Saturday, December 29, 2007


I mentioned that I was clearing cobwebs. I started with a bookcase. It's a lovely antique bookcase that I found in a shoppe in Toano, near Williamsburg. It is now closed. I have bought some nice pieces from them over the years. This bookcase is Victorian. It is solid walnut with two doors of framed glass. I made a deal to buy this along with a late 1800's server that is gorgeous. I keep my liquour and some serveware in that lovely piece.

Back to the the bookcase......As I was cleaning it out, I found one of my favorite books: How to Think Like Leonardo Davinci: Seven Steps to Genius Everyday. Ahhh.....who can resist the call of accessible genius--daily no less! I surely cannot!

Since I'm going through those cobwebs--a personal process surely--I plan to write about tidbits here over the next couple of weeks. I'll not finish this process by NY's--that's okay. I don't mind taking the time to revisit some things. As I share some of this "stuff" with you, keep in mind that I'm not trying to evangelize you in any way. Rather, I want to introduce you to some "stuff" that you may not have run across.

Selfishly, it's also a good way for me both to document and systemize my process. In other words, I'm bringing you into that process should you wish to come along--but I'm doing it for selfish reasons! The beauty of the internet is that you can merely click and escape!

There's the pre-amble. Now I bring to you

The Seven Davincian

Curiosita—An insatiably curious approach to life and an unrelenting quest
for continuous learning.

Dimostrazione—A commitment to test knowledge through experience,
persistence, and a willingness to learn from mistakes.

Sensazione—The continual refinement of the senses, especially sight, as the
means to enliven experience.

Sfumate (literally “Going up in Smoke”)—A willingness to embrace ambiguity,
paradox, and uncertainty.

Arte/Scienza—The development of the balance between science and art, logic
and imagination. “Whole-brain” thinking.

Corporalita—The cultivation of grace, ambidexterity, fitness, and poise.

Connessione—A recognition of and appreciation for the interconnectedness of all things and phenomena. Systems thinking.

How to Think like Leonardo da Vinci: Seven Steps to
Genius Everday
, Michael J. Gelb, p. 9.


I've been incubating a thought about how I wanted to structure my NY's resolutions. I must admit that I made no resolutions last year, and it was not a bad thing. Nevertheless, I wanted to be very businesslike about it. Leisa, Inc. was going to have a balanced scorecard--to list goals in about 5 areas that would ensure that I brought some balance into my overall improvement efforts. I'm still working on those categories, but you can be sure that I will be incorporating some of this.

I'm also a big fan of mind mapping. I still have on my wall one of the one's that I did for work. It really is terrific. I like Tony Buzan's, The Mind Map Book.

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T Minus 2 Days

Here is my second T Minus 2 days post. The year slips through our hands like water, don't they? I suppose we are to drink from our hands before all the water slips away.

For the first time in many years, I am not having NY's dinner at my home. Rather, one of my regular guests will be hosting this year. So we will be guests. There will be the same group of us, 8, as last year. It is a comfort to see the New Year in with people that we know and love.

With the thin trading in the market, I've spent most of my time building my chart lists in StockCharts. I find it helpful to look at stocks in sectors and to be able to look at a glance how stocks are doing relative to each other in the same group.

Tim Wood, a technician that I've mentioned here who is interviewed regularly on FSO and writes for them as well, wrote an interesting post on the 12.28.07 market wrap (you may have to get to it from the archive if you click on the link to far from today's date. I hope that you'll take time to read it. In it he discusses his feeling that we've not yet seen the cycle lows for this 4 year cycle.

bottom line is that the market can do anything it wants and only a fool
would say that he knows for sure what is going to happen. But based upon
the fact that 90% of the previous Dow theory, bearish primary trend
changes have been significant market developments along with the ongoing
statistics and indicators surrounding the 4-year cycle, all appearances
are that the 4-year cycle low still lies ahead. Also, in accordance with
Dow’s three movements, the advance out of the November low has been a
counter-trend “Secondary Reaction” in opposition to the Primary
Trend change that occurred on November 21st."
I like Tim so much because he brings great discipline to his work. I always feel like he speaks from the position of facts--as he constructs and interprets them--rather than from ego and emotion (a la Kudlow, Cramer).

I still have Martin Armstrong rattling around in my head. I'll reference you to my 04.07.07 post on Armstrong. You will remember that on 02.27.07, the market made a swan dive. Uncannily, it was one of MA's "market top" calls. The market then went on to make a much higher high [Dow] (February break (not high) was ~12,600; market high of 14,187 for a 12.6% gain). Given that discrepancy, I'm not sure that the Armstrong model and the market peaks and troughs work outside of the 02.27 oddity. However, the next trough on the Economic confidence model is 03.26.08. I'm not speculating on any of this, merely resurrecting the model. But it's worth noting that the Dow troughed on 10.09.2002 and the model shows the bottoming of 11.08.02. I guess, then, that the next real dilly of a bottom would be in the 2011 time frame with our having a dip and and a bounce within that time frame. I surely don't know; and I recognize that my fascination with the model is grounded in neither knowledge nor objectivity.

Some numbers out this week show that the European economy is slowing as well as that of Japan's. Both are marked by increasing inflation--similar stories to our own. I'm seeing more doubts expressed about the theory that the BRIC economies have decoupled from our own. I do not believe that we will have any confirmation of the theory's being accepted by the market place until we see commodity price ease and inventories build. Nevertheless, the strongest sectors have been commodities (to include solar) and the defensive sectors (consumer staples, healthcare, tobacco).

While the September 30 quarterly earnings season was important due to its being the first reporting period post the credit market blow up in August, December's quarter end will be important as well. It's year end, and with that there will certainly be some more cobweb busting in the recessed corners of companies' balance sheets. We may also get confirmation of some of the slowing economic numbers.

I'm doing a bit of that cobwebbed corner cleaning myself. It's a natural time of the year to do it.

My best to each of you in the New Year. May it bring you good health, prosperity, wisdom and more importantly may it enrich the relationships with your family and friends.

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Tuesday, December 25, 2007

Christmas p.m. post

The full moon was on December 23. I would have thought it was the 24th, as it was so luminescent. As many of my longer term readers know, a year ago on January 6, I lost my English Setter, Lucy. She was almost 14/ Later that July, I lost Greta. I remember with great clarity last December walking Lucy, Greta and Macy (then about 6 mos old) under the light of last December's full moon. I marvelled at our crisp, long shadows we made as we walked down the road. It was cold, and quiet. The dogs made not a sound. I could hear the intake of my breath and every exhale in a lovely synchopation with my steady, rhythmic stride. Lucy was in the lead--her usual place. Greta was closely behind with Macy following. I was in the rear, but all three were keenly aware of my position. Their predominantly white coats reflect the moon's brilliance in that monochromatic nightscape. How precious that memory is to me.

Winter evenings and winter mornings are special times to me. There is something ethereal about being up and outside while the balance of the world slumbers. As we stare at the ancient light passing through the galaxy and bouncing off our retinas, it connects us with our ancestors. The rich tapestry of myths were woven by those ancient star gazers. Their aim surely was modest. They were merely trying to make sense of it all. The space between observation and understanding was filled by imagination--and imagine is the foundation of all myth. More importantly, imagination is what gives life it's magic and inspiration. Imagination is the root of all innovation.

I imagine the winter skies were the most watched. Surely the summer months were spent toiling in the fields. When the stars made their debut, bodies and minds were numb from hard work. In contrast, in winter, the fields were barren. Hunger was likely a constant, nagging companion. Gazing at the stars fulfilled our human propensity for seeking patterns and then explaining. The simplicity of a twinkling star was transformed into story when imaginatively group with other stars. In those patterns the basic archetypes of our humanity were born.

Orion is one of my favorite constellations largely because I can recognize it easily by the signature three-star configuration of the belt. Is it any wonder that Orion would be the hunter traveling across the winter sky with his two hunting dogs Canis Major and Canis Minor? A man and his hunting dogs is assuredly grounding in the austerity of winter. There is no bounty in the field; one can only pray for bounty in the hunt.

Until I pass from this life, I will eagerly observe Orion's measured path through the sky. He starts in the East. By April, his winter pilgrimage has him firmly stationed in the western sky. The seemingly immeasurable expanse of galactic time from a human life-time perspective give Orion and his dogs immortality. My dogs and I have neither. I'm not jealous. Rather, I'm grateful to Orion and his hounds for being a reminder of constancy in the face of change. I think that is good backdrop for thinking about the year ahead.

We had a wonderful Christmas. My stepmom fixed and beautiful dinner of tenderloin accompanied by tantalizing side dishes. I hosted everyone for brunch today. I elected to forego the fried potatoes--I just didn't have it in me to do one more thing! The bloody mary's were wonderfuly I grated fresh horseradish root into the pitcher--and a couple of pinches of cayenne. Good vodka (Grey Goose) and crisp celery ensured a refreshing eye opener beverage. Daisey and Macy were well behaved. Macy even showed off a few of her ball tricks!

After our guests left, I decided to be celery-like and vegetated in front of the television!

I hope that your day, however you celebrate (or not!) was wonderful.

Sunday, December 23, 2007

T Minus 2 Days

Christmas will be here in two days. It seems like it was just Christmas with the years zipping by too fast. My children are almost grown. And with each passing year, our Christmas has transitioned from one of frenetically trying to wrap, or worse, assemble, their gifts after they went to bed, to one more muted.

We do not have waist deep gifts under the tree. Never have. I try to pick out one or two thoughtful gifts that will endure. My son likes to hunt, so we've bought him guns--quality pieces that he can give his son or daughter (we responsibly have a gun safe). I tend to buy my daughter quality pieces of jewelry that I think that she will enjoy wearing. She has some nice things that she will be able to keep for years. I don't buy stocking stuffers or knick knack stuff for them. Just one or two solid gifts.

One of the things that we've done in the past is buy gifts for children from families in need. This practice was one that we enjoyed for many years and that my children from a young age participated in with me--carefully choosing the gifts and helping to wrap them. I've always instilled in my children the importance of looking beyond their own comfort and to see the unmet needs of others.

The spirit of generosity--so exemplary at Christmas--is one that I've tried to cultivate throughout the year. We live in a rural county, and the school system has the entire spectrum of socio-economic groups. When there were field trips requiring a fee, I always sponsored (anonymously) students whose parents may not be able to come up with the fee. It was a small thing to do, but it meant a lot for a child who otherwise would not be able to go. There many opportunities in your local school system where some extra dollars (tax deductible, too) can make a difference.

Christmas Eve to me is the most special part. My mother (deceased since 1988) would always make Christmas Eve dinner. Afterwards, we'd sit around the tree and were able to choose and open one gift. It was so exciting--I can still remember the heart thumping anticipation. As we became older and more cunning, we would go on a whole house search for our presents. It didn't matter if they were wrapped. We had razor blades and scotch tape. We could expertly open and re-wrap the present without any being the wiser. An Academy Award should have been granted to each of us for our feigned surprise! Even though we got craftier each year, so did my parents--and they'd always outsmart us by at least one gift.

That cunning DNA seems to have been passed down to my own children. Luckily, I've been able to outsmart them (the DNA didn't mutate into anything stronger!) most years. The trick is to hide the gift without really hiding it: to put it in something where they'd never expect to look (such as their own closet under their own junk or underneath their bed!). One year, I hid their gifts in my old VW SuperBeetle. That year, I really stumped them.

My step mom who is German, has a very rich tradition for Christmas. My father, a Jehovah's Witness (converting after they were married), is bah-humbug about it all. My SM prepares a lovely Christmas Eve dinner--I particularly appreciate that since it is a continuation of the tradition that I grew up with. My Mom died when Hannah was 18 mos old; my kids, then, only know my SM as their maternal grandmother. She has been a very loving and generous grandmother to them. After dinner, my Dad retreats to the basement harrumphing about the pagan holiday tradition, and we exchange gifts. It's a shame he cannot be more graceful about it.

My MIL normally cooks a Christmas day dinner, but she is unable to now given her health. I don't have it in me to cook a Christmas dinner--I'm still recovering from Thanksgiving! But I will have a Christmas day brunch where we'll have family from both sides and a friend or two. You didn't think I would get through a holiday post and not mention food did you? Here's what we'll have:

Citrus salad with yogurt dressing (it called for gingered yogurt, but the crystallized ginger probably costs as much as pure heroine, so I elected to pass and use candied lemon peel!)

Sausage/grit/cheese/egg breakfast casserole (make it the night before and pop on the oven--it has been a mainstay of our xmas breakfasts for more than 20 years)

Overnight pecan rolls (these are divine--a yeast roll that you let rise once; fashion into rolls and then put them in the fridge. You take them out in the morning for the second rising and then bake. I'll make some pans for a couple of my neighbors, too. This year is year 2 for this "tradition".)

Fried potatoes (I bought some jalepenos for added zip)

A pitcher of Bloody Mary's!

Juice selections for the abstainers and underage!

The rest of the day is for relaxing. I'll probably get started on my NY's resolutions. I'll post more about that later.

Whatever your tradition (or not), I wish you the best of the Season: good food, conviviality with friends and family, good health to you and your loved ones, prosperity in all of its munificent forms and peace & tranquility.

Monday, December 17, 2007

Foreign ETFs and other Stuff

The investment advice du jour--9/10 commentators it seems (unofficially) is calling for folks to invest outside of the US due to the declining USD. These markets are very volatile, and I wanted to provide for you a list from today of the losers and the magnitude.

As I've stated here before, in the event of a US downturn (and I believe that we are downturning), these markets would not be immune. Here's a chart of EPP:

The composition of this ETF includes BHP, which is the highest weighted stock in addition to financials. If you are going to invest in ETF's, do ensure that you know the composition--highest weightings by individual stocks as well as overall industry representation.

Here's my Ameritrade account. You will recall that I posted in the comments section that I culled through this and dumped most things--good thing as they all fell hard.

Though most of my accounts are mostly cash, I do have the SMN and DUG here. My thesis is that I believe that the economy is slowing and basic materials and oil (despite the admonitions that there's not enough) will go down. Nevertheless, I believe that both are in a secular bull market--I see some warranted slowness for the near term. I've consciously elected to be more cash-centric as opposed to be overweighted in a short position.

I closed profitably some SLB puts JAN 90 Puts that I bought on Friday. SLB fell hard today. I left money on the table--but I'm okay with that. I had a 60% gain for a one day hold. That's fine. I also closed out my HRB DEC 17.5 puts. I left money on the table, but expiration week makes me nervous. I'm not ashamed to scalp small gains, particularly in a market such as this. However, having said that, I will tell you that I have an important lesson to learn: I need to discipline myself to hold onto stock longer. But I'm mindful that the last 14 months I've been wary of the market altogether, so my paranoia has prevented my holding longer. It will be a habit that I need to break.

Sunday, December 16, 2007

More than You Know: 1: Be the House: Process and Outcome in Investing

Here's a chapter that categorically denies the validity of "the end justifies the means"--particulary if the "means" is absent or deficient! I found this chapter to be a very good start to the book. The tenet here is that a good process will provide consistently better outcomes. A sloppy process can still yield success, but not consistently so.

M points out that, "The goal of an investment process is unambiguous: to identify gaps between a company's stock price and its expected value." (p. 10) Sounds simple enough. He goes on to note, "A thoughtful investment process contemplates both probability and payoffs and carefully considers where the consensus--as revealed by a price--may be wrong." (p. 11)

M quotes Robert Rubin's Harvard Commencement Address, 2001. He notes four principles for decision making:

  1. The only certainty is that there is no certainty.
  2. Decisions are a matter of weighing probabilities.
  3. Despite uncertainty, we must act.
  4. Judge decisions not only on results, but also on how they were made.
(pp. 11-12)

I was quite struck by these as these are the tenets that I've used in my business decision making over the years. I will also tell you the ONE that I've always grappled with is using probability distributions to create an expected value. Why? To create these distributions with any accuracy you have to be able to (1) anticipate the correct population of outcomes and (2) assign the correct probabilities to those outcomes. I've been pretty comfortable with identifying the population of outcomes, but assigning probabilities is not always easy if there is little or no historical information to inform the probability assessment. Frankly, this is the venue in which you can essentially "massage" the probabilities to get to your desired result (meaning: managing the outcome).

With respect to investing, I'd have to ask the question as to how much information does the average investor have to provide a credible construct of an outcomes probability table? That difficulty notwithstanding, it is a useful discipline. If a company's fortunes depend on their getting a drug approved, a permit issued or a successful conclusion of thorny lawsuit this is still useful information.

If you have NuevaPharma (fictitious), that is trading at $10 per share, and the investment community is waiting for the FDA to determine if its cancer drug is going to be approved one could construct the following table:

You see everyday where these types of FDA decisions either launch a company into the stratosphere or cause a meteoric crater from its crashing and burning. Here's an example where there is probably decent information regarding the $ potential of a "yes" decision--and that would be your guide to assigning the Price Appreciation percentage. How you would have any confidence about the percentage probability to assign the outcome is tough.

There is a key piece of information that is not in the table. What do you think it is? It's the hurdle rate--the line in the sand that you need to clear in order to get to a "Yes" decision. In order to take such a risk with your money, you have to assign what YOUR minimum expected payoff would need to be in order to do the all important Number 3--TO ACT.

Let's get back to the tenet of the chapter which is process. Let's suppose that two people were making a decision: You and me. Let's say that you went through the above process, but it did not meet your hurdle rate of 25%; accordingly (and appropriately), you passed on the opportunity.

Let's say that I engaged in NO process, and I made a "What the hay" decision. It looked "interesting" for no other reason than it caught my fancy. I invested on a whim, and the stock took off like a rocket--doubling within minutes of opening after the FDA's morning announcement. You got the whole thing wrong. The probabilities were wrong, and the price appreciation was cockeyed.

Was I the better decision maker because I had a better outcome? The answer is categorically NO. I was lucky. The investor that engages in a disciplined process (expected outcomes, fundamental analysis, etc) will have better consistency of good outcomes than a willy-nilly approach which is founded upon dumb luck.

Even though I wrestle with the assignment of probabilities, even when many decisions are binary--it will either be approved or NOT--assigning probabilities quantifies my risk and my payoff. The hurdle rate is a combination of the magnitude of the outcome and its probability. Constructing a table helps one understand this important dynamic and at least requires one's assigning some confidence to the model. Whether one makes a multi-million investment decision for one's company or a multi-thousand investment decision for one's portfolio, one is accountable for the outcome.

I will tell you that in business, a screw up with a good process is much better tolerated than a screw up with no process. If you the outcome differs, you can go back to your decision making model and determine where the breakdown occurred. That's how one learns from mistakes and improves future decisions.

The above is the lesson of Chapter 1. (These are my examples, not the book's).

To reinforce the importance of acting, I also ran across this from Richard Russell's website. I hope that you'll take a minute to read it.

More Than You Know

More Than You Know, by Michael J. Mauboussin has been sitting, quitely ignored, on my nightstand during my illness. I'm revisiting it. What I wanted to do here is talk about some of the themes of the book--similar to The Zürich Axioms.

My immediate thought in reading the synopsis of the book was the similarity in precept to that of E. O. Wilson's Consilience. One of the benefits of being in a book club, is that you read outside of your normal patterns. I've always had eclectic reading interests, and I find an amazing thread that often runs through seeming disparate subjects. One example was our recent reading of Spell of the Sensuous. I was reminded of Eliade's scholarly work on shamanism. I've included a bit of a blurb. You may think it an odd reference, but if you seriously want to understand the genesis of religious thought and ritual rather than just take your own faith/belief practices as de facto whatever, then you endeavor to be a student of ritual and belief practices over various cultures over time. What you'll find are similarities that are seemingly startling--and I think that's a good foundation for cultivating a broader perspective that leads to real understanding.

"First published in 1951, Shamanism soon became the standard work in the study of this mysterious and fascinating phenomenon. Writing as the founder of the modern study of the history of religion, Romanian émigré--scholar Mircea Eliade (1907-1986) surveys the practice of Shamanism over two and a half millennia of human history, moving from the Shamanic traditions of Siberia and Central Asia--where Shamanism was first observed--to North and South America, Indonesia, Tibet, China, and beyond. In this authoritative survey, Eliade illuminates the magico-religious life of societies that give primacy of place to the figure of the Shaman--at once magician and medicine man, healer and miracle-doer, priest, mystic, and poet. Synthesizing the approaches of psychology, sociology, and ethnology, Shamanism will remain for years to come the reference book of choice for those intrigued by this practice."

I don't say any of that to sound preachy, but rather to provide a illustrative point regarding the cultivation of our perspectives and the interdependence of various disciplines--to include our role in the values and beliefs that we bring to whatever it is that we are tackling whether it is religion, investing, parenting, etc.. Here's the Wilson quote from Mauboussin's book:

A balance perspective cannot be acquired by studying disciplines in pieces but through the pursuit of the consilience among them. Such unification will come hard. But I think it is inevitable. Intellectually it rings true, and it gratifies impulses that rise from the admirable side of human nature. To the extent that the gaps between the great branches of learning can be narrowed, diversity and depth of knowledge will increase.

A long winded lead end, eh? Mauboussin's book is divided into several parts:

Part 1: Investment Philosophy
Part 2: Psychology of Investing
Part 3: Innovation and Competitive Strategy
Part 4: Science and Complexity Theory

So I'll hope that you join me as I tackle pieces of this book. Having read just a couple of chapters already, I would recommend that you add this to your investing bookshelf.

Saturday, December 15, 2007

Plott Hounds

This interesting dog is not a breed that I've ever heard of. If you wish to read about this magnificent dog, you can read about it here. It is the official state dog of North Carolina. Apparently it is only one of four breeds originating in America. I'm not quite sure which other breeds there are, but I'll guess (1) American Bulldog and (2) Catahoula Leopard dog (State dog of Louisiana). Here's a blurb from the referenced link:

"The Plott Hound is the only American hound without British ancestry. The breed's designated name honors its American founders and family tree. Seven generations of the Jonathan Plott family, beginning in the 1750's, bred their dogs exclusively within the family. A mix of bloodhounds and curs reportedly comprised the original stock. The dog's working claim to fame is coldtrailing bear and raccoons in the Appalachian, Blue Ridge, and Great Smoky Mountains of the Eastern United States. The Plott Hound is American through and through. The Plotts family have only rarely put these dogs on the market; so while the breed was officially recognized in 1946, it is still rare outside the southern states. Its is most efficient in the search for coyotes, wolves, and wildcats. They are extremely hardy and have superior hunting instincts. The breed has been carefully developed to be stronger and more persistent. They can make a good family companion but are seldom kept as one. Most people get these dogs for the hunt."

The Catahoula is quie an interesting dog. I was not familiar with the breed until I transported and neat little girl about 4 months old. She was both loving and lively. She was red and gray. Interesting mix. This is the state dog of Louisiana.

You'll of course remember that my Macy is part American Bull Dog. Our local SPCA has a part Calahoula and part pit bull. Beautiful dog.

Anyway, I wanted to introduce you to a couple of breeds of dogs. Party time is upon us with the holidays and asking people if they know the state dog of either NC or LA would be a terrific icebreaker. Kids, dogs, and weather are safe conversational topics.

Saturday Miscellaney

For the first time in two weeks I ventured out to forage for food for my family (two legged and four legged, human, canine and feline). I was literally out of all dog/cat food. Not a crumb left. A desperate situation to be sure. I wouldn't put gnawing on our bones past our hungry vermin.

I went to BJ's. I rarely shop at the supermarket. The prices are just too high. I was surprised how lite the store traffic was as well as the traffic in the vicinity. There were police to direct non-existent traffic. We'll see how that translates into holiday sales.

I've a small Christmas list. Kids are done. Mark and I do not exchange gifts, largely because we get what we need when we need it. Frankly, we do not need anything. This year, I'm going to do the unthinkable and ask for NO gifts next year. There is nothing that I want, and nothing that I need. BUT there is much need out there. My preference would be to direct generosity toward those who are on that ragged line between making it and not making it.

Had I had the presence of mind to stumble upon this sooner, I WOULD have had this under the tree for Mark: a watercolor of Lucy. I was perusing the Illinois Bird Dog Rescue site, and saw where a watercolor artist had donated a work. Ah Hah! So, I'm commissioning a work (it is quite inexpensive) to have my beautiful Lucy transferred to canvas. I'll do the same for Greta as a present to myself. So there's an idea for you if you are looking for an unusual, unexpected but wholly welcome gift---your pet in watercolor.

After posting my speculative account, I immediately made changes to it. I sold everything except RTK and SMN. I added DUG. Some of those sold items may zoom to great heights. I'm okay with that. These small caps have been in a tough environment. As you can see from that post, it is quite easy for them to lose 20-30% of value quickly. Too much psychic energy looking at that red.

I have a fistful (5) of HRB and SLB puts in one retirement account (my ONLY two holdings). Hardly bold. I sold my WCG calls for a nice 130% gain. But it was a small holding, but it adds incremental value, and I'll take that. I've been very careful with managing my option positions. I've been buying small and taking gains when I have them. More importantly, I'm limiting losses as I did with my PAY calls. I was too early on those, and the market environment is rather poor. I closed out just in time. I made enough money on the common to "cover" the loss that I had. The stock fell even more after my selling those, so the timing was good.

I have a couple of weeks of cleaning to catch up on, so I had better get started. Christmas will be here in 10 days. Where does the time go?

P. S. The Pink Floyd album cover had an interesting design, so I included it's image for no other reason than that!

Friday, December 14, 2007

A Return to Regularly Scheduled Program

I believe that my brain cells have rejuvenated themselves. Bathed in fever and pain, they did not work very well. Cogency and coherency were the first victims. Until the last couple of nights where I actually got a good night's sleep, I didn't realize how sleep deprived I had been. Mark and I agree that "this" was one of the worst maladies we've had. Thankfully, neither of our children became ill--largely due to the fact that NOT spending time with us is something that they practice regularly. I was most concerned about my daughter who had college exams this week.

Santa Claus came early to my home. A friend sent me The Black Swan which I look forward to reading. I'm woefully behind on my reading given that my eye-brain connection was cut with impunity. Rather that feel the "need" to go back through my periodicals, I just tossed them. It was a freeing moment.

Roger Nusbaum has overtly stated that he thinks a bear market may be upon us. You can read about it here. The post is titled "Send in the Bears." The funny thing about bear markets, is that they are very much like recessions: They can only be seen clearly through a rear view mirror. I note that more and more commentators are now mentioning recession coupled with steeper odds.

While there is still much discussion about recessions and bear markets, it's worth noting again that it has to be worrisome that there is so much financial dislocation in the market. Remember that the financial markets are the lubricant for the financial engine. Well the oil drain plug has been removed and the engine is quickly running low on oil. Vince Ferrell, Jr. of Scotsman Capital Management stated that this was the greatest credit event in his lifetime. I believe that. As I wrote this, I decided to visit Scotsman's website. They are value investors, and you can find some information there that may be worth your time. I find Vince Ferrell to be one the most gracious and informed guests on CNBC. If he ran for office, I'd vote for him!

I feel like this dislocation has been under reported from its inception. For such a great event such as this, the opportunity for some really good EARLY financial investigative journalism was lost. This lack of credible coverage has cemented my view regarding mainstream financial media--which is that of providing us with watered down pablum. Here's my speculative account. It had touched just past $23K before I got cutsey with it with some ill made decisions (YHOO/RIMM puts in addition to what you see below)! My initial goal for this account was $20K by year end. At this rate, I'll be lucky to hold onto $20K.

Retirement accounts are mostly cash. So what you see here is the bulk of what I have "invested". One of the greatest reasons for my being mostly cash is due to the timing of when I received my qualified money. It was in January of 2006, and I felt then that we were getting close to a top in the cycle. I didn't feel compelled to keep it invested--particularly if I were buying at the top of a cycle.

I know, for I've read them, the admonishments of very bright minds and successful investors about staying fully invested. In a true bear market, few things escape, and even the most well diversified portfolio will fall to the its perils. I think that one of the most important things that an individual investor can learn how to do is hedge for those eventualities. And hedging requires as much consideration and diligence as crafting a portfolio. The inverse ETF's making such hedging more accessible to individual investors.

I don't feel compelled to stay fully invested particularly when I feel like the risks are high on a relative basis. I say relative basis for there is always risk in the market. But I sincerely believe that the economic cycle has topped, and the financial markets' distress is (to me) the clearest tell of that. For the life of me, I do not understand why it is glossed over by many.

That dim view does not mean that there are not still opportunities. There will always be opportunities. That sounds so simple, but it is deceptively powerful statement. If one thinks that there will NOT be further opportunities, one may be tempted to be hasty and reckless in action rather than patient and deliberate. I've been hasty and reckless with the poor results to show for it. You have too I'm sure at some point. I'm cultivating patience and deliberateness, and the mantra of "there will always be opportunities" is very foundational to that cultivation. I do not find holding cash a problem. It means that I have firepower for when opportunities present themselves. I'd rather wait for them to be more plentiful with a higher risk/reward ratio.

Wednesday, December 12, 2007

I'm moving back into the world of the living. When I get sick like this, I'm grateful to living in the age of antibiotics. Otherwise, I'd surely be dead by now. My flu went into a secondary sinus infection. I've only been fever free for a day or so. After 9 days, it does wring one out!

A dear friend called me during the Fed announcement. I didn't realize the time when I picked up the phone, but given the import of the call, I'm glad I didn't realized the time, for I may have elected to not pick up.

One position I've been in and out of is FMD. I wanted to share an update of the chart.

I consider FMD a well run and profitable company. It happens to make it's living in the the market's equivalent of a brothel (loan securitizations). You'll recall that I wrote about it here.
I was worried about $29.50 being support. As you can see from the above, it was not. In the financial services area, this is not an unusual chart.

I liquidated that position. I later re-entered at $16.37--doing a little dumpster diving. It went up in advance of the Fed decision, as did many other financial stocks. It was pummeled, and it closed below that price yesterday. My thesis is that student loans are not going to go away. In fact, when the economy slows down, many folks re-enter higher education. I would expect that FMD would be an attractive target for someone looking to add student loan capababilities (front end, securitization and servicing). I realize that I'm swimming upstream. I never expected to see FMD at these levels. Accordingly, I'm glad that I did not ride it down the $15.

I'm still of the mind that the Fed discount rate will help banks shore up there income statements by reducing increasing their net interest metrics, but I do NOT believe that it will increase liquidity overall for reasons that I've stated here before. Again, these are not the musings of an expert, but an ordinary investor. Nevertheless, common sense is always an good antidote for excessive analysis and irrelevant facts.

I've seen a couple of things bandied about regarding "what else" the Fed can do. One was to reduce the reserve requirements for banks. That certainly would add liquidity. Another was to extend the time frame for the repo agreements, as per the August 17 release:

"The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained."

I do tire of the Fed bashing. I think that John Hussman did a very good job of noting their irrelevance in his weekly article here. As I write, the Fed has made a statement about new swaps to provide permanent liquidity. The market loved it, and futures are up almost 200 pts.

I hope you have a good day today.

Sunday, December 09, 2007

Down but not Quite Out

Still recovering. I drove 470 miles yesterday on a dog transport. I felt well enough to do it, but today was a different story. I'm sorry for the sparse posting--but fever and achy bones aren't conducive to lucid writing.

A couple of snippets. Both Frank Barbera and Tim Wood were on FSO's Saturday broadcast. Both are looking at a bearish setup, though s-t bullish. It seems to me that their technicals have closely followed the actual market. I do not find them perennially bearish nor bullish. Gary K says that IBD is confirming that we are in a confirmed rally. Colin Twiggs is looking at a 2:1 chance of bear market, and Richard Russell has noted the Dow Theory sell signal. I would note that in my nascent understanding, the market rallied while the Transports were late for the party. So if one waited for the Dow Transport confirmation a good bit of the rally would have been missed.

I wished I could right more. I hope that you stay well.

Friday, December 07, 2007

Proshares Inverse Foreign ETF's

I'm sure that you've seen these already, but if not, you might want to keep them handy.

Wednesday, December 05, 2007

More Than You Know

I ordered and received the following book: More Than You Know: Finding
Financial Wisdom in Unconventional Places by Michael Mauboussin. If any of you've read and have a comment, please do.

forget now where I saw the book listed (someone's blog), but I was immediately interested in the the "Finding Financial Wisdom in Unconventional Places." When I read a description of the book, I was immediately reminded of E. O. Wilson's "Consilience". I think that I posted this on BC's website within the last week or so. I was surprised and amused
to see that there was a page with an E. O. Wilson quote.

Unfortunately, I'm too sick to read. This flu was apparently only doing a warm up on Sunday. On Monday, I felt good. I guess it was a health head fake! Yesterday, I became progressively sicker , and today I'm just down and out.

I'll not be making any big stock decisions.

The futures are up. It will be interesting to see how strong a close we have.

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Monday, December 03, 2007

Whither Goes the Market

Bull market resumption? Bear market counter trend rally? Pick one! Pick none! My head hurts. My body hurts. Flu has hit in Leisa-land. Posting will be sparse. Facts, insights minimal. I'm not nearly has sick as my husband, but uncomfortable nonetheless.

A poster asks about Pivot Points. Fidelity's Active Trader Pro has pivot points that one can use. I've used the 1 day/1 minute time frame. A wonderful contributer (trader) on Real Money who goes by "Pokerface" suggest for day trading 2 day five minute. I will warn that when the trend changes, you will get false buys and false sells. So those green arrow buys and red arrow sells can cost you money. I guess if it were so easy a monkey could do it--and we all know that the market is never that easy or obvious. My memo to self is to use Mark Fisher's pivot point discussion in his The Logical Trader. In combination with Fidelity's shorter term pivot points. I've not worked through that, yet though.

Exercise caution during this flu season.

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