Garybsmith

Trading, Golf, General thoughts. Not necessarily in that order.

Month: September, 2011

Catch the little things

Way back in my formative years (OMG: over 30 years ago!), when I first started at IBM, they used to bring top executives to Sales School to give us some pointers.  (Sadly, IBM doesn’t even have “Sales School” any longer, and I think is poorer because of it.)

Anyway, George Conrades was the speaker that day and said something that’s stuck with me ever since: catch the little things.  By that he meant that all during the day, little ideas, thoughts, and notions pop up that can really be beneficial…but that we often forget about later on.  He recommended to stop and write down those thoughts so you could act on them later.

I think about this often, as I have trading ideas come to me in an almost constant stream: “Costco sure is crowded, maybe I should look at their stock”; everyone hates the dollar, so now might be the time to BUY the dollar”; IBM sure is doing neat things these days.  Wonder if the stock is acting well?”

In fact, it’s from some of these random thoughts I get my best and most profitable trading ideas.   My guess is you have the same “stream of consciousness” flowing through you also.  The key is to tune in, and “catch the little things.”

So, thanks, George.  Hope you’re well.

You don’t need “expert analysis”

Testing the Durability of Zynga’s Business http://on.wsj.com/oxo33O

You probably don’t need a thorough review of Zynga to judge its future success.  Just look at your own usage: are you using their apps more or less lately?  I only use their free Words w/Friends app and I know I’m using it a lot less over the past few months.  Like most things new, the novelty has worn off.   That would certainly keep me from being a buyer of any Zynga IPO.

In fact, when it comes to long term investing, your own usage — or lack thereof — is usually a good sign to ditch that stock.  As an example, say you bought RIMM when you started using a Blackberry.  But then in 2009,  switched out your Blackberry for an Iphone.  At that point, I’d have also sold my RIMM.

Believe me, when you stop using a product is usually the reverse of when you start using it: you’re rarely alone.

Truly great?

This article caught my eye this morning:

Rivals Scout Paulson Assets http://on.wsj.com/pcA1WH

Two things: I don’t know the complete history of John Paulson’s trading, and you should also never trash another trader.   That said, his success seemed to hinge on 2 great trades: short mortgage-backed securities and long gold.  Is that enough to deem him “guru?”

My take is that too often “guru” or “genius” is bestowed based on one or two trades…that are unrepeatable.  Or, the person had the right strategy in the right market (i.e. they were long during a bull market), but is stumped when the market turns.

The latter is particularly treacherous as a person can claim “they outperformed the market” for a long stretch, even though their entire strategy consisted of being 2x long during a bull market.  Again, if they’re truly great, they can also make money (or at least stay flat) during a bear market.  In other words show me a trader who was consistently profitable from say, 1998 to 2008, and I’ll then show you a real guru.

Everyone else is who is “great” is either a trend follower who was “right place, right time” or had a few, non-repeatable, homeruns.

Square pegs

I guess if I had to come up with an overriding philosophy for my life, it’d have to be a take-off on “square pegs into round holes.”  My riff?  I search for “square pegs into square holes.”  Or more to the point, I try to figure out what I’m good at,  and then apply my efforts in that area.  In fact, I gave up a long time ago figuring out areas to pursue and then trying to get good at those areas.

As an example, I’m never going to be a great investor: too temperamental to wait around for long term gains.

I’m never going to be a great time trialist: 99% of the great ones are fairly big guys.  I’m just a touch over 5’9, weighing in at 152.

I’m never going to host my own TV show: sorry, not good-looking enough and probably too lazy to do all the homework.

I’m never going to see the world: hate to travel.

What am I good at?  I’m pretty good at catching small waves in the market, so I try to maximize that by being a fairly short term trader.

I have a pretty good power-to-weight ratio on my bike.  Especially going uphill.  So, I’ve gotten into hill-climbing.

And, I love being a homebody.  So, our “vacations” primarily consist of day trips to bike races and regattas.

My advice, then?  Explore a lot of areas of interest, for sure.  But, with the things that really matter, figure out your areas of strength and then spend a lot of time playing to them.

1000% gainers

Okay, here it is.  The only way I know to score huge gains in the market.  And no, this is not hocum or BS.  It’s the real thing.

Step 1: at the end of each day, go through minute by minute and identify EVERY product or service you used for the first time ever.

Step 2: from that list, identify every one of those products/services you then used a second time.

Step 3: If that product or service is publicly traded, buy stock in that company.

Step 4: Sell when stock is up 1000%.

I know, ridiculous right?  But, think about it.  What if you had bought Apple the first time you bought an Ipod (and the second time you used itunes)?  Or the second time you had a Starbucks.  Or the second time you used your AMEX card.

From that list, here are some of the 1000% gainers:

— NFLX, SBUX, KO, AXP, CMCSA, MCD, PG, COST

Now, not EVERY stock is a 10 bagger.  MA is up only 653% since inception (and the first time you could buy it.)  SWY is flat since I started shopping there.  HMC is up about 30% since I leased my second Honda for my girls

But, even if you have a few losers, they are more than made up for by the huge winners throughout your portfolio.

The trick, though, is to keep an eye on your own spending habits.  Invariably you’re attracted to the same products/services most everyone else is.

Remember, you only have to bring to the table a diary and patience.   Beyond that, just let the market do its work.

Rest week

With my race season over (and just saying that makes me sound so much better than my actual results…), it’s time for a little rest.  Don’t know about you, but my rest week is really what other’s view as vacation.  Here’s what I do…and don’t do.

Do:

— Take a nap every day.  Of course, I take a nap every day even when it’s not rest week, so sometimes I take TWO naps a day!  (it takes me a day or so to really wind down, but by Tuesday, I’m really logging the sleep hours.)

— Stay up a bit later than normal.  My gosh, I’ll even stay up to 10PM some nights.

— Plan next year’s race season.   It all changes a lot in the next few months, but it gives me something cycling-related to do.

— Ride with my wife.  I know, it sounds like she’s some slow poke.  But, as an elite Masters rower, she’s anything but.  So, I have tell her ahead of time we’re going REALLY slow.

—  Watch my diet.  I give myself 2 days to really pig out.  Then it’s back to normal.   (trust me, I’m no lunatic, though. I’ll still have about 4 beers a week and some snacks along the way.  Not a lot, though…)  But, if I didn’t watch, I’d instantly gain 10lbs.  And at 53, that’s almost impossible to lose.

— Plan my TV watching.  I’ll admit it: I love TV.  Love the fall TV season.  So, early on, we sample a lot of shows.  Then end up watching most of what we’ve been watching for years.

Don’t

— Sleep late.  I still get up about 6am, even on weekends.  I’d actually sleep a bit later, but the dogs haven’t learned to go outside by themselves.

— Ride hard.  I’ll have enough of that come October and on.

I know. Nothing really that revolutionary. Of course, just taking a week off from anything these days is revolutionary for just about all of us.

But, we don’t really take vacation, so this is as close as I get.  Works for me, though.

Post-race analysis

I just finished my last bike race of 2011 and did pretty well.  Not perfect, though, and hence the importance of post-race analysis.   I look at everything: my nutrition, my taper, my warmup, my power, my pacing, and my race tactics.

What’s that have to do with trading?  Everything.  In fact, if you’re not looking at all your trades — good  and bad — you’re not learning anything.  And if you don’t learn anything, my experience is you’re headed towards a very bad stretch.

Trust me, I can speak from experience: back in early ’00 — remember that fabulous period? — I was killing it.  But, I didn’t have a clue that my strategy ONLY worked in severe bull markets.  (of course, I wasn’t alone in that thinking.)  It was only later, in that awful decline, I woke up and realized I wasn’t all that good a trader.

My point is that post-race analysis should occur when you’re doing badly, and also when you’re going great.   And the key question I always ask is this:  is what I’m doing well going to work in ALL types of markets?  (and if I’m doing poorly, the question becomes: would this strategy be expected to do poorly in this type of market?)

If the answer to either is “yes” then keep going about your business.  If it’s “no” then STOP and reevaluate.

 

Warmed over palaver

I just read a column about endurance success that made my head spin.  It extolled hard work, long hours, good nutrition, blah, blah, blah.   Trust me, YOU could have written the article as it contained such gems as:

“I believe in hard work. I believe in discipline. I believe that if you sacrifice for the goals you want, when you achieve them, the reward is great.”

My gosh, why didn’t you or I think of that!  I mean, I haven’t heard such insight since the last episode of “Oprah.”

The same BS rings true in the trading/investing world, I’m afraid.   How many times has some “investment guru” appeared on TV talking about the fact that they “look at fundamentals, invest in undervalued companies, and take a long term approach.”  (Just ONCE, I’d love to hear someone come on TV and tell us they’re strictly a momentum player, looking to buy high and sell even higher, fundamentals be damned!)

The fact is some these cliches are valid some of the time and at other times, they’re meaningless.

Hard work, long hours are the keys to success?  Perhaps for some.  But, in reality, it’s more productive hours that result in success.  And those productive hours may actually mean less overall hours spent training.

Similarly, sometimes buying beaten down stocks is a terrific way to make money.  But, you can also make nice money by buying stocks wildly overpriced that just keep going higher.

My point is that much of what you read is just lazy writing that falls back on easy platitudes.   Don’t believe any of it, unless you see studies proving conclusively “a” is better than “b.”  And that’s just a starting point. The real test is what works best for YOU.  And quite often that flies directly in the face of warmed over conventional wisdom.

Whew: getting tired

It’s about this time of year where, frankly, I get a little tired.  Physically tired from training and racing my bike and mentally tired of the market.

The bike stuff I can fix: I just take a week or so off, get refreshed, start back slowly and gradually ramp up over the next 6 months.

The market and mental stuff is a bit harder, but there I’m thinking maybe the same approach is called for.  That is, maybe I should just take a week off, go to cash, and not even look at the market (or market news!)

Of course I won’t — I always have to stay informed so I don’t look like a yutz when I do TV — but I’m betting it would work wonders.

Loyalty

I just made a twitter post noting my new bearishness.  And for right now, I am.

But, here’s the thing: I am by no means loyal to that decision.  Things could change in the next few hours, and I might become completely bullish.

Now some would say that shows a lack of character or a lack of conviction.  BS: what I think it shows is the ability to change and adapt to what the market’s saying.  And I truly believe that’s the sign of a good trader.  Of course, you have to figure out the difference between changing stripes willy-nilly and changing for a good reason.  But, that’s a different and longer post.

That said, I can be loyal: to my wife, kids, and dogs.   In that regard, I’m truly buy-and-hold.