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20-Apr-2006
Briefly Speaking, A Little Humbleness is Good for Investors, by Victor Niederhoffer

The moves in markets these days bring back many pleasant memories of what it was like when I started trading commodities in 1979. Gold went up continuously from $250 to $800 an ounce, silver from $5.00 to $50.00 an ounce and bonds went down every day as interest rates climbed from 5% to 14%. Trend followers were coining money and every chart book showed the 10-day, 30-day and 200-day moving averages all in perfect alignment with the short terms below when trends were down, and the short terms above when the trends were up.

During this year ending April 19th, silver had gone up 75% and gold up 50%,  bonds during the last two months lost seven points going from 114 to 107 and the trend following index of S&P managed futures was at 1161, up from 1130 at the end of the 2005, and up from below 1000 in April of 2005.

In my hay day at the start of my commodities career, when I brought $40000 up into 20 million in six months (before losing almost all of it in the subsequent three months) I was often displeased if I didn't make at least a million in a day. But then one day like yesterday, when silver went down 14%, its greatest % decline in 23 years, and gold fell 2 or 3%, the whole edifice fell apart. I was very lucky to survive at that time, and it was only due to my humility having lost so much in athletic pursuits and poker games that I knew enough to force the little woman to sell me out regardless of my pleas. One hopes that other poor shavers will have similar humility.

Sagacious views. It's always bitter sweet to see the edifice of a sanctimonious scoundrel fall, especially when he was protected by a massive public relations foundation and half of the books written on investments touted him as the world's greatest investor ever. As I have pointed out in Pracspec and these pages, his constant message of pessimism about American business and stock market moves, and sticking to the tried-and-true old-faithfuls in the shoe and candy business is one that, like Abelson's, is guaranteed to be the worst advice that new investors could possibly believe. A spec foster student of mine went to lunch with him in Nebraska and had asked me for a few questions to ask him, and one that he asked was "why have you been consistently bearish on US stocks over the past 10 years in spite of the 10 million percent  a century returns?" The sage answered that he wasn't bearish but had actually found some good values in Korea. But now comes news down the pike that of 100 pension funds in 2005, Berkshire had the lo west return (4%) of the funds studied by Milliman USA. They had just 10% of their assets invested in US stocks. It seems somewhat fitting that in view of how wrong he has been, that his stock is flirting with a six-month low, is down some 10% relative to the market this year, just suffered a run of seven consecutive daily declines, and is trading at just some 7% above its 1998 and 1999 highs, and that's of course without dividends.

Speaking about seven's, one notes that the last seven times that Intel opened up on the day following a quarterly earnings report, that it closed down from the open as it did today. I own Intel, and must admit that in all the years that I have read earnings reports, there has never been one that seemed on the surface to be more bearish (including the icing on the cake that they plan to cut their stock buybacks by 1/2) than yesterday's first quarter report; except for Pfizer's last year which I also owned.

Also, seven is a number one hopes for when shooting in dice and when hoping for long runs in such things as trend following stocks. Looking at the number of times that the S&P Futures has gone down seven or more days in a row since 1996, I find no occasions when this wish has been fulfilled. On the other side, there was a run of exactly seven daily rises on nine occasions (with a zero expectation the next day). Such numbers are consistent with the results of the Triumphal Trio on a much larger tableaux.

When people have asked me how the trading was going during the last 10 years, I have always answered "Not as bad as before, but then again, you can't go lower than the nadir." I intend to keep my Intel position on similar grounds. How can things get worse?

Might I suggest that this humble attitude is a very appropriate one for specinvestors to consider?

 

 

 

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