be ever alert for the developing overlay.
There will be times when markets give you and edge. Or a particular poker game is so inviting you must play. Last June, Ed described in detail the concept of finding and playing the edge, or overlay as he prefers to call it:
Normally don't like to announce victories, at the risk of coming across as a bragger, but I just beat the biggest game at the biggest poker room in the world this weekend, at my best poker game, Texas Hold'em, limit, so I thought I'd share part of the lesson that I think got me there, as it applies to trading.
Overlay, play, no overlay, well....
To win it can help to have lost, and then to despise the feeling. I played in the big game before and lost. Why talk of poker overlay, and how does it apply to trading????
Well, when I used to trade stock options, there where times when the action was well almost gluttonously scrumptious, and then often these times would be followed by a painful drought. Some traders stood with strong resolve, adjusting the interest rates in their models, fine-tuning their assumptions on volatility in their model, and then on a dragging slow day might even whip out their sheets and double-check trades and position inputs.
Other traders chose to laugh and giggle, or play distracting games and pranks, some even said that they'd buy some of this option or that, or maybe even put on a “delta’ or a sports bet with a buddy to entertain themselves, heck some went and had a puff of cannabis or a drink.
I bet you can guess which traders stayed in business and which traders lost. Why? They chose to just play, didn't want or have the patience to wait for an overlay.
So, I recall the pro who asked me a couple weeks ago if I had a twin high-stakes brother, when he saw me at the smaller stakes table, and I just laughed and said how ya doin’??
That weekend I made the same amount that I did this weekend, why, because the overlay was huge in the smaller game that weekend, and I was close to break-even in the big game, maybe a slight favorite, but just as likely a slight dog, so I chose not to play. Edge times volume equals profit. It feels good to be the winner at the biggest stakes table, it even cheered me up (had a rough personal week) when strangers came up to me and said what a big game you guys are playing, wow! And, seeing people looking at the stack of chips that I had felt as I imagine a little Prozac might too, but next week if the top players in the world decide to join the big game you won't see me there, if the overlay is in the 5/10 table that's where I'll be, laugh if you want, but I am happy playing my way, if others wish to take a "stab at the moon," or “play ‘just for fun,’” that's their prerogative, and it is fun when a beautiful lady looks at you in amazement when you’re playing in the big game with the most chips at the table in front of you, but I am fine playing the way I like to play, heck, the shirt I am wearing that I bought from making a few small profits
feels good overlaying me and well after last weekend the shirt isn't the only thing that will subside the laughter, I think next time I might get a few more respectful nods even if I do chose to play in a smaller game.
Back to trading. There were times when there were only a few small trades that I knew had edge, and so I played, but then people laughed when sometimes I would pass on the biggest trade of the day. They'd even look at me as if to say, how much did you make last month, and since I know you did why the heck are you “pussin’ out” on this trade?? Well, I left with the chips that year, and when no one was looking, I thanked god for the strength to fight victoriously as I looked at the Statue of Liberty by the then-still-standing-triumphantly World Trade Center, thinking back on the moment it felt how I imagine scoring a big goal in a big soccer match might feel, and makes me want to scream O' LAY!!!!!
Developing an edge takes time and effort. You are not going to be able to watch a couple of episodes of World Poker Tour and use your knowledge base to turn pro. Nor can you check out mass market books by self proclaimed trading experts from the local library and trade your way to millions over the next couple of weeks.Nor is a quick perusal of Buffetology going to make you a corn pone overfed liberal billionaire before your 40th birthday. Both of us spend hours per week after working studying our games. Tim reads dozens of corporate documents and runs countless simulations and tests of market conditions and reactions every day of every week. He also plays a few hours of poker a week and reads a book or two a month on the subject. Ed’s primary game is poker. He plays 25 to 30 hours a week and spends twice that much time studying and reviewing the game. He also works in time to study and review the equity and options market.The top traders we know, many of them successful beyond most peoples wildest dreams still take the time to read any new academic reports that are published, they update, review and rigorously test and retest their assumptions and beliefs. Developing an edge that allows one to play consistently well, to win more than you lose, requires commitment and effort. Those not willing to put in the time, to do the homework and testing should probably stick to mutual funds and neighborhood wild card games for penny stakes.
Military history is filled with dramatic gambles by great leaders..some such as D-Day and farragutt at new orleans paid off leading to great victories, others such as napoleins ill fated invasion of russia or picketts charge lead to equaly spectacular defeats.The history of warfare is filled with examples of commanders taking calculated risks to advance their position ,win battles and wars.The daring raid on trenton by an ourmanned our gunned and underfed infant american army under george washington did much to boost the sagging morlae of our fledgling nation and aloow tht e fight to continue on the road to eventual independence.george apttons mad dash across europe to reinforce the 101st airborne at the battle of the bulge pushed back the last germna attack of the war and shortened the war in europe by some many months.Erwin rommels calculated mad dashes across the desert earned respect as a military genius and the title odf desert fox.Rommell addressed the issue thusly in his writings “A gamble, on the other hand, is an operation which lead either to victory or to the complete destruction of one's force. Situations can arise where even a gamble may be justified ..."
Gambling is part of our history, or heritage., there is something about gambling in general and poker in patricular that fascinates us..Gambling and poker show in our culture as well, with such film classics as the hustler, cool hand luke,californai split, the sting, rounders,oceans 11,casiono and the cinncinati kid. Many of the James Bond movies have at least a portion of the film set in a csino as the suave mr bond sip martinis and indulges in games of chance and romance.Songs as well with segers ramblin gamblin man, kenny rodgers(of course) the gambler, lint balck and good run of bad luck,sinatras luck be a lady,merle haggarsds kentucky gambler/..the list of songs associated with gambling cards is extensive.Two of the greatest broadways plays of all it me, showboat and guys and dolls feature gambling as the center of the story. L:iterature as well is filled with gambling stories including the classicThe Gambler by Fyoder dostoyevsky , as well as countless popular novels by such as jackie collins, harold robbins and mario puzo. Many of american historian and wit, mark twains novels and short stories featured gambling as well.
Poker images, from the card rooms of the wild west, wild bill hickocks aces and 8’s deadmand s hand, a host of riverboat gamblers and roving card sharks, the best known being doc holliday with a deck of cards and six gun at the ready, harry truman playing poker with reporters while making the decision of the useof the atom bomb, Richard nixon earning a stake playing cards in the service, the games of poker and its variations show up throughour our history and our legends. There is something about betting your stake on the cards and your ability to read and out fox the others at the table that captures our imagination.Poker is played in sparkling new casinos, grungy roadside cardrooms, living rooms ,barrooms and everywhere in between across the unite states and indeed the world.
The fascination with poker continues to grow. The recent advent of the world poker tour televison series on the travel channel has been a huge success and interest in the annual world series of poker continues to grow with more entries into the main event each year.Recent books such as positively 4th street by mcmanus have made the new york times beastseler list. Entering the word poker into the yahoo internet serch engine returns over 6,2000,000 hits.Searching amzon.com for poker books returns a list of over 350 titles in stock and ready to ship.Poker has spread into the electronic age with card rooms online, and indeed an online player just beat some of the worlds best to become the world series of poker champion for 2003.
All games have rules. Some are complex, such as risk or dungeons and dragons. Most, like checkers, candyland, even chess and poker have fairly basic, simple rules. The very simplicity of the rules (candyland excepted..the basic rule of thumb here is that it is virtually impossible for anyone over the age of 6 to win this game., I have many memories of my daughter as a little girl with that viscous mischievous grin taunting” I win again daddy..I guess you re just not very good at this”) allow for extremely complex strategies. even chess, widely considered to be the most complex challenging games in the history of the world has a fairly basic set of rules governing how pieces may be moved and how victory is achieved or lost.Im sure some of you think perhaps checkers belong on the candyland list(you re probably the same ones who buy mutual funds because you think stocks are too risky). I suggest you read the immortal tom wisewells Science of Checkers or Draughts or walk into one of the old fashioned barber shops where old men still play and offer to play for cash. the rules of texas hold em for instance are very simple:
The basic principle behind Texas Hold'em Poker is that each player gets only two cards (which only he can see). The winner is the one of the remaining players at the end who can put together the best five-card poker hand as a combination of his two cards and five open cards (so-called "community cards") on the table.
The rules of trading markets are also very simple. You can buy. You can sell. You can sell short. You can trade, stocks, bonds , futures options.The mechanics of opening accounts and entering orders is fairly simple and straightforward. Any idiot can do it and indeed as we saw in the late 1990s, many of them already have.
Most of these games, simple as the rules my be, have also developed complex playing strategies as well as proverbs and cautionary tales that govern the game and distinguish the weak and the strong players. Walk into the average book store and look in the games and gambling section. There are dozens of books on chess, poker,backgammon and virtually any other game you can think. Different authors suggest different strategies and tell different stories of famous games and the players therein. Now walk over to the investing section. Here we have hit the jackpot of contradictory opinion. There are thousands of books, each espousing a different method of playing a simple game. Everyone has an opinion, and they all seem to be different. Graham doesn’t agree with prechter who doesn’t agree with buffet who doesn’t agree with elder and Niederhoffer doesn’t agree with any of them.
Both poker and investing share some maxims in common and we think its important to delve into a few of these shared concepts and proverbs. First however I want to make clear as we move along that neither of the authors feel that trading and investing is gambling when defined as most do. When we sit down to play we are not betting on outcomes we believe to be uncertain or strictly up to the fates. Drawing heavily on theories of probabilities, the use of statistics and practical experience whether playing at the 10-20 table at the mirage or entering orders for S&P futures or small cap stocks, we expect to win over time. When walking into a casino,most of the games are stacked against the player and it is virtually y impossible to beat over time the games of craps, roulette, keno or baccarat over time. They are games of pure chance with a mathematical edge for the house. The edge,even when small will grind you into dust..dust with no cash at that, over time.It is amazing to me that books are sold on how to win a t roulette, at craps,(ever want a free room in Vegas, just tell them you re there to play your new roulette or crap system)even at such statistically challenged cash killers as keno(know the safest place to stand if a casino roof ever collapses while you re there? The keno parlor, nothing ever hits there).,slots(friendly slots only pay back 98 cents of every dollar bet..you do the math) and lotto when from a pure math point of view, all you can ever hope to do over time is minimize the bleeding. Only poker and blackjack create the possibility of an edge over time for the player. As one of us is barred from damn near every casino on the planet for counting cards and the other is too lazy to memorize all the possible card combinations and track the count, finding memorizing the top 10 or 15 hold em hands to be easier, we shall concentrate on poker.it is our firmly held belief..and we bet our livelihood and our lives on it pretty much on a daily basis that both poker and markets can be beaten consistently by a combination of math and psychology. Further we believe that with study and practice the skills needed can be learned and mastered, As much as this book is an attempt to educate you, the reader on some of the things we have discovered in card rooms and trading floors, it is also a continuing step in our educational process and continuing effort to improve our game.It is no accident that great traders and investors such as buffet ( simple homespun image be damned, the man is a mathematical genius and heavy trader of distressed and arbitrage situations. Apparently his 20 punch card for a lifetime homily doesn’t apply to him), soros,druckenmiller, both the niederhoffers, roy and victor,tudor jones, brett hull have much in common with great poker traders such as doyle brunson,david slansky,phil hellmuth,johhny moss,andAmarillo slim. It is a thorough understanding of the odds and how other participants in the game perceive the odds that has made them succesful.We are always aware that like tax laws, the laws of probability are very bendable and we will experience streaks that defy the numbers. There will be bad beats ,poor players will fill an impossible gut shot draw on the river, someone will hold pocket aces to our pocket kings, treasury secretaries will say regrettably and fed chairman will mention irrational exuberance and the Enron’s of the world will trap us at times. But we play with faith in our research and the basic concept of reversion to the mean, knowing that in the end knowing the game and the players, the odds will be in our favor.
The first maxim we want to look at it as it applies to trading and poker is one of the most important. NEVER GAMBLE THE RENT MONEY. This should be self explanatory. The only thing harder than dragging home at 2 am and explaining to the wife you lost the rent money or mortgage payment playing cards would be explaining that your brilliant combination of Enron, WorldCom and the internet fund has lost the kids college fund and most of your retirement as well(you might as well do this one at 2am as well. When she finds out she’s working the late shift at Denny until she’s 73 to pay tuition, you re a dead man anyway. Stopping at the bar for some liquid courage and preventative pain killers would be the only right choice here).It is highly suggested that some basic planning be done before trading or playing cards as a for profit enterprise.
Some will try to try to convince you that you need..drum roll please...a financial plan. Merrill Lynch, American express. Morgan Stanley and most other firms will be happy to sell you for 300 or so bucks a nice plan with charts,graphs, projections and strategies. Just because yours looks just like the family next doors and all the suggestion involve products manufactured and sold by the firm in question makes them, in their mind, no less valuable. I might however, beg to differ. 15 years experience on the sell side of the investment industry, including a stint as a financial planner in my misspent and uneducated youth,have taught me one universal truth about financial plans. They are sales tool, designed to relax the buyer, create an atmosphere of trust and gain access to complete information about where your money is so it can be relocated. One of the best defintiotn of the process I have ever seen was in aols dilbert crtoon in which ratbert describes financial planning as the transfer of useless assets to valuable commission dollars .The last few years should have taught us all that most projections based on current conditions are worthless and the long term future is unknowable.There are exceptions to this statement of course, but as a rule it holds up more often than not. We hate to be general in nature, but for most of us a good plan comes down to a few simple steps:
if you have a spouse, kids and a mortgage, for gods sake..or more accurately for theirs, but life insurance, lots of it. Enough to pay for college,pay off the house and replace your income at 5% interest. Its hard enough to loose a loved one and have to raise children alone in the world without worrying about how you re going to pay for it all. I f your divorced, have enough to give your kids the life they deserve even if you should pass early. It would be nice to deprive the ex of the income and support money but its not fair to the kids. Term Insurance is cheap so you buy lots of it.
I f you have kids, set aside a college fund and put money into it every month, There are many options for doing this on a tax favored basis. Don’t pay someone 100 bucks an hour to review them,. The internet is a wonderful place and has all the answers you need. You use low rate of return assumptions and invest them money religiously.
Have a budget. Keep in track of the money flowing in and out of the household. Your not always going to stick to it but be aware of where and why you deviate from. Keeping track of how much you spend and where, finding and eliminating wasteful spending is critical to long term financial success for most of us. Bill gates might not need a household budget, you do.
I f you have a 401k at work, put in the max allowed pre tax, This helps meet two major goals..lowering taxes and funding retirement. If you don’t, put as much into Roth IRAs and IRAs as you can afford. Retirement will happen some day, or at least we hope it will. The federal government has generously provided several tax favored way to save for this event. Use them
Also make use of any benefits offered by your employer for paying medical insurance, daycare and other expense on a pretax basis. Read the tax booklet they send you every January and take every deduction and credit you are eligible to take. Less tax is better, Always.
Establish a reserve fund.A few months expenses in the bank makes a good shield against the unexpected. Layoffs happen, roofs leak, cars breakdown, and medical emergencies may occur. Even worse they my happen to your spouse favorite siblings obnoxious spouse. Better you have few extra bucks to send them than they come live with you until the storm blows over..which of course is two days short of never. Save some money, put in a bank, get the best available but dont obsess about it. The goal here is liquidity and security.
.Tim’s immutable law of personal finance..Life is short. When doing your budget, overestimate leisure expense and include a line item for vacations every year, especially if you’re married.NO date nights, time together and no fun makes live a rather boring, dull affair..somehow I doubt the point of our existence.We need time to enjoy life and quality time with those we love To save like a squirrel and then drop dead before you can enjoy it is pointless.your widower or widower should not have more fun after you die than you did before. This happens to more of us than we like to think If you re single include money for dates. The month you do not include money for dates you will meet the person of your dreams and not have enough money to buy him or her a drink and she ll leave with the muscle bound with capped teeth, or the buxom blonde with too tight jeans and an extra twenty to spend .
There will be exceptions to the above. If you have inheritance issues, property transfer concerns, a large percentage of your net worth in a closely held business there are issues where you are going to need professional help. If the issue is too complex to understand, get help. If you re losing sleep over whether or not you ve done it right, get help. Interview the professionals you need, attorneys accountants, financial services providers, maybe even a life insurance agent. Just make sure the person on commission ( I can say this, I earn my living from commission. The salesperson should not drive the process) does not lead the process or formulate the plan. You my need their products or expertise to implement your plan but let the lawyers and accountants ..the hourly or flat rate guys...formulate the strategy.
2. ne The author nelson Algren penned the saying as one of his original rules for life... Never play cards with a man called Doc. Never eat at a place called Mom's. Never sleep with a woman whose troubles are worse than your own. It seems that in days of yore, the good doc always had a card or two up his sleeve or some other trick to separate you from your cash by less than totally honest means. The other axioms we shall leave alone for now, except to verify that the gastronomic damage done in a road side joint named Moms is the blue light special of stomach disorders. And as all the authors problems are usually generated by the fairer sex, we have never found one who has less troubles than ourslelves..not being infatuated by the celibate life, we choose to ignore that particular rule.
It will shock you to find out that their are people out there who want your money. They dont want to work for it, trade for it, or even gamble for it. They just want to take it by whatever means necessary. They will cheat, they will lie, they will withhold information, feed your greed, exploit your fear, and in the end they will steal your money if you are not ever vigilant.
For some reason, involving I am sure some strange twist of the american psyche, we tend to glamorize con artists. Films such as The Sting,catch me if you can, paper moon, the Hustler, and color of money show us the fast talking but basically good hearted operator. In the Music man, we celebrate the con artist who reforms in the name of love.there is something about the living by your wits, outsmarting the world character that appeals to us. It is however a lot less appealing when it is your money that disappears and skips out of town.
Federal and local government spend millions of hours and dollars trying to educate the public and track down fraudulent operators. Yet, year in and year out billions re pilfered by tricksters who separate us from our cash with promises of high yields and fast profits. Its not trouble with a capital T that rhymes for P which stands for pool that they warn us of but coming global economic collapse and the need for precious metals, low bank yields when by using little known techniques of the rothschilds and Rockefellers we can get prime bank notes yielding 18%...sometimes a month. The claims are ludicrous and rarely hold up to investigation but the old twins of human psychology, fear and greed suspend our disbelief and send us to the mailbox checkbook in hand.For some reason, no matter how many articles are printed or how often the sixty minutes people show us the ins and outs of cons, investors still send their checks to modern day versions of Professor Harold Hill.
There are some basic things you can and should do to prevent being taken in by the professor and his friends...after all you cant count on Shirley Jones to always save us from our baser instincts. For starters..if it is too good to be true, its too good to be true. There is no free lunch, There is no super secret investment plan used by the rothschilds that is available to you for a low-low price. There is no trading methodology beyond blind luck that can turn your 2000 into 2 million in two weeks or less. The Us treasury does not have a secret trading room now magically available to you and your 3 grand. No one in Nigerai is going to share their 33 million dollars of oil money stolen form a corrupt and evil dictator with you. Its not going to happen and after you send in the money, robert redford going to clean up the fake blood and he and Paul newman are leaving town with your dough never to be heard from again..until the sequel in anew town with a new name.
The internet is the source and home of a lot of todays new scams. Using the anonymity of message boards and email, worthless shares are touted as the next microsoft.every day it seems I get several offers to teach me the secrets of investing, build unlimited wealth and increase my penis size overnight. One is as likely as the other to be a successful venture.
Use your common sense and do your homework. Investigate before you invest. Realize that you probably do not need to invest in cattle breeding, Guatemalan llama farms or secret energy sources.The SEC suggest that if you see an offer on the internet, it is best to assume it is a fraud..their guidelines reproduced here give excellent suggestions for avoiding high tech modern fraud:
Avoiding Internet Investment Scams: Tips for Investors
You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet – whether it's on a company's website, in an online newsletter, on a message board, or in a chat room – you should assume it's a scam until you've done your homework and proven otherwise.
Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking – and getting answers to – these three simple questions:
Is the investment registered?
To find out, check the SEC's EDGAR database. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator. You'll find that number in the government section of your phone book. Or call the North American Securities Administrators Association (NASAA) at (202) 737-0900 or visit NASAA's website.
Many online investment scams involve unregistered securities. But the fact that a company has registered and files reports with the SEC doesn't guarantee that the company will be a good investment. Likewise, the fact that a company hasn't registered and doesn't file reports with us doesn't mean the company is a fraud. You may be asking for serious losses if you invest in a small, thinly traded company that isn't widely known solely on the basis of what you read on a bulletin board posting or saw in an online newsletter. One simple phone call o your state regulator could prevent you from squandering your money on a scam.
Is the person licensed and law-abiding?
Find out if the person or firm selling the investment needs to be licensed. Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. You can also get this information by calling NASD's public disclosure hotline at (800) 289-9999 or visiting their website.
Does the investment sound too good to be true?
If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. Watch out for claims of astronomical yields in a short period of time. Be skeptical of "off-shore" or foreign investments. And beware of exotic or unusual sounding investments, especially those involving so-called "prime bank" securities. To learn more about "prime bank" securities, visit the Division of Enforcement's Prime Bank Fraud Information Center on our website.
Make sure you fully understand the investment before you part with your hard-earned money. Always ask for – and carefully read – the company's prospectus and latest financial statements.
In addition to the outright con, one must be ever diligent to avoid what I call the soft con. The legions of newsletter writers, gurus prophets and pundits who for 299 dollars a year will give you he secrets to investing as handed down by either WD gann or god his own self, use the stars to predict the paths of the markets or have some super successful technical approach with a 98% win rate..and if you subscribe now they ll throw in bonus volumes. Heroes a hint...if you posses a true edge in the markets you would never share it with anyone, much less at the bargain price of 299 a year. Just as Ed will never tell anyone where a table of full of rich fish play lest the table become full of well off card sharps thereby ruining the game offering widespread dissemination of a market edge would eliminate the edge.James Simon, George Soros, Luis bacon, Paul tudor Jones...they dont write newsletters, they dont advetrise and they wont tell you how they trade. The really good ones don’t.
Another soft con cons from the main say and white shoe houses of the street. No direct commission.trust me on this one, I ve worked as a broker for 14 years now. There is always a fee. It may be well hidden..and the deeper its hidden, the higher it is. Back end loaded mutual funds, or better yet annuities that require a doctorate in finance to figure out how much all those bells and whistles are costing to you, special reofferings of stock. They are not free. None of us on the street will come to work for free, Some of us are nice guys but we are not benevolent institutions. There is a commission. You just have to find it..or better yet if you hear the no direct fee claim..hang up, walk away and forget the whole deal.
Bot the Sec and US treasury department have excellent web sites full of thoughts and ideas for avoiding fraud. The treasury’s section on Prime bank Loans should be read by anyone whoever invests for income and is getting frustrated by todays low rates. Read the information on these sites carefully. But, in reality it comes down to common sense.
Investing on the ground floor with someone you ve never met is almost always a quick trip to the financial basement.
Nothing is guaranteed.
There is always a fee.
No one who really knows of an easy poker game or successful market trading technique is going to tell you for any amount of money
There is no safe way to earn 20% a year.
Banks that pay everyone else 3% a year are not going to pay you 15% in a special deal engineered by the trilateral commission or anyone else.
You probably cant quit your job and become an instant day trading millionaire.
There is no free Lunch...and never play poker with a man named doc.
never Play poker with a man named Doc
3. Have an Edge
Any time you sit down a t a poker table or put on a trade, you need to do so with a strong indication that you will come away with more money that you used to buy in. We re not talking about a gut feel that you re really gonna get them this time, but a practical well thought out advantaged, one developed by testing and by experience that you can beat this game, or that this trade has a high probability of success. There are a lot of traders and card players we have met over the years who trade and play on what they call instinct or gut feel. Most of them are broke.
You need to have a testable tradable edge to persevere in the markets over long periods of time. You need to be one of the best players at a poker table...and know it before you sit down and post a blind or ante...to win over time. It is worth keeping in mind that you probably cant beat every game or trade every market.We hear tales of the great macro traders and think we should be able to trade all markets all the time and win. The stories of soros,druckenmiller, robertson, et al leave out the fact that they have 50 to 100 people on staff to help with the voluminous analysis that goes into shaping their success. One of the best S&P traders we know will not go near the bond or currency markets. A good friend is an extraordinary trader of small illiquid bank stocks. He cant value or trade an option if his life depends on it. A couple of good nights at the local game playing follow the queen and stud with 2s and one eyed jacks wild is not the basis for entering the World series of Poker. A good hold em player may not the best choice to win at Omaha eight or better.
Deciding which markets to trade and how you are going to trade them, or which games you are going to play and in what style, are the biggest decisions one must make in developing a playable edge.The skill set to trade indexes interday is completely different from that to trade liquidation arbitrage. The education needed to trade currencies is not the same as needed to trade equities. Traders who use technical analysis need to concentrate their attentions on studies a world apart from the fundamental investor. Quantitative analysts need to stay up the latest mathematical approaches and be ever aware of disappearing anomalies. In poker, winning at limit games does not automatically make you a no limit champion. Stud and Omaha with their community cards are a different animal than stud and low ball. To have an edge, one must specialize. One must study. One must practice and be ever alert for the developing overlay.
There will be times when markets give you and edge. Or a particular poker game is so inviting you must play. Last June, Ed described in detail the concept of finding and playing the edge, or overlay as he prefers to call it:
Normally don't like to announce victories, at the risk of coming across as a bragger, but I just beat the biggest game at the biggest poker room in the world this weekend, at my best poker game, Texas Hold'em, limit, so I thought I'd share part of the lesson that I think got me there, as it applies to trading.
Overlay, play, no overlay, well....
To win it can help to have lost, and then to despise the feeling. I played in the big game before and lost. Why talk of poker overlay, and how does it apply to trading????
Well, when I used to trade stock options, there where times when the action was well almost gluttonously scrumptious, and then often these times would be followed by a painful drought. Some traders stood with strong resolve, adjusting the interest rates in their models, fine-tuning their assumptions on volatility in their model, and then on a dragging slow day might even whip out their sheets and double-check trades and position inputs.
Other traders chose to laugh and giggle, or play distracting games and pranks, some even said that they'd buy some of this option or that, or maybe even put on a “delta’ or a sports bet with a buddy to entertain themselves, heck some went and had a puff of cannabis or a drink.
I bet you can guess which traders stayed in business and which traders lost. Why? They chose to just play, didn't want or have the patience to wait for an overlay.
So, I recall the pro who asked me a couple weeks ago if I had a twin high-stakes brother, when he saw me at the smaller stakes table, and I just laughed and said how ya doin’??
That weekend I made the same amount that I did this weekend, why, because the overlay was huge in the smaller game that weekend, and I was close to break-even in the big game, maybe a slight favorite, but just as likely a slight dog, so I chose not to play. Edge times volume equals profit. It feels good to be the winner at the biggest stakes table, it even cheered me up (had a rough personal week) when strangers came up to me and said what a big game you guys are playing, wow! And, seeing people looking at the stack of chips that I had felt as I imagine a little Prozac might too, but next week if the top players in the world decide to join the big game you won't see me there, if the overlay is in the 5/10 table that's where I'll be, laugh if you want, but I am happy playing my way, if others wish to take a "stab at the moon," or “play ‘just for fun,’” that's their prerogative, and it is fun when a beautiful lady looks at you in amazement when you’re playing in the big game with the most chips at the table in front of you, but I am fine playing the way I like to play, heck, the shirt I am wearing that I bought from making a few small profits
feels good overlaying me and well after last weekend the shirt isn't the only thing that will subside the laughter, I think next time I might get a few more respectful nods even if I do chose to play in a smaller game.
Back to trading. There were times when there were only a few small trades that I knew had edge, and so I played, but then people laughed when sometimes I would pass on the biggest trade of the day. They'd even look at me as if to say, how much did you make last month, and since I know you did why the heck are you “pussin’ out” on this trade?? Well, I left with the chips that year, and when no one was looking, I thanked god for the strength to fight victoriously as I looked at the Statue of Liberty by the then-still-standing-triumphantly World Trade Center, thinking back on the moment it felt how I imagine scoring a big goal in a big soccer match might feel, and makes me want to scream O' LAY!!!!!
Developing an edge takes time and effort. You are not going to be able to watch a couple of episodes of World Poker Tour and use your knowledge base to turn pro. Nor can you check out mass market books by self proclaimed trading experts from the local library and trade your way to millions over the next couple of weeks.Nor is a quick perusal of Buffetology going to make you a corn pone overfed liberal billionaire before your 40th birthday. Both of us spend hours per week after working studying our games. Tim reads dozens of corporate documents and runs countless simulations and tests of market conditions and reactions every day of every week. He also plays a few hours of poker a week and reads a book or two a month on the subject. Ed’s primary game is poker. He plays 25 to 30 hours a week and spends twice that much time studying and reviewing the game. He also works in time to study and review the equity and options market.The top traders we know, many of them successful beyond most peoples wildest dreams still take the time to read any new academic reports that are published, they update, review and rigorously test and retest their assumptions and beliefs. Developing an edge that allows one to play consistently well, to win more than you lose, requires commitment and effort. Those not willing to put in the time, to do the homework and testing should probably stick to mutual funds and neighborhood wild card games for penny stakes.
old stuff worth saving
An interesting occurrence this weekend while sitting in a Louisville
Kentucky airport. After my mad dash through the incredibly scenic Kentucky
horse country, pushing the purple pt cruiser to the max speed so as to make
my flight..I was of course 2 hours early and had substantial time to kill
idling away in the airport. I grabbed a large coffee and sat down with my
mindless mental popcorn of a novel and settled in for the wait. Just in
front of me was an elderly couple…with apologies to friend Yale, they were
both above the 80 mark. As their conversation drifted back to me, I
carefully marked my place in the book and set back to observe. It was like
watching On Golden Pond with a Kentucky draw. Who had the tickets?.did you
remember to call Bill-uh( Im reasonably certain this is Kentuckian for
Billy) to pick us up at the airport? I f you could stay up past 8:00 we
could have visited with johnsoons( again I believe this to be Johnson)
awhile longer. It went on aim, fire, nag back and forth. It was only when
one looked closely that you realized that not only were they smiling the
whole time..they were holding hands. After a bit, she announced that some
coffee shure would take the edge of all this sittin. He snorted and informed
her that she best have a cup in her pockey book( again, loosely translated
as pocket book) cause he wasn’t dragging his old bones all the way down the
tuhminal(terminal) just to make her happy. All this said of course as he was
rising with the attendant snap crackle and pop of old bones unfolding…..I
leaned forward and asked their pardon for overhearing but as I was little
under caffeinated and empty cupped myself, I would be more than happy to
bring her back a cup. …The old gentleman smiled with dancing eyes said..well
thank you young felluh(fellow) but Im believe it ll taste better if I
git(get) if fuh(for) her myself. The look she gave him then of
absolute..adoration is the wrong word as that implies a certain level of
inequality…but fondness, dedication contained all the love and memories of
all the years together..now I could be wrong..hell he may have picked her up
in the airport bar but you got the sense that they had been together across
the decades, raising bill-uh and the other kids and came out the other side
still in love…and still friends. I saw this..I call it a phenomenon... once
before while sitting on the beach in Ocean City Maryland one summer mid
morning years ago when an elderly couple, he complete in Bermuda shorts,
black socks and open sandals, her in a purple sundress of the early American
housecoat variety and red tennis shoes, strolling down the beach..or more
accurately shuffling as they were breaking no speed records for any age
class…this was one of the spectacular summer days you occasionally get at
the eastern seaboard beaches , bright sunshine skipping across the breaking
surf like diamonds cast by the hands of a laughing god, dolphins frolicking
just past the surf line like teenage boys in the midst of a hormonal surge
trying to impress similarly surging bikini clad maidens on the shore. They
saw none of this, only each other.
Which of course brings me to the point of the post….Vic has on numerous
occasions referred to the relationships between sex, human relationships and
speculation. Dr Brett has commented on past occasions ion the impact of
domestic bliss and personal satisfaction.or the lack thereof..on performance
in other endeavors such as trading. I think that In this area, one that is a
critical component of personal happiness, we are operating on flawed
models.Look for a moment at the great examples of romance in
fiction…Cinderella, the ordinary girl transformed and running off with the
prince. Very nice idea..provided of course you have handy a fairy god mother
who can do realty creative things with pumpkins and mice( and I am prety
sure the ASPCA would have something to say about this)..and weaving a
gorgeous gown out of straw would seem to be another talent required for this
scenario to play out. I have not seen any fairy godmothers of late and I m
reasonably certain that if any exist they are in San Francisco marching in
support of same magic marriage.And Please…what were romeo and Juilet except
a couple of puppy love struck teenagers intent on defying their
parents?Prince charming perhaps, dashing in on his white steed to save the
damsel in distress? In this day of womens lib and litigation, our prince
stands a good chance of being hated and resented by the damsel, and even if
she is properly appreciative the lawsuits, in this day when malefactors may
freely sue those injure them and prevent the completion of their dastardly
deeds, would force our happy couple to hock the armor and sell the horse for
legal fees..to say nothing of the fines for befouling the streets with
animal leavings from aforementioned steed.
Being part of what is demographically called the middle aged divorce crowd,
I often see these failed models working out in the great American laboratory
known as the cocktail lounge, bar or pub. The young lady who professes to
value a sense of humor, kindness affection and romance will quite often
leave the bar with the lounge lizard who looks like Richard Gere, or the
overly muscled steroid biker freak with the long hair and willl then spend
long hours lamenting these these failed relationships over white wine and
cosmopolitans. Men are the worst here. In our desire for companionship, sex
and romance we are a sucker for the surgically enhanced temptress,long hair,
long legs and parts that do things the creator never meant parts to do…..We
forget so often that those who are appealing to the base desires, who dress
to look the part of the dream are most often looking to do exactly that…to
tempt us to do something we should not for reasons we usually would not and
its much more about their desires than ours…the muscle happy freak and larry
the lounge lizard are looking to get laid…the tight jeaned barroom queen of
our dreams, in my experience is looking for this months visa card payment
and a move up apartment. Those who initially profess interest in something
more meaningful fall into their traps and find all the attendant miseries.
Everytime I have allowed a gin soaked brain to fall for a cosmetic package
that took my breath away…my wallet usually followed my breath. While all the
while their sits a decent respectable guy out with his buddies who would
like nothing more than to fall in love with the right girl and end up in a
Louisville airport in 30 or 40 years, arthritically shuffling for his
beloveds coffee, and an attractive women sits..without the surgical
improvement, dressed in clothes that actually fit but with more flashing
behind her eyes than even she realizes who only desires the right man and
dreams of wearing purple sundress and red tennis shoes on the beaches of her
future…..
How often do we see these failed models play out in markets and trading?
Looking for a reliable, testable approach to trading and investing, we fall
instead for the sexy temptations of the market mistress with her curvaceous
breakout system, enticing us with her tightly fitting equity curves….the
soft seductive whisper of a hot tip..episodes of passionate day trading
leaving one spent..and broke? Searching for solutions and patterns that are
reliable, how often do we leave instead with larry the mkt lizard and his
sophisticated looking systems and bright repartee of research reports only
to find ourselves waking up alone yet again, another notch on the gun belt
of the go-go boys, in need of a cleansing shower and a cash infusion? We
carefully lay out our criteria, structure out systems, define what we are
looking for and in the great barroom of the market place, the mistress and
her companions induce the hormonal surge of flashy profits, instant
success,seductive hot tips, bulging muscular stocks sure to go to 100 and
split,slick sophisticated trading systems containing secrets only the pros
know?
I m reasonably sure that is the sign of unbalanced mind to be able to take
one moment of time in an airport, a moment that seemingly defines romance,
perhaps more along the tracey/ hepburn model of contentious companionship,
bright exchanges of ideas and thoughts, passion fueled by intellect not a
loin induced surge of chemicals driving our booze fueled brains to chase an
illusion, than the traditional swooning, heaving bosom variety that we have
been sold for decades..and turn it into a philosophical thought about we so
often fail in the markets..but the similarities are there. Instead of the
steady profits and high probability trades of mean reversion and
contranianism, we chase the big bang of trend following and breakouts..we
ignore the obvious in front of us because it may involve hours testing and
researching our conclusions( you know..work) in favor of gaudy packaged
approaches and wade cookish bestsellers on becoming millionaires in a few
hours of mad cap trading……the right answers are there with smiling eyes full
of promises of long term success if only we avoid the golden temptress, the
muscle bound playboy and the temptation of instant happiness for the long
term…..and perhaps someday we do shall all do the metaphorical shuffle
Kentucky airport. After my mad dash through the incredibly scenic Kentucky
horse country, pushing the purple pt cruiser to the max speed so as to make
my flight..I was of course 2 hours early and had substantial time to kill
idling away in the airport. I grabbed a large coffee and sat down with my
mindless mental popcorn of a novel and settled in for the wait. Just in
front of me was an elderly couple…with apologies to friend Yale, they were
both above the 80 mark. As their conversation drifted back to me, I
carefully marked my place in the book and set back to observe. It was like
watching On Golden Pond with a Kentucky draw. Who had the tickets?.did you
remember to call Bill-uh( Im reasonably certain this is Kentuckian for
Billy) to pick us up at the airport? I f you could stay up past 8:00 we
could have visited with johnsoons( again I believe this to be Johnson)
awhile longer. It went on aim, fire, nag back and forth. It was only when
one looked closely that you realized that not only were they smiling the
whole time..they were holding hands. After a bit, she announced that some
coffee shure would take the edge of all this sittin. He snorted and informed
her that she best have a cup in her pockey book( again, loosely translated
as pocket book) cause he wasn’t dragging his old bones all the way down the
tuhminal(terminal) just to make her happy. All this said of course as he was
rising with the attendant snap crackle and pop of old bones unfolding…..I
leaned forward and asked their pardon for overhearing but as I was little
under caffeinated and empty cupped myself, I would be more than happy to
bring her back a cup. …The old gentleman smiled with dancing eyes said..well
thank you young felluh(fellow) but Im believe it ll taste better if I
git(get) if fuh(for) her myself. The look she gave him then of
absolute..adoration is the wrong word as that implies a certain level of
inequality…but fondness, dedication contained all the love and memories of
all the years together..now I could be wrong..hell he may have picked her up
in the airport bar but you got the sense that they had been together across
the decades, raising bill-uh and the other kids and came out the other side
still in love…and still friends. I saw this..I call it a phenomenon... once
before while sitting on the beach in Ocean City Maryland one summer mid
morning years ago when an elderly couple, he complete in Bermuda shorts,
black socks and open sandals, her in a purple sundress of the early American
housecoat variety and red tennis shoes, strolling down the beach..or more
accurately shuffling as they were breaking no speed records for any age
class…this was one of the spectacular summer days you occasionally get at
the eastern seaboard beaches , bright sunshine skipping across the breaking
surf like diamonds cast by the hands of a laughing god, dolphins frolicking
just past the surf line like teenage boys in the midst of a hormonal surge
trying to impress similarly surging bikini clad maidens on the shore. They
saw none of this, only each other.
Which of course brings me to the point of the post….Vic has on numerous
occasions referred to the relationships between sex, human relationships and
speculation. Dr Brett has commented on past occasions ion the impact of
domestic bliss and personal satisfaction.or the lack thereof..on performance
in other endeavors such as trading. I think that In this area, one that is a
critical component of personal happiness, we are operating on flawed
models.Look for a moment at the great examples of romance in
fiction…Cinderella, the ordinary girl transformed and running off with the
prince. Very nice idea..provided of course you have handy a fairy god mother
who can do realty creative things with pumpkins and mice( and I am prety
sure the ASPCA would have something to say about this)..and weaving a
gorgeous gown out of straw would seem to be another talent required for this
scenario to play out. I have not seen any fairy godmothers of late and I m
reasonably certain that if any exist they are in San Francisco marching in
support of same magic marriage.And Please…what were romeo and Juilet except
a couple of puppy love struck teenagers intent on defying their
parents?Prince charming perhaps, dashing in on his white steed to save the
damsel in distress? In this day of womens lib and litigation, our prince
stands a good chance of being hated and resented by the damsel, and even if
she is properly appreciative the lawsuits, in this day when malefactors may
freely sue those injure them and prevent the completion of their dastardly
deeds, would force our happy couple to hock the armor and sell the horse for
legal fees..to say nothing of the fines for befouling the streets with
animal leavings from aforementioned steed.
Being part of what is demographically called the middle aged divorce crowd,
I often see these failed models working out in the great American laboratory
known as the cocktail lounge, bar or pub. The young lady who professes to
value a sense of humor, kindness affection and romance will quite often
leave the bar with the lounge lizard who looks like Richard Gere, or the
overly muscled steroid biker freak with the long hair and willl then spend
long hours lamenting these these failed relationships over white wine and
cosmopolitans. Men are the worst here. In our desire for companionship, sex
and romance we are a sucker for the surgically enhanced temptress,long hair,
long legs and parts that do things the creator never meant parts to do…..We
forget so often that those who are appealing to the base desires, who dress
to look the part of the dream are most often looking to do exactly that…to
tempt us to do something we should not for reasons we usually would not and
its much more about their desires than ours…the muscle happy freak and larry
the lounge lizard are looking to get laid…the tight jeaned barroom queen of
our dreams, in my experience is looking for this months visa card payment
and a move up apartment. Those who initially profess interest in something
more meaningful fall into their traps and find all the attendant miseries.
Everytime I have allowed a gin soaked brain to fall for a cosmetic package
that took my breath away…my wallet usually followed my breath. While all the
while their sits a decent respectable guy out with his buddies who would
like nothing more than to fall in love with the right girl and end up in a
Louisville airport in 30 or 40 years, arthritically shuffling for his
beloveds coffee, and an attractive women sits..without the surgical
improvement, dressed in clothes that actually fit but with more flashing
behind her eyes than even she realizes who only desires the right man and
dreams of wearing purple sundress and red tennis shoes on the beaches of her
future…..
How often do we see these failed models play out in markets and trading?
Looking for a reliable, testable approach to trading and investing, we fall
instead for the sexy temptations of the market mistress with her curvaceous
breakout system, enticing us with her tightly fitting equity curves….the
soft seductive whisper of a hot tip..episodes of passionate day trading
leaving one spent..and broke? Searching for solutions and patterns that are
reliable, how often do we leave instead with larry the mkt lizard and his
sophisticated looking systems and bright repartee of research reports only
to find ourselves waking up alone yet again, another notch on the gun belt
of the go-go boys, in need of a cleansing shower and a cash infusion? We
carefully lay out our criteria, structure out systems, define what we are
looking for and in the great barroom of the market place, the mistress and
her companions induce the hormonal surge of flashy profits, instant
success,seductive hot tips, bulging muscular stocks sure to go to 100 and
split,slick sophisticated trading systems containing secrets only the pros
know?
I m reasonably sure that is the sign of unbalanced mind to be able to take
one moment of time in an airport, a moment that seemingly defines romance,
perhaps more along the tracey/ hepburn model of contentious companionship,
bright exchanges of ideas and thoughts, passion fueled by intellect not a
loin induced surge of chemicals driving our booze fueled brains to chase an
illusion, than the traditional swooning, heaving bosom variety that we have
been sold for decades..and turn it into a philosophical thought about we so
often fail in the markets..but the similarities are there. Instead of the
steady profits and high probability trades of mean reversion and
contranianism, we chase the big bang of trend following and breakouts..we
ignore the obvious in front of us because it may involve hours testing and
researching our conclusions( you know..work) in favor of gaudy packaged
approaches and wade cookish bestsellers on becoming millionaires in a few
hours of mad cap trading……the right answers are there with smiling eyes full
of promises of long term success if only we avoid the golden temptress, the
muscle bound playboy and the temptation of instant happiness for the long
term…..and perhaps someday we do shall all do the metaphorical shuffle
Thursday, September 14, 2006
its over
As I sit here at the close of a business day with long coal stocks and short puts on same running out of my ears and splashing red all over the p&l(this of course gives me great confidence in the trade. When you buy the beat up stuff I do it always starts this way), I gaze out the window through the dreary rainy afternoon and contemplate the fast approaching end of the summer. Sunday ends the season and we move into fall. Now, I know the astronomy buffs, physicists and scientists here will attempt to patiently explain to me that summer ends with the equinox on the 21st. To which I reply firmly and with great vigor, balderdash. Any true n’er do well adventurous sort here in the mid Atlantic knows that summer ends the thirdSunday of September at around 5:00 when kirk from 98rock hip hops on to the stage and the bikini contest finals kick off at redeye’s dock bar. It will be packed as always with the bikers, the locals, the tourists and of course we dedicated locals, the few, the proud, the intoxicated. We ll raft up the go fasts off the gas dock unless you re one of the lucky ones with a slip at the marina, we’ll have one last summer time Sunday afternoon to laugh, joke, tell stories of go fast boat trips to reckless rics,nicks in Baltimore, Jellyfish Joel’s, the crab claw, Pussers in Annapolis. The smoke from the beef pit will swirl through the crowd and all afternoon the sounds of the band and the crowd will be punctuated by the roar of Harleys on the ground and cigarettes, Sonics and power plays on the water. As the bevy of barely dressed beauties dances and gyrates for the crowd and the winner is announced, summer will have officially come to a close. The sun will be setting over the narrows in a bright orange defiant manner, casting the pink orange hues across the fast moving water of the narrows and fall will be upon us.
It’s been one hell of a summer I must say. In addition to the local crowd here, a great assortment of folks, all successful at what they do and all firm believers in the work hard play hard approach to life, I have spent a lot of time with other folks from the spec list this summer. Starting all the way back in April with the Lexington trip, through the Chicago air show I ve spent a lot of time sitting around tables with luminaries such as Crossman, Jason Thompson, Ed Gross, Ryan Carlson, Tom Marks, Pam, Dr Brett, Tom Ryan, Tim Hewson, the voodoo prof and too many other to recall at the moment. Ed was able to get here to Maryland for a weekend of boating and over consumption including a trip to the legendary Tilghman island party on Labor Day weekend. Of course there was the spec party, one of the true highlights of the year for me, a chance to make new friends and catch up with the old ones. There was the special treat in chi-town of catching up with the great Cheesehead himself David Hillman to tell trading and drinking stories. We used to tell girl chasing stories as well but as the smile on his face is from wedded bliss these days, he is no long allowed to engage in such activates have .Thes conversations greatly expanded my base of trading and market knowledge and improved my life with new skills and new friends to a degree that I would not have thought possible back in the early days of newly budding trees and warming spring breezes that originally heralded winters end. One can learn more about markets in one good argument with Fred than years of reading books, and throw Jason, Ryan and Omid in the mix and information flows like wine at a wedding in Cana.
Sad to say but its over. All too soon, the rumble of boats will fade into the gray Chesapeake sky, flashy paint jobs covered in plain white shrink wrap, the docks will rock no more, oysters will take the place of crabs, the color of the day is no longer from the blazing summer sun sinking into the west filling the sky with streaks of orange, purple and pink but is now the many colored foliage that will soon line the byways and paths along the bay. A romantic evening will no longer being dining and dancing while the soft evening bay breezes and softer jazz fill the Chesapeake evening, but a roaring fire and classical music somewhere safe from the encroaching chill and harsh winds. It’s been a good one. Lots of boating, some baseball, a lot of complaining about just how bad the orioles have become, crab feasts, horse racing, a beach front wedding in of all places Naples Florida in July, dancing in a tux with my best friends new bride and full bridal party in attendance atn an out of the way dive bar at 2am, Ocean city days and Seacrets nights(www.seacrets.com), everything that makes up a mid Atlantic summer. But as markets change(anyone else recall that a few short weeks energy ,especially oil, was the absolute darling and would never go below 70?) so do seasons.
So be it. Break out the sweaters and windbreakers. Put away the beer and Gin and tonics. Step away from the chardonnay. Break out the brandy and the scotch and lay in a case of cabernet. Its fall. The regular season is over and all of New York hits the cathedrals, the churches and synagogues and prays for a subway series. So does every network executive ever born and one looks at buying a little NYT in the low 20s as such an event will surely spark readership and ad space sales. Its possible this year as the mets and yanks are two of the best teams in baseball this year. The Yankees most serious threat, the tigers of Detroit seem to have lost their fierce fangs as September approached and are in danger of falling out of their lofty perch as the winningest team in the American league. The mets my have a little tougher time of it but if Glavine and Pedro can reach deep down and pull out some post season pitching splendor, the Bronx shall duel the boys from queens for fall glory once again. No longer shall Saturdays be the roar of go fats boats, but a different roar will fill the land. In South bend, Knoxville, Austin and all over the country the roar will the student body and alumni welcoming college football back to the land. Here in Annapolis and in West Point the roar is the flyover of military jets as the brigade of midshipman and corps of cadets enter the stadium marching in military precision, taking in their schools game along the way to leadership of the military and the nation itself. It has started already of course and there have already been some great games and stories. Notre Dame, beloved of an Irish Catholic boy like me self, is back with Charlie Weiss and Brady Quinn leading the way back to glory. Ohio State proved that they are the beastly Buckeyes this year going into Austin and breaking the heart of an entire state in a few short hours. The Volunteers of Rocky Top chastised both Cal and the coaches for not ranking them higher, Blasting the 9th ranked bears back into obscurity. There’s more to come. Notre dame Michigan this Saturday, USC takes on a resurgent Nebraska. The Horned frogs and the Red raiders. The band plays. The tailgate rocks. Football of a college variety is back just in time to fill the Saturday void.
On Sundays the half dressed women won’t be on the red eye stage anymore but on the field at fed ex field and ravens stadium as the games begin again. Emperor tagliabue has stepped down but a new monarch emerges and the circus maximus that is the NFL returns. My Ravens were king of the gladiators the first weekend, slaughtering the bucs of tampa, Lord Manning of Indy vanquished the Earl Manning of ny that first night but the earl served noticed that there will be few Giant slayers this year. The high speed high impact world of the National Football league returns with high drama and much passionate and carefully directed violence.
There are I think many lessons to contemplating the changing seasons and environments. First is the obvious that change is constant and one must adapt to the changes as they occur and not as one wishes they would occur. I may wish it was summer forever and I could boat year round but should I try I will learn what wind chill factor really is and freeze off some of my very favorite parts, Instead I shall turn to other activities and wait until the summer sun returns, In the market we may wish that gold, and energy are going to the moon forever and ever amen or that big tech is ready for am imminent rally, but like the fast approaching chill of autumn, the market doesn’t give a good damn what we want.
Winning, in the market and in life is an attitude. There is a reason the Yankees are a winner. My team plays in the AL east but I am not going to fall into the “it’s the money” trap. It what they do with the money that makes the Yankees great. They do what they need to win, keep what works even at a high cost and get what they need to complete the puzzle. Other teams have the money but spend it poorly and think one high price player is all they need and spend it foolishly. Study the game, know the game, and invest the money wisely to get the things you need to win.
Setbacks can be overcome. It has taken the mets several years of painful rebuilding to get back to this level. Rather than go for a one trick pony, they got what they needed over the long term to re-achieve a high level and stay there.
No matter how much you study something there will be surprises. College football pundits spend hours poring over data to set the rankings. They wrote the Vols off and rated cal very highly. Tennessee killed them. No one thought Ohio State could beat Texas in Austin. They didn’t beat them. They manhandled them. No matter how much you study it or how specialized your knowledge base is, you will be wrong at times.
In the end it is the friends that make the experience. There was a flurry of friend posts on the list the other day but I didn’t have time to jump in and add anything meaningful. Rather out on the water or gathered around the TV watching the ravens slay a hapless foe, it is an altogether different experience when alone as opposed to the company of good friends. A good friend makes the ups and the downs smoother, the wins more enjoyable and the losses more bearable. A caveat here relevant to one of the post the other day. Never confuse stocks with a friend. A stock will never love you back and doesn’t care if you own it or not. Never lose a good friend. Make new ones as often as possible. Never hesitate to sell a bad stock. Never chase a growth stock too high. They don’t care if you own them and if they miss earnings and plummet your losses mean nothing to a stock.It is apiece of paper, an electronic blip. It will never love you back. Treasure your friends. Trade your stocks based on the conditions and circumstances that exist.
And in closing, as always, whether its red eyes dock bar, the football field or the comfortable confines of home, life is always better with half naked women in attendance.
It’s been one hell of a summer I must say. In addition to the local crowd here, a great assortment of folks, all successful at what they do and all firm believers in the work hard play hard approach to life, I have spent a lot of time with other folks from the spec list this summer. Starting all the way back in April with the Lexington trip, through the Chicago air show I ve spent a lot of time sitting around tables with luminaries such as Crossman, Jason Thompson, Ed Gross, Ryan Carlson, Tom Marks, Pam, Dr Brett, Tom Ryan, Tim Hewson, the voodoo prof and too many other to recall at the moment. Ed was able to get here to Maryland for a weekend of boating and over consumption including a trip to the legendary Tilghman island party on Labor Day weekend. Of course there was the spec party, one of the true highlights of the year for me, a chance to make new friends and catch up with the old ones. There was the special treat in chi-town of catching up with the great Cheesehead himself David Hillman to tell trading and drinking stories. We used to tell girl chasing stories as well but as the smile on his face is from wedded bliss these days, he is no long allowed to engage in such activates have .Thes conversations greatly expanded my base of trading and market knowledge and improved my life with new skills and new friends to a degree that I would not have thought possible back in the early days of newly budding trees and warming spring breezes that originally heralded winters end. One can learn more about markets in one good argument with Fred than years of reading books, and throw Jason, Ryan and Omid in the mix and information flows like wine at a wedding in Cana.
Sad to say but its over. All too soon, the rumble of boats will fade into the gray Chesapeake sky, flashy paint jobs covered in plain white shrink wrap, the docks will rock no more, oysters will take the place of crabs, the color of the day is no longer from the blazing summer sun sinking into the west filling the sky with streaks of orange, purple and pink but is now the many colored foliage that will soon line the byways and paths along the bay. A romantic evening will no longer being dining and dancing while the soft evening bay breezes and softer jazz fill the Chesapeake evening, but a roaring fire and classical music somewhere safe from the encroaching chill and harsh winds. It’s been a good one. Lots of boating, some baseball, a lot of complaining about just how bad the orioles have become, crab feasts, horse racing, a beach front wedding in of all places Naples Florida in July, dancing in a tux with my best friends new bride and full bridal party in attendance atn an out of the way dive bar at 2am, Ocean city days and Seacrets nights(www.seacrets.com), everything that makes up a mid Atlantic summer. But as markets change(anyone else recall that a few short weeks energy ,especially oil, was the absolute darling and would never go below 70?) so do seasons.
So be it. Break out the sweaters and windbreakers. Put away the beer and Gin and tonics. Step away from the chardonnay. Break out the brandy and the scotch and lay in a case of cabernet. Its fall. The regular season is over and all of New York hits the cathedrals, the churches and synagogues and prays for a subway series. So does every network executive ever born and one looks at buying a little NYT in the low 20s as such an event will surely spark readership and ad space sales. Its possible this year as the mets and yanks are two of the best teams in baseball this year. The Yankees most serious threat, the tigers of Detroit seem to have lost their fierce fangs as September approached and are in danger of falling out of their lofty perch as the winningest team in the American league. The mets my have a little tougher time of it but if Glavine and Pedro can reach deep down and pull out some post season pitching splendor, the Bronx shall duel the boys from queens for fall glory once again. No longer shall Saturdays be the roar of go fats boats, but a different roar will fill the land. In South bend, Knoxville, Austin and all over the country the roar will the student body and alumni welcoming college football back to the land. Here in Annapolis and in West Point the roar is the flyover of military jets as the brigade of midshipman and corps of cadets enter the stadium marching in military precision, taking in their schools game along the way to leadership of the military and the nation itself. It has started already of course and there have already been some great games and stories. Notre Dame, beloved of an Irish Catholic boy like me self, is back with Charlie Weiss and Brady Quinn leading the way back to glory. Ohio State proved that they are the beastly Buckeyes this year going into Austin and breaking the heart of an entire state in a few short hours. The Volunteers of Rocky Top chastised both Cal and the coaches for not ranking them higher, Blasting the 9th ranked bears back into obscurity. There’s more to come. Notre dame Michigan this Saturday, USC takes on a resurgent Nebraska. The Horned frogs and the Red raiders. The band plays. The tailgate rocks. Football of a college variety is back just in time to fill the Saturday void.
On Sundays the half dressed women won’t be on the red eye stage anymore but on the field at fed ex field and ravens stadium as the games begin again. Emperor tagliabue has stepped down but a new monarch emerges and the circus maximus that is the NFL returns. My Ravens were king of the gladiators the first weekend, slaughtering the bucs of tampa, Lord Manning of Indy vanquished the Earl Manning of ny that first night but the earl served noticed that there will be few Giant slayers this year. The high speed high impact world of the National Football league returns with high drama and much passionate and carefully directed violence.
There are I think many lessons to contemplating the changing seasons and environments. First is the obvious that change is constant and one must adapt to the changes as they occur and not as one wishes they would occur. I may wish it was summer forever and I could boat year round but should I try I will learn what wind chill factor really is and freeze off some of my very favorite parts, Instead I shall turn to other activities and wait until the summer sun returns, In the market we may wish that gold, and energy are going to the moon forever and ever amen or that big tech is ready for am imminent rally, but like the fast approaching chill of autumn, the market doesn’t give a good damn what we want.
Winning, in the market and in life is an attitude. There is a reason the Yankees are a winner. My team plays in the AL east but I am not going to fall into the “it’s the money” trap. It what they do with the money that makes the Yankees great. They do what they need to win, keep what works even at a high cost and get what they need to complete the puzzle. Other teams have the money but spend it poorly and think one high price player is all they need and spend it foolishly. Study the game, know the game, and invest the money wisely to get the things you need to win.
Setbacks can be overcome. It has taken the mets several years of painful rebuilding to get back to this level. Rather than go for a one trick pony, they got what they needed over the long term to re-achieve a high level and stay there.
No matter how much you study something there will be surprises. College football pundits spend hours poring over data to set the rankings. They wrote the Vols off and rated cal very highly. Tennessee killed them. No one thought Ohio State could beat Texas in Austin. They didn’t beat them. They manhandled them. No matter how much you study it or how specialized your knowledge base is, you will be wrong at times.
In the end it is the friends that make the experience. There was a flurry of friend posts on the list the other day but I didn’t have time to jump in and add anything meaningful. Rather out on the water or gathered around the TV watching the ravens slay a hapless foe, it is an altogether different experience when alone as opposed to the company of good friends. A good friend makes the ups and the downs smoother, the wins more enjoyable and the losses more bearable. A caveat here relevant to one of the post the other day. Never confuse stocks with a friend. A stock will never love you back and doesn’t care if you own it or not. Never lose a good friend. Make new ones as often as possible. Never hesitate to sell a bad stock. Never chase a growth stock too high. They don’t care if you own them and if they miss earnings and plummet your losses mean nothing to a stock.It is apiece of paper, an electronic blip. It will never love you back. Treasure your friends. Trade your stocks based on the conditions and circumstances that exist.
And in closing, as always, whether its red eyes dock bar, the football field or the comfortable confines of home, life is always better with half naked women in attendance.
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