Saturday, January 10, 2009

Books and Candles

Because I am a reader, I'm an easy person to buy gifts for. Gift
certificates to Barnes and Noble or Amazon are generally in my
possession this time of year. Last evening I spent some time choosing
  • "Meditations on Quixote"; Jose Ortega y Gasset; Paperback
  • "Trading Without Gambling: Develop a Game Plan for Ultimate Trading Success (Wiley Trading)" Marcel Link; Hardcover
  • "The Ascent of Money: A Financial History of the World"; Niall Ferguson; Hardcover; $17.61
  • "When to Sell: Inside Strategies for Stock-Market Profits (Fraser Publishing Library)";Justin Mamis; Paperback
  • "The Nature of Risk (Fraser Publishing Library) (Contrary Opinion Library)" Justin Mamis; Paperback;
As I'm so suspicious of the market, I don't consider anything an
investment, but rather a trade. My current philosophy is to create
'dividends' through small exposures of capital to what appears to my
eye to be good chart set ups.

I hear on CNBC many money managers coming out with the 'paid-to-wait' theme by encouraging the investment in companies that pay a dividend. I remember when GM had a
.50 quarterly dividend. Had you hung on to that, you'd been paid to
watch your investment evaporate. Same can be said for the bank stocks.
Utilities, another dividen payer, have not faired too well either. The
siren like call for dividends can lead you on the rocks if you are not
careful. It is not a story that I buy, but it makes sense for some. But
the paid to wait is a stupid argument if the stock is under pressure. A
4% yield against a 10% + drop in price is not a trade off that I find

I spent a goodly amount of time over the holidays
scouting out stocks. Last week, I had 18 positions (which is quite a
bit for me). Of those 18, 14 were green, 2 which were hedges were red
and 2 were red on their own. The reds were modest. Two stocks below,
I'm particularly proud of: BEST and CNTF--two of my Chinese take out
(meal, not buy out) stocks. I shared those with you when I bought them.

should add that BEST is VERY thinly traded. The nice thing about being
a nobody is that unlike BIG money, I can buy stuff like that. I've
shown in green where I bought these stocks. Id bought them because (a)
I liked the chart pattern (basing action, spike in volume); (b) I liked
the fundamentals. That two-fer made it less risky.

To say that the move has been remarkable is an understatement. I
judiciously sold into this rise for CNTF, and currently just have
"house money". Yeah that is another aphorism where you can still piss
money away if you don't have to! When you buy a stock for .89 per
share, and it makes a move such as the above, to NOT lock in partial
profits is just plain foolish. However, I have a long history of
selling way too early.

There is an aphorism that "No one ever went broke by taking profits."
Like most things in life, context matters. And in the context of
buying/selling stocks, if you have 5 losers that you lost 7-10% on, and
1 monster winner that you settled for a 20% profit (when it later went
on to be a 4 bagger), then you just squandered an opportunity to undo
alot of ill on stock picks of lesser genius. (Yes, I understand that it
is not genius but rather managing probabilities!).

One of my goals this year is to find a better way to manage
profits--finding that balance between selling too soon and holding on
too long. The space between those two polarities is where I want to
be. I rarely hold on too long. But I've lost mucho dinero
(opportunity costs) in bailing too soon. And opportunity cost is a
cost--it just doesn't show up on your portfolio statement, but your
mind calculates it in its "you're a dumb ass" bucket. It's the same
place that all of your memories that make you privately blush because
you couldn't believe that you were so stupid to do or say a certain
something that you went ahead and did or said despite knowing better.
It's definitely a place where you don't want your bucket to runneth
over, so limiting what you add to it is of some merit. Naturally
bailing on a stock too soon and not bailing soon enough are all
additive to this bucket.

Now having said all that, you immediately realize why the market and
your participation in it is like being in an insane asylum. Fear of
selling too late or selling too soon could render one paralyzed by self
doubt. You can immediately see, then, my choice of books above.
Knowing when to buy (which I do think that I've mastered pretty well)
and knowing when to sell (I wouldn't be talking about the DA bucket if
I were any good on this!) is the second part of the equation. And of
course, both of those things reside in the context developing a game

The Ascent of Money is a book club selection. We are resurrecting our
book club, and that will be our next selection. I'll be hosting book
club. I've plenty of time to think of what to fix. Jose Ortega y
Gasset is an old favorite of mine. You'll remember that I found a
couple of his books at the used bookstore in Sylva on our trip to
secure Ella. Meditations on Quixote was his first book. And as I write this, I'm going to put a reading of Don Quioxote on my list of
things to read this year.

And speaking of resurrection....I've pulled out my Candlestick Charting Explained. by Gregory L. Morris. This is after having re-read completely through Martin Pring's Technical Analysis Explained as well as John Murphy's TA book earlier. While I generally use candlestick charts--I cannot say that I've any real focused study on them. So as part of my managing my positions better, I'll be sharpening my chart reading skills on candlesticiks.


russell1200 said...

TA Kitty is not particularly interested in candle sticks.

She does love rubber bands, and refuses to drink from any appropriate receptacle laid out for her. Her preference is to drink other peoples ice water, and she likes to crunch the ice.

I have been reeding "Before the Dawn" by Nicholas Wade, and "Europe Between the Oceans" by Barry Cunliffe. Both are very good. .

Anonymous said...