me,you and the market
(this one is for mike arena)
home
portrait of Deuel
the boss, his wife and julie
the receptionist
Columbia West College


The Los Angeles writer Charles
Bukowski had three interests: women,
drinking, horses. He loved the track
and many of his stories occur at the
track or relate to it in some way.

I dont visit the track. When it comes
to pissing away my  hard earned money
my preference is for the stock market.
But I have often noted some obvious
parallels between the two activities—
or obsessions. Here they are:

1) The need for a system. There are
two ways of losing money.  You can
throw it away—like betting win on a 60-
1 shot--or you can figure a way  to
somewhat improve the odds--as Bukowski
was fond of saying—to make them beat
you.

Thats where a system comes in--a
process of analysis—to learn from the
mistakes and also, very important, to
consider how much risk you are willing
to accept. There are many sins to be
committed by  the horseplayer and
investor both but the sin to be most
avoided is the sin of losing sleep.

2) Research. Analysis requires the
gathering of information and for the
horseplayer its
the Racing Form, The
Daily Handicapper, the NTRA
and the
stock investor has
The Wall Street
Journal, Barrons
and Investors
Business Daily
(and of course the
internet).

3) Tips. Horseplayers and investors
both understand that tips are for
losers and yet the temptation is
always there and a powerful one it is.
But its best to heed the words of
Peter Lynch who said:  If you get
inside information from the president
of the company you will lose half your
money and if you get it from the
chairman of the board you will lose
all your money.

4) Praying to Jesus.  There is
something called luck. Lets not forget
the element of luck. The greatest
horseplayer or stock investor who ever
lived would readily admit that once
the call has been made what happens
next is entirely in the hands of Jesus
and for this reason prayer is
essential.

Bukowski summed all this up in a piece
called
Some Non-Horseshit Advice for
Horseplayers
and I have decided to
perform a similar service for
investors. Ill keep it short because
this isnt brain surgery. Here we go.

There is something called the business
cycle. Its as certain as night follows
day or the ebb and flow of the tide.
Bull markets are followed by bear
markets—always, 100% of the time, no
exceptions.  Thats what makes the
market the market.  But the exact
moment of high tide, that we all
strive to anticipate and profit from
remains something known only after the
fact. It is unpredictable, capricious
and inclined to generate many false
signals before and after. That is the
nature of markets.

For example:  You may recall the
bloodbath of 2000-2002 when the S&P
plunged a tasty 54%, likewise the DOW
and the NASDAQ exceeded both to score
an unspeakable dive of 78%. As I say--
a bloodbath and I participated full
steam ahead—as simple-mindedly as the
rest of my investing brethren—or
chumps. But then, recovering from the
shock I did a wise thing: I decided
not to blame the market. I lost half
my money because I lacked the smarts—
or balls—to get out when there was
still time--to cut my losses. The
market started to tank and it
continued to tank and it continued
to continue and I stood by observing
this evil phenomenon in a paralyzed
state, a zombie, incapable of taking
action.

Why? Good question. I dont know. But
when I emerged from the trance I made
a vow. I said: that isnt going to
happen again.

Fast forward to 2007. The market has
recovered from the carnage as it tends
to do and its going full blast with
the DOW pushing 14,000 and I am
pleased but its a bull market entering
its 6th year and I anticipate the next
downturn we all know is on its way but
not when and beginning to plan various
exit  strategies. My preferred
strategy is to get out with both feet.
I am in with both feet and I plan to
get out with both feet.

The year starts off well enough but
now we enter a period of huge price
swings causing the  volatility index—
the VIX-to become a staple of the
evening business news on CNBC chaired
by Maria Bartiromo—the money honey—I
would dearly love to bang.

All this volatility may be a clue. In
2001 the culprit was the internet
stocks—companies like Global Crossing
with 9 straight quarters in the red
and a market cap of 14 billion. Now we
have a housing boom on our hands that
doubles the price of a house in 3
years and something called a sub-prime
mortgage has entered the vocabulary of
finance designed in a particular way
to qualify a homeless type living out
of a cardboard box on San Pedro street
for a $400,000 mortgage on a house in
north Van Nuys (true story) and now
its time for the speculators to get
into the act—or those who aspire to
be--such as my friend Doris in San
Francisco who rings me up in a
frenzied state to tell me she has just
sprung for 2 condos—in Vegas and
Florida—she plans to flip and turn a  
juicy profit and I am  reminded of the
immortal words of Joseph Kennedy in
1929 who said: when you get a tip on
the market from the kid selling you
the morning paper—its time to go short.

The only thing we can be certain of
is: if the housing boom implodes the
experts will be wise after the fact
and if none of this occurs and the
market continues to climb—the DOW to
25,000 as one retard predicts--the
experts will be wise after the fact of
this one as well. But my mother, who
loved the market and followed the
example of John D Rockefeller who
said: dividends, dividends, dividends,
had a saying of her own which was:
better safe than sorry.

Now its December of 2007 with the DOW
in a slide, down a 1000 points from
the November high and it follows this
one with a 3 day mini-bloodbath to
hack off another 650 points and I
thought of my mother and the next day
at 6:30 LA time/9:30 NY time I went on
line to my account at Schwab and sold
everything and when I did I felt
better—at least for the moment. There
were two possibilities: I could be
right or wrong and if I was wrong and
the market recovered from the drop I
could always get back in. But as it
turned out I wasnt wrong but right and
the market continued to slide. Down it
went, down, down, down and then it
went back up for a bit  but it was a
feeble effort, lacking conviction and
then it was back down with conviction
big time and 14 months later the DOW
stood at 6670 and I had saved myself
$61,000.

I am the first to admit it was a lucky
call but as Branch Rickey, general
manager of the old Brooklyn Dodgers
was fond of saying: luck is the
residue of design.

Thats the story and now with  the
ranting and raving out of the way I
will summarize for you a few do’s and
donts I have arrived at during the
many years of taking my lumps like
everyone else—Warren Buffet included.

1) We are in the market to make money—
not break even. In a bull market we
are all heroes. Its who loses the
least during a downturn that separates
the men from the boys. Thats money in
the bank.

2) The preservation of capital is the
cardinal rule. A loss on any
investment should never exceed 8 or 10
per cent tops. Remember—to lose 50% on
an investment means you must double
your return to get back to even.

3) There are no geniuses in the stock
market. There are only pros and
amateurs. An amateur can never beat
the market because he is the market.

4) You dont need too many ideas. One
good idea can make you rich.

5) All good investors are contrarian
investors. A contrarian investor is
someone who thinks for himself. Here
is a quote from Jim Rogers ( co-
founder with George Soros of The
Quantum Fund)

Talking to other people only got me more
confused. Things seemed to work out much
better when I did my own reading and
thinking. To figure things out on my own
and come up with absurdities—no matter
how absurd they were. Because they were
my absurdities.

There is a lot of wisdom in that
statement.

6) Do not average down—also known as
throwing good money after bad. A
tanking stock is tanking for a
reason.  If you didnt own the stock
and it was tanking—would you buy it—
and why would you buy it?  Thats the
question you must ask yourself.

7) Its earnings that drive a stock.
This is what Wall Street looks for.  
Also look for
accelerating earnings.  

8). Three market truisms:

1) The public is always wrong.
2) the market is never obvious.
3) There is one way and one way only
to learn about the market: by losing
money. That is a lesson you never
forget.

9) Always make the assumption the
person on the other end of the trade
is smarter than you.

10)  There are no bargains in the
stock market. A stock is exactly worth
the price it is selling for at that
moment.

11) Read a good book about the
market.  Here are three:
Dance of the
Money Bees
by John Train. How I Made 2
Million Dollars in the Stock Market
by
Nicholas Darvas.
 Reminiscences of a
Stock Speculator
by Edwin Lefevre.

12) Jesse Livermore—AKA the great
Jesse Livermore. Why the AKA? Because
in 1929 when other of his investment
brethren were hurling themselves out
the windows of a tall building Jesse  
had been short for two years and made
$100,000,000. He had his own vault at
the bank and formed the habit of
salting away a mil or two from time to
time because you never know and every
year on Dec 31 he would visit his
money. He sat in a chair inside the
vault to gaze with satisfaction  upon
the stash stacked in piles neatly
about and he looked at it and played
with it for a bit not because he was a
sick human being but to feel the money
in his hands confirmed its existence,
that it was real and served to remind
him what the game was all about.

13) The greatest investor of all time
is Jesus.  Why?  Because he is the
only one who knows what is going to
happen tomorrow.
print version
the nasdaq
2000-2002