Sunday, January 18, 2009

The Nature of Risk

Google books on line has several out of print books that you can get. You know one of my favorites is Selden's Psychology of the Market. I think I'll go through that again today by the fire.

Anyway, this one came from Gold Bricks of Speculation byJohn Hill, Jr. of the Chicago Board of Trade. (1904). It is helpful to read these long forgotten words to remind ourselves that there is truly nothing new in the world, and people cheating other people is a timeless preoccupation of humankind.

Fraser Publishing has a number of these books for a reasonable price. I recently finished Justin Mamis's The Nature of Risk: Stock Market Survival and the Meaning of Life. It is a delightful book about the market and the rather twisted ways in which our psychology perceives risk. In reading the forward, he mentions Helene Meisler who write TA for Real Money. I wrote her a brief e-mail mentioning how much I enjoyed the book. She said that Mamis was the best mentors that a person could have. He is in his eighties now. How delightful it must be to have your mentor call you out as being a "helper along the way" to his/her own understanding.

As I move along in seeking to diminish the perplexedness out of my own investing, I've found that the less I think, the better I do. I say this, though, having spent a good bit of time in forging my own understanding of stock market stuff--and developing a bit of 'doing without thinking' which is rather firmly rooted in doing a lot of thinking, doing, falling down, getting up and getting kicked in the stomach, arse, and having my ears boxed by the market. It's called building competence.

I have to compare my investor education to the exquisite trade of a blacksmith. With only fire and brawn and a rhythmic pounding of his hammer, he takes unformed metal and makes it into wondrous things of both elegance and utility. I'm pushing for both elegance and utility in my own investor education. The fire is my own desire to understand this 'stuff' and the brawn is simply my dogged tenacity in reading and acquiring the tools to be successful and applying those tools in an environment of uncertainty (risk).

Mamis is a market technician's technician. He believes that the market has its own language and uses technical analysis to listen to what the market is saying. He reminds that the market is designed to fool the most people most of the time. I believe him.

He writes

The value of technical analysis in the stock market is to reduce risk. It is especially helpful in guiding you to believe what otherwise seems unacceptable. By extension, therefore, it is most helpful at identifying significant market turns, both for the market and for individual stocks. . . . Stock charts and the indicators are like doctors' advice: exercise, diet, reduce stress, and so on. They are a means of establishing imperfect but relatively objective ways to understand market risks and market choices. (p.13)

This book reads more like an engaging philosophical treatise that doesn't mention words such as phenomenology! Also, his writing is fluid and engaging, and the book is liberally interspersed with real nuggets of practicable wisdom. I'll likely read it a couple of more times. What is particularly helpful is his discussion about ultimately you have to make a decision to act (buy/sell/hold) within a context of having incomplete (in all of its manifestations) information.


russell1200 said...

Well TA Kitty had an unexplained illness and seems to have recovered nicely. And of course timing well with oils dip and resurgence.

Thought she was on death's door, but apparently she only had a bug.

Her habit of getting her water via crushed ice out of other peoples glasses makes it a little hard to know if you have a dehydration issue, or just an eclectic inefficient water acquisition method.

Anonymous said...

There's a great deal to TA if one understands what it's purpose/goal is: to see/recognize patterns.

There's a great deal to be said for pattern recognition -- and not just in investing.

~ Gemma Star

Anonymous said...