me and the market
My mother played the market.  She was a
waitress who sent or helped to send two
grandkids through college on her tips. What was
left went into the market. She fell into the
category of most investors—the 99% who
invest in companies they know nothing about
but depend for their information from friends,
family members or the market gurus of the
moment. In my mothers case the advice came
from her daughter-in-law.  But she had criteria.
There were two. She never 1) paid more than
$15 for a stock and  2) insisted on the payment
of dividends.

In this way she acquired a handful of blue
chippers such as ATT, Ralston Purina, PECO,
Chase Manhattan, National Semi, etc, and there
were a couple funds of the index or value type.

For myself the market was a non-reality. I was
aware of it but knew nothing about it or cared
to find out. I had a business that I obsessed
over and took the view that by definition only
one obsession can be accommodated at a time.

At some point after many years of struggle I
started to make money, a modest amount and
it all went back into the business.  From time to
time I would write a check for a few bucks,
$500 or a thousand and hand over to my
mother to invest on my behalf but this was
more a gesture—of my affection for her that I
was unable to demonstrate in any other way (a
long story)

Over time these small sums added up to  
$15,000 or so.

Time passed and its 1994.  Business was bad,
very bad, I was 54, suffering from  burnout and
I packed it in--a tough call. I took a year off to
play golf and consider my next move. My next
move was to play more golf.

Meanwhile I met with my mother for a
conference, The subject was money.  The
market was going thru the roof and had been
for some time and none of this, believe it or
not, had penetrated the world I lived in--a
world circumscribed by the narrowest of
boundaries. From time to time over the years
she would say things to me like: “Ralston has
announced a two for one split” or: “Chase has
increased its dividend”, or that “Lucent (a
spinoff from ATT that I got for nothing) is going
through the roof!”

So we had this talk and she turned over to me a
vast pile of folders—of statements and annual
reports and fund prospecti, ect, for me to take
home and sit down with and to analyze.  This I
did and now I got a surprise—a nice surprise.
The $15,000 or so I had laid on her in dribs and
drabs over the years was now $100,000 or so. I
perked up.

I decided to investigate this phenomenon. I
read some books. They had titles like:
Little Guide to the Stock Market
, Inside Wall
Street, What works on Wall Street, High Yield
with Low Risk
, etc. I read along and as I did a
glimmer of intuition gradually revealed itself.

There was something about these books-—a
tone. It was the tone of a parent addressing a
small child.  It was facile and a little simple-
minded and relentlessly upbeat—the
cheerleader—or Oprah--concept.  That was
the glimmer of intuition that revealed itself: it
cant be this easy.

But maybe it was. The market continue to
climb. It was more than climbing—it was
blasting its way into outer space.

I got the idea of making some trades. I called a
friend, Hank, living in San Francisco, who
played the market and had been for years

I said: “I have this money my mother made for
me in the market. I want to make some trades.
What do you advise?”

He said—and these were his exact words: “I
advise you to call your mother”.

On with the books and I subscribed to Money
magazine and Kiplingers and now each morning
working my way through the  paper I included
the business section. I watched
Wall Street
and The Nightly Business Report. I had
discovered something: the stock market was

I found a job—teaching ESL—English as a
Second Language. I hammered Mexicans with
verb conjugations. Not a bad job. The hours
were short and I liked the students. I took a
test called the CBEST and got a teaching
credential and latched on to the program at Los
Angeles Unified where the going rate was
$37/hour. My short term financial problems
solved, I was free to turn my full attention to
the stock market.

On with the books.  I read this one, that one,
the other one. I learned a few things. I learned
about the rule of 72—compound interest. It was
Einstein, asked his opinion of the  greatest
mathematical discovery, who said: compound
interest.  According to the rule of 72 you divide
into it the annual rate of return and that is the
period of time required to double your money.
The DOW historically delivers 11.7%.  That
means your money doubles every six years.
You are 30 years old, you invest $20,000 in an
index fund and 18 years later at age 48 you
have $160,000. Now wait another 6 years. You
get my meaning.

It was at this point I got stuck—the compound
interest point.  I was reading these books and
picking up some of the lingo—the lingo of
accounting, pithy expressions like gross margin,
net income per share diluted, accrued liabilities,
etc—but in the brilliant insight dept--nothing. I
was looking for something—a system.  There
was no absence of systems. You had this
system, that  system, the other system. They
were all over the place. But for some reason
nothing registered. This nagging conviction
prevailed—that these  people, experts on the
market, were all saying the same thing: buy
some stocks and hold them—for  but not for too
long. That was the story.

I read a book called
The Money Masters, a
collection of interviews of some of the elder
statesmen of the trade—Peter Lynch, Warren
Buffet, George Soros, etc. The writer was John
Train. By this time I had picked up a few
certainties and at the top of the list was: to beat
the market was easier said then done.  Even for
people making a living at it-—the traders,
brokers, fund managers, etc--it was pretty
much a standoff.  Sometimes they beat the
market and sometimes the market beat  them.  

But here were these other guys— the Peter
Lynch/Warren Buffet/George Soros types-- who
were not only beating the market they were
annihilating it.  How?  It was the view of John
Train that an intangible was operating here-—
something all the experience and business
savvy, the hard work, the reading and research
and visiting of companies and interviewing of
company CEO’s and their secretaries and the
guy who drove the lunch
truck, etc—failed to explain.  It was something
else--that pretty much boiled down to the word
instinct”.  They had a ”feeling” for the market.
God bless the investor who has a feeling for the

I liked this John Train guy.  He was coming at
things from a different angle.  He wasn’t the
Oprah type—the cheerleader type. He was
objective, honest and even brutal—-as in the
feeling perceived one morning when—as certain
as the air we breathe—you turn to the business
page and your Lucent stock—your baby--has
tanked overnight to the tune of 30%

That was Train.  He called a spade a spade.
They were hard words:

"The stockbrokers preferred strategy is to buy
apparently “underpriced” stocks from time to
time and sell them when—and if—they become
overpriced. Yet I doubt if today many investors,
even professionals, exist who can do this with
consistent success. Certainly the part time
investor or retail broker has no hope of it".

"The successful trader is an expression for
which, like the unicorn, there is no  
corresponding reality".

"The computer is a godsend in manipulating
data but the day it relieves the analyst of the
need for shoe leather, the plant inspection and
assessment of management, industry
knowledge and a lifetimes experience and flair
will be the day the birds willingly fly up the
barrel of your gun".

Time passed. It’s the year 2000. Remember
2000? Remember march 2000? I remember
because in January of 2000 I took &25,000 from
a value  fund at Scudder that wasn’t
appreciating quite fast enough and divided the
money in half and dumped one half into a tech
fund and the other half into  a large cap growth
fund which was the same thing as the tech fund.
I didn’t stop there. I cashed in $12,000 of my
Ralston stock (my Ralston dividend paying
stock) growing at a miserable 20% and bought
3 stocks: Lucent, Dell and Charles Schwab. I
made a few other moves similar to these and it
was in this way I turned $100,000 into $50,000.
And it didn’t take long.

One of the things the amateur investing chump
--the AIC, with a stock market IQ of zero--
shares in common with other amateur investing
chumps is that: when the market is going
through the roof we can speak of nothing else
and when everything turns and the  market
goes into one of its patented brutal plummeting
nosedives into the toilet—we fall silent.
Suddenly, in the blink of an eye, the market no
longer exists. The word is a curse, never again
to form upon our lips, nor are we to read a
book, subscribe to a magazine, watch a
business show on TV. The monthly and
quarterly statements from funds and brokers
are filed away unopened. That’s the story

Time passes—a couple of years. The market
begins to recover—as it tends to do--and one
day  a statement arrives from the broker and
you decide to take a look and when you do you’
ve made some money—sometimes quite a bit.
You perk up.

So it was back to the books, the magazines, the
business section of the Times and the watching
of gurus on TV

I read another John Train book:
Dance of the
Money Bees.
It was written in 1972. It begins in
this way

"Few people succeed in preserving their capital
and even fewer will succeed in the future. One
of the Rothschilds said he would settle for
preserving a quarter of his capital. Alas, he
probably didn’t make it. Survival is a
competition. What you have, including your
savings, others want and will struggle to get.
The push to take it back from you is as
relentless as that of the sea to overcome the
dikes that contain it or the jungle to enfold a
patch of cleared ground".

And this is Trains theme—not the making of
money but the quaint notion of: how to avoid
losing it.

Dance of the Money Bees covers a lot of
ground, but its the classic cycle of bust and
boom—the Bull and the Bear and the raging
unpredictable volatility of the market from
which the title of the book derives:

"The scientist von Fritsch studied the honeybee
and this is what he found.  When the honey bee
locates a source of new blossoms the news is
made known to the hive via a dance. The head
bee hovers in space at a particular angle to the
sun that serves as a guide to the blossom—the

"He now become quite agitated and thus begins
his “dance”. Depending on the urgency of his
motions more or fewer bees join in and off they
zoom to the flowers".

That’s the dance of the honey bee--that
perfectly corresponds—as Train describes it--to
the dance of the money bee—the average
investing chump seduced by a bull market at
the most volatile possible moment, or,  when
he should be getting out, its now that he jumps
in with both feet.  How does this happen.  Train

"The herd instinct is powerful and occurs in
every animal group. It is defined by a deep
compulsion to behave in response to some
signal or other.  Greed is such a signal and so is
fear and panic. The susceptibility to the
contagion of mass emotion is one of our
strongest traits and brought deeply into play
during moments of major speculation. Who is
not affected by the fear of losing everything he
has, or the lust to have it double or triple?"

This guy wasnt bad. There was wisdom here.
He was a savvy dude--stock market-wise and
there was something else: he was a writer.
There was a voice here. I am a writer and what
I look for in a writer is a voice. Most writers don’
t bother with this notion.  They write like
plumbers installing a sink—-done pretty much
the same way from one plumber to another.
Down come the words onto the page, more or
less as they feed into the brain and it is left for
the reader to work out for himself any problems
of clarity that may result. There is little humor
and even less penetration of thought.  Its as
stimulating as a rock. Harold Ross, who found
the New Yorker and served as editor for 25
years, was 10 years into the job when he had a
revelation, revealed to EB White. He said:
“Most writers don’t know how to write”.

But here I was, reading about things like profit
margins and return on equity  and
price/earnings ratios, etc, and I had stumbled
across that rarest of creatures: a writer. He had
a gift for metaphor, something not usually
found between the pages of a book on the stock

"I have chartered the consensus of newsletter
writers and the result is they coincide perfectly
with the least informed segment of the
population: the odd lot short sellers. It turns out
that if 60% of the subscription services are
bullish, a significant decline is imminent, and
conversely, if a mere 15% are bullish (that is,
85% are pessimistic), a major up-move is about
to occur.  That is the nature of markets. If all
the kids jump on the one end of the seesaw
because its supposed to go up—it cant go up".

"Economists are like the Eskimos who sleep 8 to
a bed.  When one turns, they all turn".

"There are such things as "tainted" stocks –
gambling, tobacco, pornography, etc, and I
note in this context a recent magazine piece
devoted to a brothel company in Germany that
has gone public with a lot of hoopla. But as
Vespasian said, when he raised revenues for the
state by taxing public privies, money is

Why the Bear and not the Bull—as  a symbol for
the crash? The explanation is this: to be
impaled on the horns of the bull is a hideous
fate but the word “carnage” doesn’t apply.
Carnage  occurs via the bear who  first shreds
you with his claws and then hunkers down to
devour you with those yellow pointy choppers--
a feeling similar to the mauling received during
a crash when within the blink of an eye you’ve
lost half your money.

The cycle as described by Train works in this
way. He begins just prior to the panic.  The
DOW is down by a third and  many splendid
issues have been cut in half. Unemployment is
up, and  some major international incident or
act of God  has chosen this exact moment to
appear on the scene. The time is ripe for the
herd instinct to kick in--with a vengeance:

"There is a happiness that results from running
with the herd—for good or ill—but mostly for
ill.  They are never so happy when they are all
disappearing together into the toilet. You can
almost hear it—this audible flushing effect".

Everything caves in during a few catastrophic
days or weeks. Meanwhile a few of the pros—
the real pros—-the Peter Lynch/Warren
Buffet/George Soros types—-the ones with ice
in their blood and  nerves of steel--have been
loitering on the sidelines in anticipation of this
moment which somehow they but no one else,
least of all the person who looks back at you in
the mirror each morning, has foreseen.

We are at the beginning of a new bull market--a
dynamic phase. This is where a window occurs--
a buying opportunity--but it’s a small  window
open only for a few months. Still the pros wait.  
They need reassurance the market has clearly
turned. They are happy to pay an extra 25% for
a stock that has been cut by two thirds to be
reasonably certain it is not going to decline by
another 50%

Now they start to buy--snapping up the
bargains-- some going for 10 cents on the
dollar. Everything they buy goes up. There is no
resistance because the sellers have sold and no
one is left. They have the field to themselves.
Its like shooting fish in a barrel.

Time passes. The market continues to move in
this broad upward path. Now the herd, having
sworn for the word “market” never to form
again on their lips, begins to perk up. They  
observe timidly from the sidelines as all this
action transpires and at some point, now that
the window of opportunity has long passed,
they spring into action--the bees in the hive
responding to the dance.

The fervor and tempo of the dance continues to
mount. The music plays louder and louder. It’s
a tumult—raucous. Now—yet again—we are all
into the act and the prices are through the roof.
Some sector or other--healthcare, biotech,
financial services, etc emerges as the center of
attention--the glamour stocks--skyrocketing
even more than the rest into the stratosphere.

In 1999 I was in New York to attend a wedding,
it was the height of the boom and the mood was
euphoric.  My Lucent I got for nothing as a
spinoff from ATT had split twice and was about
to again, hitting 80 with no end in sight.

I got into a cab and began to chat with the
cabbie and I leave it for you to figure out what
happened next. Correct. He gave me a stock tip.

Here is a passage from Train--written 27 years

"You flag a cab, in a rush to have lunch with
your broker. You chat with the cabbie, speaking
of this and that, and the cabbie mentions a
stock—Federated Fido that his nephew bought
for 3 two weeks ago and is now up to 4. You tell
the cabbie about Consolidated Canine which you
bought yesterday and today is up 15%".

Time passes—a few months and signs appear
among the mass of stocks--a hesitation slowing
their upward climb. Only a few leaders continue
to make new highs.  In the papers the phrase,
“loss of breadth”  begins to appear. The ratio of
advances to declines begins to dip—though the
Dow remains high. Interest rates have yet to
fall because companies are eager to expand.


"In a boom beyond a certain level more
business doesn’t mean higher profits and it
is at this point of the cycle that that fact
begins to be noticed. A few enthusiasts
claim that this time things are different
and that the government-—meaning the Fed--
has mastered the business cycle. The Fed hasn’t
mastered the business cycle".

A few months pass and we start to recognize
the typical top formation--a series of vicious
chops.  There is a first chop over a period of
several weeks, followed by a brief rally , then
another chop, another rally and so on for a few
months with each rally demonstrating less
conviction and establishing itself at a lower
level. The secondary stocks, the ones not in the
leading averages have been sluggish for
months. This is the beginning of the end, a
dangerous moment.  This is the time, according
to Train, that if you sell out you will probably
not regret it:

"The stock market is an index of how investors
feel about the future—not about the present.In
other words, it’s a barometer, not a
thermometer. In a ship the worse the storm
and the sicker the passengers the sooner things
will improve and the barometer start to rise.
Similary once the weather is perfect, the next
change in the barometer will probably fall".

That’s where we are now, with the barometer
dropping and the passengers turning a little
green and beginning to have misgivings about
this trip they so blithely signed on for.

We are back where we started, the moment
before the washout. We were down, then we
were up, and now we are down again—rolling
along with the market on on this devastating
and exhilarating ride that began with panic
followed by relief, then optimism, enthusiasm,
euphoria, followed by  concern, desperation,
panic.  The cycle is complete.

That’s the story—a continuing story. I leave it
for you to write the next chapter. But I would
advise you to read John Train. You can do it for
the wisdom, the insight, the depth and range of
his many interests and his business savvy and
years of experience studying and thinking
about--and playing--the market. Or you can do
it for another reason. You can do it for the sheer
pleasure of the writing—all too rare a pleasure.