Garybsmith

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

Month: October, 2011

Corzine had to know.

I’m preparing to go on David Asman’s excellent “Scoreboard” tonight and we’ll be discussing Jon Corzine’s problems at MF Global.  (For those not following –and granted it’s all a little “inside baseball,” — he bet big on Euro bonds and that bet went south, pretty much taking down the firm.)

Apart from the trade going bad — that happens to everyone — the real crime is that Corzine had to know at some point the trade was a stinker and just didn’t listen to that internal whispering.  Instead, he probably made matters worse by doubling down.

You see my take is that you pretty much know when a trade is going bad, just like you know when a relationship is going bad.  You get this little sense that things just “aren’t working out”, but instead of listening to that little voice, you slog on until it’s a real mess.  In Corzine’s case, the mess will put his company into chapter 11.

Anyway, my bigger point is that your mind and body do a pretty good job of steering you away from bad.  You tend to know if you’re eating too much, or need more exercise, or have been treating your family poorly.

You just have to constantly listen and act on what you’re hearing.  I’m betting if Corzine had done so, MF Global would still be solvent.

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My hardest workout

Whenever I look at my workout schedule — and yes, I’m anal enough to have every day scheduled, even if it just says “rest” — I mentally go through and note which days are going to be hard and which days are easy.  Coach Dean (http://coachdeanhebert.wordpress.com/) does a fantastic job of mixing it up for me, so I pretty much have the right blend of on and off days.

So, I’m always surprised when I think a particular day will be easy and it turns out to be hard.  In this case, super hard.

Here’s the day, so tell me what you think:

20 min warmup

8x :15@100%/:15 off

20 min cooldown.

Innocuous, right?  I mean, there’s only 4 minutes of total work.  And of that, there’s only 2 minutes of actual effort!

The problem is that 100% part.  I mean if you’re really, REALLY going at it, you’re tearing down the road.  (or in my case, up a hill.)  Of course, it’s only 15 seconds, but then you’re back at 7 more times with almost zero chance to recover.

But, try it.  I did this past Saturday, and struggled the rest of the day with that “all out” effort hack you get when you’ve made a serious attempt at killing yourself.  (If you’ve never experienced that hack, sorry: you’ve never given 100% effort.)

Yes, 4 minutes.  I always laughed off ANY workout that lasted that long.  Never again.

You gotta be able to sleep.

I just read on twitter that a pal I follow was going home net short over the weekend.  I think he’s making the right call.

I just wish I had the stomach to follow him.  But I don’t because even though I think that’s the prudent play (with tight stops as he indicates), I know I wouldn’t be able to sleep much if that was MY move.

You see there’s this notion that successful traders are wild, go-go guys, living on the edge.  A cross, I guess, between Jim Cramer and some Bret Easton Ellis character, with their stomach in knots sweating over every tick.

Maybe those guys exist, but I think most traders are just lunch-bucket guys who punch in, punch out, and are pretty darn conservative.

I know I am, especially as I get older.  I could do better I guess, but I’d toss and turn with all the extra risk.

For me, it’s just not worth it: I hate not being able to sleep.

Not crazy about parties.

At a recent cocktail party (they still call them that, right?) Nancy and I experienced the same phenomenon we’ve experienced at pretty much every single party in the past few years: people are totally inept at having a conversation.

What typically happens is this: we meet someone new and ask them a question about their lives.  Where they were born, how they met their spouse, what their occupation is, etc.  The person answers.  And then the conversation stops.  Completely.  Unless, that is, we ask another question.  Then another.  And then ANOTHER, until finally we can’t stand it any longer!

Now Nancy is much better at it than I, but at the end of the evening we both feel pretty much like Larry King.  I can’t tell you how many times — well, I can: maybe EVERY TIME — I’ve left a party knowing everything about folks I’ve met…while they know ZERO about me.  No clue.  Zippo.

Why?  Because they didn’t ask one question.  Didn’t even appear to know HOW to ask a question .  Oh sure, they were good at answering questions, but either they had no interest in anyone but themselves (likely), or they had no idea how to have a conversation (equally likely).

In any event, that’s pretty much why I hate parties.  I don’t have the energy to conduct all those interviews.

The root of our economic problems

There’s been a lot of talk lately about what’s stalling the economy.  In my opinion, it’s summed up in one sentence my wife uttered the last time we were dining out: “This bill is half a week’s worth of groceries!”

You see we don’t eat out unless we’re out of town and it’s absolutely essential.  And therein lies the problem: if you’re like us, you’ve pretty much done a scalpel-like cutback on all unnecessary expenses.  And because of that, consumer spending has died…and may never come back.  At least from my generation.

Examples?  We have plenty:

1.  When we’re at home we NEVER eat out.  We will have takeout on occasion, but when a simple trip to a local restaurant runs at least $100+ for 4, no thank you.

2. We don’t take vacations.  Partly I’m to blame because I’m a homebody.  And partly because whether we board our dogs or take them with us, it’s a pain.  So, we daytrip a lot to regattas and bike races.  But that’s about it.

3.  When we do go out of town and absolutely have to stay overnight, we’ve found a Hampton Inn fares just as well as a Four Seasons.

4.  Nancy’s car is almost 10 years old and as long as it’s working, there’s no plans to get a new one.

5.  Clothes shopping?  Nope.  We’re not slaves to fashion and we have all we need.

6.  Movies?  We haven’t been a movie theater since the FIRST Spiderman.  Even though Netflix and cable aren’t cheap, they’re cheaper than a trip to the nearest cinema.

7.  If we can substitute a store brand for a name product at the supermarket, we do so.  We don’t scrimp on food, but we’ll save as much as we can at the Costco and Safeway.

Now granted, in our formative years, we did spend a fair amount.  And we will spend a good bit on our hobbies.

But, beyond that, we’ve really tightened our budget.  Why?  Well, maybe we’ve reached a point where we enjoy what we do have, but don’t need anything else. Or maybe as we’ve gotten older we’ve simply gotten cheaper.

But, above all, spending less just feels like the prudent thing to do.  And if the economy is depending on folks like us, that’s a real problem.

That feeling of doom….II

Last Thursday, on these very pages, I stuck my neck and and pretty much forecasted a selloff in the market.  Since then?  Dow and S&P both UP over 2%.  Some doom.

Of course, I’ve been in this situation before and so will you:  the market moves completely and directly OPPOSITE of how you’re trading.  You not only look bad (if you told anyone), but lose money.

You then face the hardest decision traders ever face.  Do you stick to your guns or admit you were wrong?  And, of coure, here’s where it gets tricky.  Throw in the towel too early and you end up missing a good trade.  Throw it in too late and you end up taking a pasting.

Now while the latter is the path most traders take — it’s HARD to admit you’re wrong!  — you do sometimes have to hang in there even if the trade goes against you for a bit.

How to know which side to choose?  I use a simple test: looking at the charts, I objectively decide if I’d want to be long or short.  If the answer is opposite my current position, I close the trade.  In fact, if it’s so obvious I want to be on the other side, I’ll close the trade and reverse positions.

Really, it’s as simple as that, IF you can take even a tiny step away from your current posture and objectively evaluate things.  In my experience, though, it’s not that hard. Usually in your gut you know when you’re wrong.  You just have to listen.

As for me right now?  I have to admit that things have perked up on the long side.  However, I only used my negativity to sell my existing longs, not go short.  Am I confident enough to start buying?  For the Dow stuff, yes.  (see my Fox column: http://www.foxbusiness.com/investing/2011/10/21/)

For most everything else?  Think I’ll wait a bit….

That feeling of doom

I’m not going to bury the lead: I just looked over about 30 of my favorite stocks and I don’t see one right now I’d buy.  Instead, if I owned any — and thankfully I’m only about 10% long — I’d just sell everything at the open.

In fact, in one of the few positions I am long, my limit order to sell was missed by a penny yesterday and I fear I’ll never see that @#%$%ing penny again.

Of course, all this falls into a level beyond chart reading.  I mean, there’s been no dramatic breakdown and nothing to suggest the markets are ready to roll over and collapse.  In fact, sentiment is largely bearish, suggesting I may be dead wrong.

So, I suppose all this is based on 20 years of looking not only at squiqqly lines, but slightly beyond squiqqly lines.  The kind of feeling you get when you’re in traffic, and the pattern you see hints at, but doesn’t completely spell out,  doom ahead.

Now, before you follow suit and go completely to cash, remember there’s no trader on the land who hasn’t been wrong.  And been wrong BIG.

That weaselly caveat aside, I’d feel better totally in cash right now.

Worst case scenario

Amongst the many sins traders make, perhaps the worst is hubris.   The feeling you’ve finally cracked the secret of the market, where only riches lie ahead.

Believe me, I know the feeling.  I think it was March ’00 and I thought I was going to clear $10M that year.  If only…..

The problem was that I thought my strategy was ready for every eventuality.  Sadly it wasn’t ready for an 80% drop in the market.  I mean, seriously: that stuff happened only in the history books, right??

Anyway, my point is this.  As soon as you think you’ve “got things knocked” run your strategy from March ’00 through October ’02 and see how you would have fared.

Or, if you have more of a bearish tilt, run it from early ’98 through early ’00.

And, by the way, you’re only deluding yourself if you say “Oh, I would have sensed that big move coming.”  Believe me, you do sometimes see a big move coming, but you never see EVERY big move coming.

Anyway, if you can churn your strategy through a worst case scenario — and the two I described are pretty much at the extremes — then maybe, just maybe, you have something.

Of course, then you have to avoid the other 983 ways traders screw things up, but that’s for another column…..

 

Portable toilets and other thoughts

I attended my 975th regatta yesterday to watch my wife row.   And based on my vast experience at both these and bike races held in remote regions of the country (read: no indoor plumbing!), I think I can claim some expertise on….portable toilet names.

Now I’m pretty sure I rank in the top .1% of outdoor toilet users — being upstaged only by construction workers — and have come to the conclusion that portable toilet companies are simply the cleverest marketeers in the country.  Why? Because they take a fairly homogenous product and by name alone, manage to make it different.

Sure, there’s the ubiquitous Job Johnny, but that’s so yesterday.  And let’s move on from Port-o-let.  You might as well name it United Toilet!

Instead, I’m a fan of the new guys with the catchy names.  My favorites:

5.  Royal Flush.  With a 5 card poker hand splashed (pun intended) across the door, this is an obvious winner.

4.  Gotugo.   Don’t know how the “u” snuck in there, but still love it.

3. Bobbyspottys.  The use of “Bobby” is kind of creepy.  Which makes it perfect for this industry.

2.  Poophappens.  Need I say more?

1.  John Boy.   Elegant in its simplicity!

 

And speaking of regattas, what is it with parents and food?  You see, at most of the regattas I attend, there are also high school races.  And with high school races come high school tents stocked by well-meaning rowing parents.  (Indeed I was a well-meaning rowing parent myself for 10 consecutive years.)

And these parents are required to stock the tent with food.  And not just food, but enough food to see their kids through 7 years of drought and famine.  Believe me, if the dust bowl set in, these kids would be set.

Now I could see if the kids were out running a marathon.  Or doing a decathlon. Or, heck, even participating in one of those “Walk-for-the-Cure” things they have every other week.

Instead, they participate in ONE 20 minute race.  So, including the paddle out and back, maybe they burn off 250 calories.  Or one half of one muffin.  Which is about 1% of what they actually eat at a race.

No wonder our kids are obese.

A perfect set of intervals

If you’re reading this to hear my musings on the market…sorry.  Or, just musings in general, I can’t help you.

Instead, I’m going to talk briefly about cycling.  And specifically an aspect of cycling (well, just about all endurance sports, really): intervals.

Now basically intervals are just short, but hard efforts that are usually done near, or above, your race pace.  And since you’re going near or above race pace, by definition, the length of each interval is always shorter than your race length (otherwise, it’d be a race!)

Now, I’ve had a lot of coaches and have done pretty much every type of interval there is.  But, I’ve never had anyone define what a perfect set of intervals entail.  So, with apologies to every endurance coach out there, here goes:

1.  Each interval should be at or above race pace (or race power, if you’re cycling.)  If I’m going hard, I want to go at least as hard — if not harder — than I do in a race.  Otherwise, it’s not an interval, it’s some kind of base-building or endurance workout.

2. The total pain of each interval should be about an 8 or 9 (on a scale of 1-10).  Any easier, and you’re not going hard enough.  Any harder and you burn out before the session is over.

3.  Only the very last part of the very last interval should be a 10.  If you encounter a “10” before the last interval, you’re either going too hard or doing too many intervals.  If you never encounter a “10” you either have to go harder in each interval or add intervals.

4. The total pain of the entire session should be a 9, never a 10.  I know a lot of coaches want you to run or bike until you puke.   However, if you go that hard, you develop real scar tissue about ever doing an interval again.  Instead, I want to make the session just hard enough that I tested myself, but I’m ready to come back and do it again.

5.  You should end the session feeling more confident in your ability than when you started.  If you end the session feeling defeated, the intervals were too hard.  Remember, when you do intervals you’re developing both physical and mental abilities, with the latter often being more critical.

Therefore, it’s fine to feel tired at the end.  It’s not fine to feel dread.

And…that’s it.  Just 5 points to consider.  Hope they help.