Thursday, May 26, 2005

Be Water My Friend...

"If you want to understand the truth in martial arts, to see any opponent clearly, you must throw away the notion of styles or schools, prejudices, likes and dislikes, and so forth. Then, your mind will cease all conflict and come to rest. In this silence, you will see totally and freshly."

"If any style teaches you a method of fighting, then you might be able to fight according to the limit of that method, but that is not fighting."


Any idea as to the origin of these quotes? None other than the great Bruce Lee. I find these quotes most useful in my approach to understanding the markets. And I'm using these quotes to respond to a recent comment from my post that asks the question, "Are Bloggers Relevant?"

The readers responds, "As long as you can articulate any useful observation on the area of interest there is relevance. It may not be relevant to some -- only the ones who want to learn more."

I agree with the responders point but my true question lies in are we indeed sharing useful observations in regard to the market. More importantly are we enabling our readers with the insights needed to truly make money from the market? Or are we just frothing at the mouth espousing generalized concepts and ideas with no true tests or experiences backing them up?

Again I will say, it's a great question. And I'm afraid of the answer. You see, people get blinded by rules, methodologies, and logic. There are many things in this world that make perfect sense. But, when tested against real data are found wanting. Why is this so? I believe its due to the ever changing nature of the markets. It's a game. And being a game...the players are constantly evolving their strategies. Much like the differences you see in the first episode of Survivor versus the Survivor All-Stars.

They played the game for the first time with one set of rules (to be honest they had no rules)...and then learned and revised and when the time came around to play again...the game was different. Reminds me of the Ultimate Fighting Championship. A real walk-forward test if you will.

I can still remember watching the first UFC. I was so excited because I would finally get to see all these different martial arts forms compete against each other in a real fight. Nothing scripted...nothing expected...and the outcome completely unexpected. It must have been humbling to so many practicioners of the traditional arts. I watched as Karate-Do, Tae Kwon Do, and yes even Jeet Kun Do fighters get taken down hard and fast. In the end it was an opponent so small and seemingly harmless that put the fear of God into his opponents and won the championship hands-down. This fighter, Royce Gracie, excelled in ground fighting...something almost all of the traditional martial arts avoid in their practice. And soon ground fighting took the world by storm and everyone was doing it. Several of the great fighters incorporated ground fighting into their practice. The UFC evolved and the game changed because the fighters changed.

That's what happens with the market. Investing styles are much like those traditional martial arts. They look good and sound good on paper and in a controlled setting. But, out in the real world...they just don't cut it. Because somebody always has some edge to exploit the weakness of the players. Once this weakness is shown for the world to see much like Gracie showing the world the arts of ground fighting...the fight changes.

I think this ever evolving nature of the fight is what Bruce Lee was after in his quest to develop the ultimate fighting art. All the traditional disciplines failed him when tested in actual fighting conditions against worthy opponents. So, he developed Jeet Kun Do...one of the first modern form of mixed martial arts. The basic JKD theory is to do whatever is necessary to defend yourself. Break down the limiting factors in the traditional styles and use only those elements that could be found in a fight. Hence the quote by Lee, "The fancy mess solidifies and conditions that which was once fluid, and when you look at it realistically, it is nothing but blind devotion to the systematic uselessness of practicing routines or stunts that lead nowhere."

But, back to offering value. If we do indeed offer value to our readers...does that value instantly become worthless as the opportunity is showcased and known by the public to exploit? Much like Gary B. Smith has found in his original GBS Breakout Method? Or do we hold back some of the vital pieces to the puzzle from our readers much like the following story illustrates...

Bruce did not even show all of his students every way that he himself trained, or present all skills that he himself developed or advocated. Besides the reason of every person having their own "way", there is the following:

This is an excerpt from a letter from James W. DeMile to the editor and staff of Inside Kung Fu, and Hawkins Cheung. The latter who had a series of articles published on Bruce and JKD, to which resulted in the following reply.

"What Sifu Cheung did not feel when he touched hands with Bruce's second- and third-generation students is some key elements that Bruce left out in his later teaching. Bruce made a statement to me that made everything clear as to why he changed certain aspects of his teaching. Jessie Glover, Bruce's first student and probably the best fighter in our group, and I were visiting Bruce when he was teaching a Jun Fan class in a Chinatown basement (Oakland). We noted that Bruce was teaching some things that seemed incomplete. We asked Bruce about this and he said, "Why should I teach someone to beat me?" It was true. Why should he spend all his time developing his personal style and then give it away to someone else who might one day challenge him."


Another example of this phenom is Warren Buffett. So, many investors have tried to emulate his investing style...when in actuality...his investment style is a farce to the general public. How he really generates his billions does not resemble anything close to what he espouses to the investing public.

So, what do we do? Continue to listen and follow the traditional investing arts? Or forge ahead and create our own JKD? Discard anything that does not work in the real world of the market and keep only those things that do. Follow the philosophy of Lee's in response to a question of "What would you do if a skillful wrestler pinned you to the floor? Lee replied, "I'd bite you, of course." May not be pretty...might not fit all the teachings the great masters have given you...but works nonetheless.

Creating our own JKD would mean giving up many of the lessons and teachings that we investors have spent many years learning. Throwing away that 200 day moving average, breakout to new highs, low PE's, overbought, oversold, cut losses short and let your profits run. And only add to your style what works after they are thoroughly tested in the only arena that matters...the true fight...the market.

This would also involve reading media differently. Instead of reading bloggers and the financial media to learn principles and rules to follow...we'd cast a skeptical eye...always looking for the latest weakness to test. Watching and waiting for popular techniques to catch on and giving us opportunities to take the other side. Observing, Testing, and Revising all in the hopes of adding another piece to our arsenal of fighting styles.

That is my quest anyway.

"Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend." -- Bruce Lee

Later Trades,

MT

Wednesday, May 25, 2005

A Great Dog and Price Slopes

My dad called tonight with some sad news. Seems our family dog, Roxie, has developed a very serious tumor in her stomach area and it's preventing her from eating, moving, living to tell the truth. Not sure how many readers out there have had to deal with aging pets and the toughest of decisions when it comes to their life and health. But, I'm afraid that's what my dad will have to debate over the next few days.

Roxie is a Chesepeake Bay Retriever and her temperament and character are Chesepeake to the core. Extremely hard-headed, loyal, smart as hell, and most of all loving. I can still remember when we picked Roxie up from her litter for the first time. It was my first year of marriage and my wife and I were still living in College Station and I was hacking away at my final year at A&M. She was a fun pup and gave my mom and dad quite a delight over the years. My family has had many dogs including labs, goldens, boxers, heelers, etc. But, for some reason Chesepeakes just take the cake. Having a Chesepeake is like owning a dog for the first time all over again. Because they do some many things just bassakwards. And they're BIG. Big enough to truly help when you're clearing timber. Picking up big logs and carrying them around like little sticks to the far woods. Funny.

Anyway, back to the market. While on the phone my dad mentioned I haven't written much in the blog. He's right. I haven't had a whole lot to say. Most of my energy has been focused on studying the market and I haven't lifted my head up to do much else. Sorry about that.

I've been bound and determined to come up with a general market trend detector. Basically, an indicator that would answer the following questions: 1) Are we in an uptrend? 2) If so, are we in the beginning stage, middle, or topping? 3) Are we instead in a downtrend? 4) If so, are we in the beginning stage, middle, or bottomming? 5) Or are we stuck in congestion?

I agree it's going to be one hell of a complexity of sorts to create. But I'm breaking the development into little steps and attempting them one by one. As Charles Atlas says, "Step by step and the thing is done."

The first step I'm tackling is answering the question "#1 - Are we in an uptrend?" I've been working on this step for about 2 weeks now and tonight I believe I'm close to the answer. Surprisingly, there was a fairly simple solution. It involves the slope of the price average. It seems the slope of the average works much like price volatility in that it being a leading indicator.

If the current slope is positive then the future slope is likely positive. Sounds simple doesn't it? Anyway, by just testing this indicator alone it turns out to be a pretty damn good system. But, more development to come. My next step will be tackling question #2 - Are we in the beginning, middle, or topping process of the uptrend.

Later Trades,

MT

Wednesday, May 18, 2005

Bloggers Relevant?

Finished my computer project. The computer build went smooth as glass. Had a slight conflict problem after the first set of tests. But, the problem was quickly solved. Overall, I'm extremely pleased with the new computer. And the first test of my weekly system simulations were amazing. Took a job that ran over 6 hours down to 1 hour. Not too shabby. If I had to do it over again...I would probably go with a stronger AMD cpu. That's just because the rest of the system is so high-performance. And I didn't take that into consideration with my cpu considerations. But, hopefully due to purchasing the 939 board...I can pick up a dual-core sometime in 2006 after prices drop somewhat.

Portfolio updates...

My Dow trade is still under water. No fun there. But, my Nasdaq system trade is doing wonderfully. I knew the trading system would kick my tail. :-)

As far as the oil service stocks...I'm taking it on the chin. And almost sold them all on Monday. But, if you take a look at the price declines from their recent highs...you can see their recent downward move is extreme and we should get some upturn soon. But, if not...asta la vista to those babies! And if we do get an upturn, I'll look to liquidate close to break-even on those trades.

What's next? Well, the media-avoidance experiment is still on-going. Has it been hard to avoid all financial media? You bet. What has my performance been like since the experiment? I hate to say it...but much better than when I followed everything. Will I make this experiment a habit? I find the following quote most appropriate...
"My views on markets always seem to be completely against the weight of the best academic research and the most astute political commentators. Invariably, I find these learned commentators know infinitely more about the subject at hand than I do. I find their views compelling but, invariably, a ticket to the poor-house. That's why I tuned out of all media except the National Enquirer..." -- Victor Niederhoffer in The Education of A Speculator
I think not only do we typically fall prey to someone else's argument...but find ourselves lodging a stand against the person stating the argument as well. Or we take the other side and move like sheep in our desire to belong with others of our own viewpoint. All this clouds the mind and takes our eyes off the ball.

I have found from this experiment that my time is now focused on studying the market and its behavior versus listening and reading to what others pontificate. And really, isn't that the most important job of all...studying the market? Rolling up our sleeves and getting our hands dirty by using our own brain to decide what the market is doing versus synthesizing gobs of information thrown at us from pundits and prognosticators alike?

What does that say about us bloggers? Are we relevant? Are we truly helping investors out there? Or are we just giving our readers something to do? Or more importantly...giving ourselves something to do? Great question.

Later Trades,

MT

Monday, May 09, 2005

The Perfect Computer

Here's some more info on the computer I'm building. Please note, the computer parts have just been ordered. I have not received all the parts and thus will not begin building the computer until all components are received. I expect to start in the next week or so. Now here are the parts I selected and the reasons why...

AMD Athlon 64 3000+ 512K 90nm (939) CPU

I decided to go with the AMD chipset mainly due to the upgrade path the 939 chipset provides. Most of the applications I currently use will not take advantage of the 64-bit performance. But, when spending the kind of money I'm spending on this computer I do want the widest upgrade path available. Plus, my Wealth-lab software does not take advantage of Intel's Hyperthreading but does take advantage of AMD's memory controller being built-on to the board. Also, if you're going to choose AMD...might as well go with the hottest chipset which is the 939. That's where everything is going.

MSI K8N Neo4 Platinum SLI Motherboard

It really was a toss up between this board and an ASUS A8N-SLI Deluxe nForce4. And to be honest, I went with the MSI because it was available. Currently, most of the online stores were out of the ASUS boards. No doubt, there seemed to be a feeling out there in the building community that MSI is the better board. And the more reliable. But, from what I could tell...you really couldn't go wrong with either. Like I said in the previous post...I don't give a rat's a*s about SLI...but if you want the latest and greatest bells & whistles you've got to go with the SLI boards. Especially since I will utilize the built-in RAID controllers.

2 GB (2pcs 1GB) DDR (400) PC-3200 Corsair (TWINX2048-3200PT)

There's no doubt that the most important purchase for my system was memory. Because my applications use lots of it. I spend more time waiting for simulations to run mainly due to memory and hard-drive bottlenecks in the current system. So, I decided to go with 2 GB's and chose memory designed for large memory arrays. Hoping this will improve the speed and more importantly allow me to work with larger data sets in my trading simulations.

Western Digital Caviar RE WD 1600SD 160GB 7200 RPM Serial ATA150 Hard Drive

I chose this hard-drive mainly because of Western Digital's reputation and also because the RE version of this drive means it's built for high duty cycle environments. I almost chose the 10,000 RPM drive but decided against mainly due to some reliability issues I have read about. I'll probably purchase another one of these RE drives and RAID 0 them. And then I hope by that time the reliability issues of the 10,000 RPM drives will be worked out and I'll purchase one of those for my system drive. Then I'll have my applications running on the 10,000 RPM drive and store my data on the RAID 0. That should be FAST!!!!! Could it be overkill for what I'm doing? Maybe...but who cares.

XFX GeForce 6600 GT 128 MB DDR3/PCI-E/TV-OUT/DVI

Okay, okay, this graphics card is way to much muscle for my needs. But, since I spend large quantities of time sitting in front of the computer I wanted dual-DVI hookups for two LCD monitors. And truth be told, this was the cheapest dual-DVI graphics card I could find.

Antec Performance TX1088AMG SOHO File Server 480W Power Supply

I went with this case for two reasons. 1) The power supply was included and its one heck of a power supply. The True Power II that is built to handle SATA and PCI-E. 2) The case has capacity for expansion and fans galore. From the reviews the case has good airflow to keep things cool during those high power all-night simulation runs.

Dell UltraSharp 1905FP 19-inch Flat Panel Monitor

I went with this monitor mainly because its the one everyone has at my dayjob. So, I knew it performed well. Plus, Dell was having a 40% off sale and so I couldn't refuse. If I wouldn't have chosen this bad boy I probably would have gone with the Acer AL1912B 19" 16ms LCD Monitor. Don't have any experience with this monitor but the reviews were pretty good.

Lite-On SOHW-1673 16X8X16-DVD-RW/48X24X48-CD-RW Black
Didn't want to spend too much on the CD/DVD burner...and this received some great reviews from the builder community. Nuff said.

NEC FD1231H-302 Black 1.44MB

Floppy drive mainly to install SATA RAID.

Best Data 56FW-92 56kbps Modem
Well, gotta have a phone modem for backup purposes on your Internet Connection and this modem by Best Data fits the bill. If your Internet provider supports v.92 standards you should connect and download faster. Whether this is the case...I cannot comment...since I haven't tested it out yet.

That's pretty much my purchases. I did pick up a few more fans for my case but overall that was it. I'll use my current keyboard and mouse and install Windows XP Pro. Just a few more words about computer parts shopping. If you're really interested in going this route check out the product reviews over at NewEgg.com. Then after you decide on your components...search for the best price between MonarchComputers.com, ChiefValue.com, and of course NewEgg.com. And don't forget to include shipping costs in your comparison.

I'll post a follow-up on this project once I get the system built, tested, and run a few simulations. Wish me luck!

Later Trades,

MT

Tuesday, May 03, 2005

Market Experiment

In the process of building a new computer for my trading platform. And let me tell ya, it will be sweet. It has taken me about a week to figure out all the components I wanted. Decided to go with an AMD 64 platform using the 939 socket infrastructure. Chose the new SLI type boards. Not so much for the SLI but for all the built-in RAID features that I will soon take advantage of. Also loading 2 GB of dual-channel memory from Corsair. Chose memory designed for large memory array applications such as my Wealth-Lab software simulations.

My next post will be a breakdown of all the hardware purchased for the system and I'll share with ya'll the places I purchased the components. And give reasons for choosing what I did.

And for those interested...I'm still long the market. I did take advantage of the new price highs in land drillers early last week and sold. Mostly just because I figured earnings would be about as good as they could get for the next few quarters. The subsequent quarters most likely will begin seeing capital expenditures eating into some of their recent blow-out profits.

I'm still long a few oil service plays. Mostly because they haven't done anything and are typically late to the stock market party. Also, their strong season is the summer. So, I'll hold until I see new highs or until I get stopped out. Or if they don't respond well to the summer season like I expect.

The rest of my money is in the S&P 500, Nasdaq, and the Dow. And lots of it. I just hope this bucking bronco keeps bucking and doesn't turn up dead on me. Ha!

And lastly, I'll share with you a recent experiment I've been carrying out. I have cut-off all market related news and commentary. The Fox morning Stock Market shows are gone. My daily blog readings...gone. Investors Business Daily, Wall Street Journal, newspapers from around the world? Gone. Yahoo Finance? Gone. The only thing I'm allowed to see are my stock charts. I cannot even follow world events such as economic and political news. Since these can and will affect my trading perspective.

I bet you're asking, how does it feel? Oh man, it's rough. Finally in the second week of the experiment and I'm beginning to see the power behind being cut off from the rest of the world. I guess Darvis was on to something. Anyway, I expect to carry out the experiment til at least the end of May. Based on the results I may continue this path. To be honest, it does focus you. Forces you to see the market for what it is instead of what everyone else is saying it is. For a contrarian like me who is always ready to take the other side of someone's opinion...this might actually be the way to go.

I'll keep you posted.

Later Trades,

MT