There is a horse running in the Derby tomorrow called Stately Victor. 30-1. I think that I'll splurge and slap two dollars down on this thing in your honor, though I've ever bet on a horse before. This should be interesting as I imagine there are few things in life more obvious than a guy who's never been in one before trying o look nonchalant in an OTB, amongst the cognoscenti therein. Especially a guy asking a two dollar bet. I look forward to the experience.

Victor Niederhoffer says:

In my honor you should bet only a buck, as that's the figure that Bacon liked to bet.

Tom Marks replies:

Well, I'm in. Followed your risk parameters as well… Still made my two dollar wager to win, but went partners with my friend's mother at a buck apiece. All of which made for an educational scene in the OTB.

I approached some guy who, judging by his expressionless bearing, gave off an air of insider ennui. I've come across many a person with a been-around-the-block look about them, but it seems there's nothing quite like an OTB been-around-the-block look. This guy had it, rolled-up newspaper, pencil, and all. I've always sensed such resigned weariness while walking past the window of one of these places in NYC, as it's like looking inside a box of sadness.

Anyway, I asked him how to do exactly what I wanted to do. He proceeded to walk me through it, after which I mentioned that I was partnering with my friend's mother on the investment. With that he sighed deeply and shook his head, telling me that now he had to bet on Stately Victor. He didn't explain exactly why, but I got the impression that he didn't feel entirely comfortable with running his "system" up against the chances of two people with possible beginners' luck. It seemed as if he was now hearing a little voice in his head and would never forgive himself if he didn't heed it.

Superstitious bunch.



Painting by Rubens

The yogis say our true nature is joy.  When we're laughing and truly having fun, perhaps that's when we're most being ourselves - and not the product of something else. G.P.

It is easy to be jocular and personable when things are going well, but you get to see who you really are when things are going badly. The energy required to maintain interpersonal facade is redirected toward survival. The market is a very good mirror. And a very bad one.

Bill Rafter adds:

Who you really are is very much like a stock in Portfolio Theory. The good side is the rate of return, but most compare that with the additional information of the standard deviation of the returns.

Similarly a person should be measured along the same lines. The person who is happy go lucky most of the time but occasionally has bouts of violent anger is not as desirable a friend as one who is relatively constant but with lesser high points.

Each person responds differently to stimulus. And as with stocks it is the bad side that is most important. Someone who is in a funk for a long time has the risk of getting clinically depressed, with physiological damage to the synapses.

Ken Drees comments:

I always liked the saying that "not all great companies are great stocks". Forgot who coined that one–maybe from the Livermore books that I have read. Meaning that the stock of the good company may not act or behave well for speculation. In general, it is interesting how stocks are given human qualities by specs.

Alex Castaldo replies:

Forget about Livermore. The first to warn about confusing good companies and good stocks was the late Peter Bernstein in the Harvard Business Review in 1956.  The idea was followed up by many people, including Solt and Statman (1989) and most recently Richard Bernstein .  

Kim Zussman generalizes and extends:

Galton weighed in on this, with five big personality traits: Openness, Conscientiousness, Extroversion, Agreeableness, and Neuroticism (OCEAN) In modern times, add Yeswecannyness, Islamocapitalist, and Amelanotaxophile.



Always play tennis with a proThe recent moves by central banks around the world to spend and add trillions of dollars to their balance sheet leads one to revisit the great coup when an investment firm speculated that a foreign currency was too high, took a short position against the currency, and was so powerful and correct that the central bank succumbed and devalued thereby leading to a 10 figure profit for the investment firm. I knew and spent considerable time in both business and personal activities with the head of that investment firm before he severed his connection with me, and thought that it might be apt to reconsider what I should have learned from him so that I and others might learn from his wisdom for the future.

1. Play sports every day, but not golf, and always use two cans of balls, and hire a pro as a doubles partner, so that you don't waste time chasing the balls around. There is a high opportunity cost to your time, and don't distract yourself with mundane activities like changing diapers or knowing where the refrigerator is, or make trivial investments that would distract you from the main chance.

2. Make your entire persona and investment approach consistent with the idea that has the world in its grip, i.e., the purpose of life is to do good for the needy. Like Lady Gaga, be the kind of person who should be a frequent visitor to the Oval.

3. Never marry a woman you wouldn't wish to divorce, i.e., never get into a position you couldn't get out of with ease, and think of this before you make the commitment. I would add that the selfish wife or selfish price or selfish dog should never marry a man that will leave her in oblivion if things don't work out. Imagine the great harm that the selfish dog did itself by killing a human. Now they're all likely to be rounded up.

4. Never trust anyone. And especially the more they talk about their honesty, the faster and more closely you should count your silver.

5. Foster above all relations with lenders so that you will have enough collateral and staying power at all times as the banks.

6. Be sure that you can play the float that unrealized liabilities provides.

7. Develop economical habits so that you can apply them in the business. Demand a discount on all transactions even if you are going to donate a million times that much to charity at the end.

8. Never waste your time with old ties and loyalties if they that don't have an immediate short term benefit, i.e, "what can you do for me tomorrow and today." Be careful you don't get roped into going to too many funerals and choose your acquaintances accordingly.

9. Never admit to having made a profit, but always emphasize your losses.

10. Surround yourself with big and powerful players so that your positions will be with the forces when you disseminate or implement them.

11. Have a loyal and very tight friend, preferably a retired accountant who vets all your deals with family and only invest in them pari passu with your friend if he invests in it on his own. Be sure that your lawyer is your best friend, and run everything by him at an early stage.

12. Always be humble and admit that your future looks bleak, that you yourself couldn't understand your own thesis, and surround yourself with people that you know are much smarter than yourself.

13. Stay away from attractive women aside from your wife as they can be too expensive and distracting, but feel free to admire them from a distance.

14. Develop a few flow hobbies like chess or music that can take your mind temporarily away from the business.

The most important lesson of all is that survival is the key. Never allow yourself to be expunged from the game or life. If something life-threatening is in the air, get out — whatever the cost.


Always hire a pro to second you when you are playing tennis or investing. The pro makes you look good and can always win his serve and two or three points on the return of serve. It's important not to make a fool of yourself when doing something you're not so good at, as people mistakenly think your abilities in one thing are related to your abilities in another. (People, including myself, have mistakenly made that mistake about me, thinking that because I was so good at hardball squash I might be almost as good at something else). Having a pro besides you for your investments in a field is something I first learned about when I met a friend of the head of the investment firm under consideration and he told me that he was in charge of his investments in Bora Bora or some such which had a population of 136, and I realized that similar pros were handling investments in every other country with population above 50 around the world. Since then I have been amazed at the quality of the pros that the head of the investment firm under consideration has hired or partnered with to lead him to victory.

Also, never wear an overcoat to a restaurant. When you're as rich as Gino or the aforementioned, the hat check people will hate you if you leave too little, and if you leave too much you'll ruin it for the other people who aren't that rich. The investor I refer to was a very economical tipper, and always said that he adhered to this abstemiousness because he didn't want to ruin it for others that couldn't afford it like him. This had the virtue of maintaining the economical habits so essential for business, as well as the benevolent affect on those less fortunate in the investment battle.

More important, what are the lessons that you have learned from persons almost as, equal to, or even more influential and helpful in your life than The Pal was in mine before he sagaciously severed his connections with me?

Tom Marks adds:

 To make it an even baker's dozen to the 12 of those original 10 while perhaps being more idealistically precise, any truly estimable sort would also have found a way to convey the following precept.

In matters of rooting for other people, and with everything else being genuinely equal, always have one's heart wager unabashedly on the underdog as determined by society and convention's Vegas. Maybe it's the temporal variation on Pascal's Wager, as the potential payoff joys dwarf the ante of possible disappoint. Besides, even if the sporting sort loses, which they oftentimes do, they still earned karma dividends simply by rooting for another in the first place. It's win/win. I take that shot every time. Why not, it's amazing how many loses of that type one can endure while still being spiritually solvent. 

Jim Sogi writes:

What I have learned is that it is the wave from within that swamps the canoe. All problems come from within. Most mistakenly blame external sources for their woes. This is called denial. The world is basically beautiful. We are all defective in some way. Learning how to accommodate these various intrinsic human, and particular peculiarities is the road to self realization. It's a long hard trail. 

An anonymous commenter adds:

1. Invest in stuff you do not understand. The Complexity Premium will carry you for awhile, see Enron and Alphabet Soup of securitization for proof. In the mean time people will think you are really smart and that is why you out perform in the short term.

2. Never let someone go over your long term results. Focus on what you just bought in any analysis or comparison.

4. Blow up only when the economy stinks, that way you have a good excuse. Many decent years followed by one excusable bad year. The opposite of course can apply to hedge fund guys. Only have one spectacular year, and everybody will think you out smarted the optimist.

5. If someone models your risks and says it is too high, call the models garbage. After all nobody could model the stuff you bought.

6. Buy everything complex from your friend you played on the same intramural team in college. After all he has a McMansion and would never hurt a friend. He has great contacts, and loves being the middle man and controlling what you and your boss sees. Besides he will then take you to all the greatest golf courses when you are in town.

7. Call being in front of the herd, "herd following" and "group thinking". But bottom selling and top ticking is simply an irrational market and bad economy. If you are in front and something goes wrong, you simply look stupid. But if you get caught at the tail, nobody could have seen it coming, because everybody was doing the same thing.

8. Always be quick with a joke, but make sure it is at somebody Else's expense, not your own.

9. The better people are, the more you need to dig to find their weakness. Once it is found, make sure to define them by this problem.

10. Never win at golf, but prove your expertise in the clubhouse by knowing your liquor. Be sure to always be in the "power" group when you play and drink.

11. Make sure you are friends with your bosses mistress…you never know when you will need to call in a favor and have someone fired.

12. Control the minutes of every investment meeting, nobody reads them anyway, but it is a great way to not have to do something you do not want to, but those in charge want you too.

OK, so this was a conglomeration of several poor guys I've known. 

Tom Marks adds:

One recalls that the stock market last topped out with Scott Browns'
 election. And this weekend may in fact mark the passage of Obamacare.

If the markets rally despite Obamacare, might this be an example of the "busted hypothesis" of which a certain famous speculator wrote?



 Last week I was in Sweden and I went to see my first Ice Hockey match (Frölunda HC vs. Djurgårdens IF, score 2 - 5 ).

Frölunda HC is 7th in the standings and Djurgårdens IF is 2nd in the Swedish Elitserien Regular Season. The game was very fast and it was difficult for me to understand schemes, tactics and strategies. What was obvious, however, was the superiority of the winning team, as they were ahead from the very beginning. They were also much better in managing the game, keeping control of the puck for most of the time. Also the players role was difficult to identify (except the goalkeepers) due to many and fast changes during the game. It was quite exciting at the beginning, as it was the first time I went to a game, but ended up being quite boring as it was obvious who was going to win.

It reminded me how the stock market appeared to me when I was a newbie (not that I am a master now). Daily movements seem very fast and random, like the actions in the game. The role of different shares in the market is also not obvious, e.g., defensive stocks vs. high volatility stocks. Trends and final result instead are quite different. In markets you identify long term trends only looking backwards. In the game the final result was quite easy to predict, given the superiority of the winning team. But only because the game has an end while the market is always ongoing…

Jay Pasch agrees:

Hockey is a consummate sports analogy for trading — fast moving, full of energy, full of fight and emotion, tremendous back and forth. Nearly every winning move, from skate to stick, is chock-full of deception. Try it, you'll see…

So does Tom Marks:

The dynamics of hockey do bear a resemblance to what happens in markets. To the undiscerning eye the players' movements seem ruled by randomness, with everybody in haphazard pursuit of the puck. But there are hidden patterns, as those player movements are largely the function of strategic schemes, both offensive and defensive, that are tactically superimposed on the location of the puck. They use very similar types of schemes in lacrosse.

Likewise in trading, not everybody is desperately chasing the price. Though, just like with the puck, it's advisable to have a good idea of where it is, lest one be ultimately caught out of position like a defenseman in hockey.



 May I recommend the works of the following European/ Nordic Jazz trios…I've been exploring them of late and found them to be highly enjoyable. Very much recommended for late night trading, relaxing, or city gazing. A nice Bordeaux or good whiskey will complete the picture for those so inclined.

Each of these trios perform wonderfully abstract works; plenty of space for each tone and brush stroke to make its presence felt. The improvisational conversations peppered across each album are most enjoyable. I even very much enjoy ECM's cover art/ photography– and I have no art sensibilities whatsoever.

All of the below are on the ECM label, and are on iTunes etc.

- Tord Gustavsen Trio - Rec'd albums: Being There / Changing Places

- Marcin Wasilewski Trio - Rec'd albums: January / Trio.
- Tomasz Stanko Quartet (trumpet the addition here)- Rec'd albums: Lontano

As for the classics…in my opinion it will always be near impossible to beat the sheer, breathtaking optimism of a Beethoven Piano Concerto (1 and 5 esp, Brendel or Argerich at the keys), or the pure intellectual horsepower and delight of the Bach Cello Suites (Rostropovich) or his Well Tempered Clavier (Barenboim). Also tough to beat the depth of gloom and rage in Shostakovich's 10th (BPO w/ HvK conducting), or the magic tone colour of Rattle conducting the BPO's performance of Debussy's La Mer. Any expansions and recommendations on this theme would be much appreciated and enjoyed.

Rocky Humbert adds:

Don't overlook John Cage's 4'33" (1947). This
remarkable composition — although infinitely deep and complex –
requires no musical ability to perform perfectly. Sadly, it never made
the on-air playlist of the now-defunct WQXR radio.

I find the final crescendo and coda especially appealing. I couldn't sleep last night as the theme kept going through my head.

Rocky Humbert, quantitative analyst, speculator and master chef, blogs as OneHonestMan.

Tom Marks comments:

Regarding John Cage's 4'33", the thinking is that the "piece" can never be "played' the same way. The reason being that nothing takes place in a vacuum. That is, there will always be ambient sound about: The periodic shuffling of the audience's feet, the random if predictable clearing of somebody's throat, the fingering of programs, etc. What Cage intended was clearly more an ontological statement than it was a musical composition in the traditional sense, and for that effort it might not be entirely without merit.

The last time I thought about 4'33'' and the notion of relative nothingness was when I had occasion to consider something as seemingly disparate as disk space on a computer and how sometimes 0 = 0, and sometimes 0 ≠ 0.

So in keeping with Cage's thesis, how can nothing (i.e., 0) not necessarily not be nothing?

A little 5 minute experiment for those so inclined.

Go the the Windows Start Button, go to Accessories, and go the no frills text editor, Notepad. Open it up, type the following two lines in the body and save it to the desktop as Test 1:

Mary had a little lamb Its fleece was white as snow

Then do the same thing again, this time putting nothing at all in the body of the Notepad document and save that one as Test 2.

The go to the Start Button again and use Windows Explorer to find the Notepad documents. Where they are listed it will indicate their respective sizes; 1 KB for Test 1 and 0 KB for Test 2.

(1 KB sounds like a lot of space for only two lines saved but storage on computers is done in blocks or clusters, leading to much unused space. 1 KB is the minimum size that Notepad can save something as recorded by Windows Explorer. Don't worry about that part, just the figure.)

Now while still in Explorer right click on Test 1 and scroll down to Properties, click on it and in the middle of the window that pops up will be two more figures, Size: 52 bytes (one byte for each of the characters, spaces between words, and 2 for the line change ) and Size on disk: 4 KB (the parameter of the cluster in which the NTFS will save something to disk. Don't worry about this part either. Again, just the figure.)

This all seems logical so far, as Explorer somehow showed us 3 different size figures for the same file, 1 KB, 4 bytes, and 4 KB, but all for clear and different reasons.

Then do the same for Test 2 — in which nothing at all was entered into the body of the document — and accordingly Explorer indicated that its size is 0. Right click on it, go down to Properties, and review the 2 additional figures: Size 0 bytes; Size on disk: 0 bytes.

After all, why not, there was nothing there so why should "nothing" take up any space. Accordingly, it was just demonstrated that the 3 different space figures for the blank Notepad file, Test 2, each indicated 0.

Now here's where Cage's 4'33'' rears its head.

It would logically follow to most, it certainly did initially to me, that other blank files similar to Notepad's Test 2 — that is, nothing at all in the body — but stored in other applications such as Word, Excel, or PowerPoint would also reflect those three 0,0,0 figures that Explorer showed us for Test 2. Would seem to make eminent sense.

But perhaps as Cage would argue about his silent music, context is sovereign if not everything. As such those three blank files would show the following varying sizes:

Word: Explorer: 24 KB Properties Size: 23.5 KB (24, 064 bytes) Size on disk: 24 KB (24,576 bytes)

Excel: Explorer: 14 KB Properties Size: 13.5 KB (13,824 bytes) Size on disk: 16 KB (16,384 bytes)

PowerPoint: Explorer: 8 KB Properties Size: 8 KB (8,192 bytes) Size on disk: 8 KB (8,192 bytes)

Regarding the seeming "nothingness" of a blank file, Notepad obviously has a different idea of a vacuum than the other three applications do. As those three do of each other.

The answer lies in the respective pedestals of already existing data on which the blank Word, Excel, and PowerPoint files lie. These are far more robust and intelligent programs than Notepad. Regarding their baseline file sizes, there is something almost Cartesian about it: The underlying program can think, therefore its blank file size is. At least is more than 0.

Likewise, perhaps Cage would argue the ontological point that it too would be impossible to separate a "performance" of his 4'33'' from the context of where it took place without leaving some sort of footprint. He just couldn't empirically quantify it.

That said, Cage's aesthetic and oeuvre are clearly not for everybody. Four a half-minutes of silent music make for a pretty thin gruel most would argue, but in fairness he wasn't absent of ideas. But the McLuhan notion of "the medium is the message" is one thing; the medium swamping the messsage, another altogether.



 One is always amazed at how useful and insightful the customs of the British Navy are. It was equivalent to mutiny there when a captain proferred a dinner at his table to a junior officer and the junior officer declined (except when a matter of gallantry was involved). How often I've invited a junior officer to dinner and it was declined and a month later I found the junior officer had performed or was about to perform an activity punishable by death by the articles of war. What other nautical or martial customs can you think of that would truly be useful to incorporte in everyday life?

I am writing a review of Nigel Davies' new book. It's so good, it's unbelievable. He's distilled the wisdom of markets, martial arts, psychology and chess into a lesson for all of life and boards.

Pete Earle writes:

What better place to start than the naval tradition of keeping a (Captain's) log book, of course. Recording the events of the day, successes, failures, incidents and accidents in such a way that one — or their successor — can peruse them at will, and in so doing be better prepared for the future. I don't know a single serious, professional trader who doesn't do this, and the practice extends far beyond financial markets.

Tom Marks jokes:

Who amongst us hasn't at some point over the years sailed past a woman or two on whom they they'd love to apply a cajoling variant of this old British nautical custom.

George Parkanyi lends a hand:

Here's a useful summary of such Royal Navy customs and traditions.

Apparently one of the traditions for a warship entering a foreign port was to fire all their guns, shoot their wad as it were, to show that they were coming in unarmed. (I wonder if this analogy ports to dating?) Also, when two foreign warships met the custom was to sail at each other and fire off a broadside volley before coming abreast, basically for the same reason "Hi, how are you, I'm unarmed". But I'm wondering about those warships that had three rows of cannon. OK, you fire your first row "Hi, how are you? I'm good too", and then once broadside you empty the other two rows into the passing ship. Surely some sorry captain has the dubious distinction of having been the first to learn that lesson the hard way. "Oh, you didn't get the memo? We're at war."



Dorothy Gale from the Wizard of OZAt a recent sleep-over party, my teenage daughter and her friends selected a movie for after-dinner entertainment. The FIOS Movie-on-Demand catalogue had over 16,000 titles, (including new releases) yet the kids selected the old classic, The Wizard of Oz, which they had all viewed previously.

There was no debate, and the decision seemed reflexive; a cultural Rorschach test of sorts. Was their selection rational and utility-maximizing? Or was it an illustration of biases found in behavioral finance literature? What other interpretation(s) can be made about this unexpected choice?

An investor looking for a stock pick faces "only" about 6,000 possible choices. If one is not a quant (screening for factors) — doesn't a similar subconscious decision-making occur? Is this Peter Lynch's "buy what you know?" Or are investment choices irrationally influenced by cultural and/or subliminal factors and/or groupthink?

Keynes' Beauty Contest analogy notwithstanding, an overview of the construction of a stock-picker's Rorschach Test might be a useful first step in identifying one's own subliminal biases…

Tom Marks writes:

Rocky raises interesting questions, but a group of teenage girls selecting a movie is very different from

1. a group of teenage boys selecting a movie (in which the emphasis is likely to be less on consensus building, and more on establishing authority, status), or

2. a single teenage girl selecting a movie (in which she is not subject to the perils of groupthink), or

3. a single teenage girl selecting something where some serious stakes (i.e., risks) were involved (say, in the selecting of a prom dress, or to which college she wished to apply early-decision). 

Kim Zussman comments:

Keynes may have got it wrong for a change: stock picking should not be judging what the consensus thinks is beauty, because that is already priced. Stock picking is more like a prospective beauty contest between the teenage girls, and mimics what "seriously" dating boys should be doing — correctly predicting which one will be most beautiful (in all ways) as a grown woman.

Of course most boys that age are day-trading, and not looking at long-term investments. Whether heavily traded girls will ultimately be shown as value or growth is an exercise left to single readers. 



 S&P sets five consecutive big several week maxes in row. 150 billion of Treasuries auctioned next four days.

Beautiful posts on check lists. All of us talk a game so much better than play. Needs to be memorialized. I will do so.

As usual, the big move at beginning of year to set everyone off the wrong way. January barometer boys already got 1½ feet in water.

Playing Nate Robinson will lose as many games for Knicks as they did before as his play is like the mad trader who's always in market like Livermore or Marbury. Let us hope that Donnie Walsh reads Statistics on the Table by Steve Stigler. Ewing's game that set Knicks on terrible ineradicable decline similar to whose? The man who took a round the world cruise after predicting Dow 5000? Too bad they didn't have the figures on percent of offensive rebounds after his shots from 16 feet out. The offensive and defensive rebound stats for basketball teams similar to percent of reversals a la Cowles.

Lobster Chronicles by Linda Greenlaw is a very touching book and her stories of lobster people that died that she knew similar to traders I know who died, including one I know all too well.

A Hispanic might be the next president as all Hispanics have friends and one party gets only 20% of that vote now, because of e-like immigration stand.

Tom Marks writes:

I read that amongst the NBA cognoscenti there's a parlour game as to actually which teams Nate's showboating ways are being showcased for.

The irony is that if his schtick had metastasized on another team and then dangled as trade bait, the always myopic Knicks would be the first suckers to bite.



wheatFrom the 1980s up to 2005 there was a phenomenon in the wheat market that locals referred to as the "Noon Balloon." Four days out of five, the market would rally 2- 3 cents on big volume at the noon hour, then settle back after we sold into it and the buying stopped. It was so regular, that we'd start bidding up the market a few minutes before noon, hoping to get the buyers to pay even more.

Many a fortune was made on this anomaly and it was our personal ATM machine. The Noon Balloon curiously disappeared with the demise of REFCO, and was just one of those quirks that a sagacious person on the floor could exploit. Since so many people jumped on the Noon Balloon, the effects were exaggerated. Whenever I see an uptick in wheat at 1PM (12cst) I fondly think of the Noon Balloon.

Jeff Watson, surfer, speculator, poker player and art connoisseur, blogs as MasterOfTheUniverse.

Victor Niederhoffer observes:

A published report relating to an irregularity supposedly found regarding afternoon movements has been disseminated by a very profitable brokerage. The subsequent comments relate to the layers of meaning and deception behind such reports. 

Jeff Watson comments:

Not all players have the same motives in the markets, Case in point, hedgers will sell no matter what the conditions might be. Certain commercials will play with spreads, defending them for no discernible reason. Many games are played in the delivery months, and with deliveries being re-delivered, and on and on. Commercials try to stack the pit committee, and play with the settlement price (which is not necessarily the last trading price), for their own gain. Despite the fact that trading has mostly gone electronic to improve market efficiency, a whole new series of land mines has been laid down, part of the law of unintended consequences.

Tom Marks writes:

The question of a published report with an intra day trading regularity arises from Victor and he suggests that something seemingly useful like that must have an ulterior motive. I demur. But what if they figure that the jaded such as ourselves have figured that out that nobody provides gratis which otherwise provides profits, so they in turn fade the faders. Especially when they have the wherewithal to cross-check against the order flows of whom was provided with that report in the first place. Artful deceptors rarely ply their craft one-layer thick. They like suggest texture and added dimensions. A trompe l'oeil effect that fools the eye. 

Nigel Davies adds:

The fact that the effect has been noticed and publicized seems likely to make it behave differently from the past. At least some traders will want to jump in ever earlier to exploit it, and then there will be those who fade them etc. But the last thing I'd expect to happen is an exact repetition of the past…

There's a good chess analogy to this in that the champions tend to set new opening trends but move on as soon as the crowd has noticed.

GM Davies is the author of The Rules Of Winning Chess, Everyman, 2009

Phil McDonnell writes:

To echo the Chair's observation I once reviewed a quantitative study of some market anomaly. It showed that some 700,000 (!) trades backtested would have been 80% profitable over a 10 year period. The authors were a well known TA writer and his researcher. Although the report had none of the usual tests of statistical significance that we might use here, still the sheer magnitude of the number of observations was compelling.

Nevertheless publication alerted the antenna and caused me to ask why. I redid the study on a smaller sample for the most recent year. In fact it lost money in the recent period. Hence the reason for publication — it no longer worked. But it enabled the authors to keep their names in the press.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Tom Marks responds:

Perhaps the real intent was to get the market so confused over this "anomaly", that no substantive moves would happen around 12:30, and those at GS could get a bite of lunch. Like the strategy we played with my 7th grade social studies teacher, simply mention Vietnam and you could ignore him and safely work on your math homework for the next hour.

Russ Sears writes:

When it comes to deception, there are different strains, some ultimately less problematic than others. Toward that end, the 7th grade social studies subterfuge may be as benign as it is precocious as it is brilliant as it is utilitarian. Everybody wins. The teacher gets to indulge his fixation, maybe even sharpen some pedagogical skills, while the kids learn how to best juggle academic time constraints by effectively calling some sort of curriculum timeout.

Sure, in terms of flawless honor, it's a little chipped, but so is the Venus de Milo. Doesn't make either any less a work of art.




You wake up this morning and have an extra $10 million dollars in your bank account. You call your banker and find out that your broker overcharged you for commissions and that the money is yours without taxes. Throughout the day you proceed to spend as much as you can; a new car… two new cars, an addition to the house that includes an indoor pool and of course gifts for your family.

You check your statement and find you still have $5 million left so you decide to invest in another hedge fund (you've managed to spend much more than $10 million in broker commissions so you've got a lot of investments). You are presented with the following list. Assuming you know nothing of the investment style or past performance of the funds, which fund would you invest in?

Intercept Capital Management

Alexander Hamilton Capital Management

Federalist Capital Management

Trafalgar Capital Management

Barkentine Capital Management

Bearing Capital Management

Royal Sovereign Capital Management

White Knight Capital Management

Rittenhouse Capital Management

VectorPoint Capital Management

Thank you so much! Any input you have is greatly appreciated.

Kim Zussman adds:

Tiger's Wood Decapitation Management

Tom Marks asks:

Is Prof. Sharpe involved with that outfit?



 Ari KievI've seen discussions on this site before about the natural connections between developing athletic skills and trading acumen. And in the Times yesterday there was an obituary of a Dr. Ari Kiev, of whom I had been previously unaware:

"His work with athletes caught the attention of Steven A. Cohen, the founder of the hedge fund SAC Capital Advisors, who hired Dr. Kiev in the early 1990s to coach his traders and help them deal with the stress and uncertainties of financial markets…"

He appears to have been a very interesting sort. I think I'll read his books.

Dave Goodboy adds:

I was fortunate to interview Dr. Kiev in 2005. Indeed an interesting polymath.

Ira Brody writes:

Victor's take on the natural connection between developing athletic skills and trading can be describe in few words.

In his quest to become a world champion in squash rackets, Victor learned how to “lose” which ultimately allowed him to become a “winner.” Great pitchers are those who are knocked out of the box in the third inning to boos and critical media judgement about their performance… only to return four or five days later to pitch a game before 50,000 screaming fans and those same critics. If they are haunted by their previous performance they are once again doomed to failure. What makes them great is that they can let go. That what was, was! Today is another day and another time. Let’s go out and play to win.

What makes Vic and other traders exceptional is like great athletes they learn from their mistakes but do not let them affect their ability to take calculated risks… the ingredient that made them winners. They trade to win. They understand that a perfect season though possible is more of a pipe dream than a reality.



To avoid the new flu virus it is advisable to use plastic cutlery and absolutely distrust any metal cutlery, especially when eating out. — Dr. Janice Dorn

If I might interject for a moment I suggest that eating with plastic cutlery at restaurants is likely to inhibit one's chances to mate. — GM Nigel Davies

All of which might provide grist for an exercise in natural selection, by way a classic model which simulates the population changes over the last few centuries of the peppered moths of Manchester, England.

The theory is that as the Industrial Revolution generated more and more pollution, the darker-colored peppered moths came to predominate over their lighter-colored counterparts because they were better genetically equipped to blend in against the increasingly soot-covered trees upon which they rested. Thus, the lighter-colored peppered moths were more visible targets to the birds that preyed on them.

Over the course of time, and pursuant to the classical principles of natural selection, this would obviously lead to predominant traits in the overall peppered moth population. Conversely, as pollution was rolled back in more environmentally conscious times, the trait pendulum swung back as the lighter-colored peppered moths would now have a more level playing field on which to survive.

One could download such a simulator from the kind folks at Northwestern and illustrate exactly how this phenomenon works. It's both very straight-forward and quite easy to use, and I've found it very empirically educational to anybody trying to better understand the ebb and flow of Darwinism.

So for our purposes here, we'll think of the h1n1 virus as the pollution, and for our disparately colored peppered moths, we'll borrow an Odd Couple from popular culture, Felix Unger and Oscar Madison. I think everyone would agree, that communicable virus or no communicable virus, the fastidious Felix would have no problem with bringing his own plastic cutlery to dinner at the Four Seasons. Whereas, the slovenly Oscar would sooner wipe his mouth with his necktie than yield to such a precautionary measure.

We'll suppose that Oscar represents the lighter-colored moths, and Felix, the darker. So by ratcheting up the pollution levels (h1n1) by using the Pollute-World button on the simulator, look over on the right to what happens to the Oscar/Felix stasis. Neuroses becomes a survival trait. Conversely, as the virus fades by way of the Clean-Up-World button, look what happens to Oscar's slob-by survival chances as the environment becomes incrementally more antiseptic. Equilibrium returns.



I saw this excerpt from a forthcoming book today. The background of which reads like a Runyonesque tale with an delightful O. Henry ending:

"Hard times with a high roller"

"Ronald Probstein, an MIT academic who studied at Princeton and met Einstein, was raised by a compulsive gambler in Depression-era NYC, But, he reveals, his shady dad is the one who taught him about life — and math…"

The excerpt about the father, Sid Probstein.

The son, Ronald Probstein.

Mark Johnson writes:

It just so happened I was reading about this book yesterday and had many of the same thoughts. Many good lessons to be learned and interesting reading. The father, obviously very intelligent, never hit his stride, but his son did.

Stan Rowen opines:

I find the article about the son far more uplifting than the story of the dad. Why? He applied his math abilities to several important scientific domains that were of enormous long-term benefit to society. Unlike his dad, who had to hustle in marginal activities his whole life, and died broke. The nobility of math, science and engineering vs. the pathos of a cog in the seamy underworld.



Pennington jerseyEvidence is accumulating that football, at least at the professional level, is causing dementia and other cognitive problems among retired players.

"..the Michigan researchers conducted a phone survey in late 2008 in which 1,063 retired players — those who participated from an original random list of 1,625 — were asked questions on a variety of health topics. Players had to have played at least three or four seasons to qualify. Questions were derived from the standard National Health Interview Survey so that rates could be compared with those previously collected from the general population, the report said.

"The Michigan researchers found that 6.1 percent of players age 50 and above reported that they had received a dementia-related diagnosis, five times higher than the cited national average of 1.2 percent. Men age 30 through 49, for whom the national average is 0.1 percent, showed a rate of 1.9 percent, or 19 times that of the general population.

"The paper itself questioned the reliability of using phone surveys to assess prevalence rates of diagnosed dementia, as did several experts in telephone interviews. For example, some of those affected might not be reachable; then again, N.F.L. players may have greater access to doctors to make the diagnosis, and so on."

The study already seems compelling. There could be some promising ways to test the idea further and learn more, such as measuring the dependence of cognitive problems on:

– years played
– self-reported number of diagnosed concussions over football career
– height and weight at retirement
– "safety" of position played, as rated by some independent source.
(e.g. punter and kicker would probably be rated safest)

Obviously this may cause some worries among high school and college players. One can hope that the problems don't really kick in until the play reaches the weight and speed level of the NFL.

Victor Niederhoffer generalizes:

HeaderThe study the Professor alluded to reinforces my long held belief that soccer is an evil sport, and the body is not meant to be banged up, especially the head, and that this causes early death and dementia. In addition to the heading shot, which must be involved on at least a third of all goals, I find soccer objectionable for my kids because kids with no other means of recreation or occupation play it from the day they are born, and by the time they compete with Americans who have to go to school and develop other interests, they are much too good for the Americans to compete against . Also, I hate that you can't play it without great effort after you graduate from college so it's not a life long source of recreation. My father Artie always said, whatever you do, don't let your kids play football. And I would add soccer and boxing.

Jordan Neuman opines:

I always thought that the rise of soccer in the suburbs over the last generation was just an extension of liberal politics because everybody can play. If someone has no talent they just stick him on defense. (I am speaking of school kids, obviously at higher levels of play this does not apply.)

On the other hand when my kid is pitching, he is on the stage. When he is throwing good strikes it is beautiful. When he gets lit up you have to tip your hat to the hitter (also on his personal stage). I always thought all those volumes expended on "America is baseball" were wasted, and most are. But there is a reason that baseball is a uniquely American game.

Ryan Carlson digresses to his favorite sport:

One of the many reasons why I find hockey to be such an honorable sport is that cheapshots and any unsportsmanlike conduct is dealt with through "the code" that such behavior has to be answered through fistfights. The code serves as a check and balance for problems to be addressed quickly and so liberties aren't taken when the ref is looking the other way. An entertaining book for those interested is The Code: The Unwritten Rules Of Fighting And Retaliation In The NHL

Scott Brooks continues:

GassoffHaving grown up a big St. Louis Blues fan and overall general hockey fan, I watched more than my fair share of hockey. We had season tickets to the Blues when I was growing up in the 1970s. My dad ate at a restaurant by his work that was frequently attended by Blues players. Dad was on first name basis with such greats as the Plager Brothers, Garry Unger, Bob Gassoff, Noel Picard, Chuck Lefley and many others.

Watching the dynamics of hockey growing up, it was clear that every team needed at least one good enforcer. This was the guy that would go out and beat up whoever on the the other team "breached protocol". If someone smashed into the Garry Unger (the Blues main scorer back in his day), he'd have to deal with one of the Plager Brother or (even worse for him), Bob Gassoff!

My father knew Plagers and Bob Gassoff and would tell me regular stories about what nice guys they were — but on the ice, holy cow! They were animals!

Pound for pound, there was no tougher, meaner group of hockey players ever to step on the ice than those Blues teams in the early/mid 1970s. The Plager Brothers were two of the toughest men ever to play in the NHL. And the best pure fighter to ever step on the ice was Bob Gassoff!

Bob Gassoff was the ultimate enforcer. Even the Plager Brothers — easily in the top 25 best fighters to ever step on the ice in the history of the NHL — would defer fights to their teammate Bob Gassoff.

Of course, there is always the image in my mind of the Blues going up into the stands fighting with the crowd in Philadelphia (a city known for its toughness).

And of course, there is ultimate showdown in the history of the NHL: Bob Gassoff vs. Tiger Williams as to who was the toughest man in the NHL. Both coaches agreed in advance to not let the players on the ice at the same time. But with around three seconds left in the game (and the game already won), there was a dead puck face off. The coaches put Gassoff and Williams on the ice at the same time. They lined up next to each other in the circle, looked directly into each others eyes, nodded to each other and proceeded to drop their gloves and go at it!

What a spectacle! After the fight, Bob Plager grabbed a bloodied Bob Gassoff and skated him around the ice holding his hand up like a referee does for the victorious prize fighter. Gassoff had won the ultimate hockey battle!

I think the markets would be a lot more interesting if we could have enforcers. If someone squeezes you out of your position too many times, you just send over your equivalent of Bob Gassoff to let him know he'd better not do that anymore!

Vinh Tu gets back to the subject of using the head in sports:

HeaderWhen I was between the ages of 8 at 12, my parents signed me up for soccer, and made me go play it, even if it sometimes meant they had to tear me from my Apple II computer. Doing clever things with one's feet was fun, and I'm sure that all the running was beneficial to me, physically. But I also remember heading practice, where a beefy coach would force 10-year-olds to use smack their heads against a flying ball. I remember that I only once, after much trepidation, allowing a ball to hit my head. I immediately knew that the feeling in my head after the impact was not at all good. After that, I could not help but flinch or duck during these heading drills, despite feeling intimidated by the large, angry, frustrated coach. Meanwhile there were a few kids on the team who really took to it and were gleefully smacking their heads against balls launched at them by the coach. It would have been interesting to follow up on my team mates and see if there has been any correlation between being a keen header and intelligence, and a few decades from now, dementia, and also whether there are correlations with other behavioural traits (perhaps lack of caution and restraint, impulsiveness?) and genetic correlations.

Stefan Jovanovich reassures:

BoxingThe most important question to be asked about getting smacked in the head is "where?". The upper forehead and the forward peak of the skull can take a severe impact without any damage; the same blow to the temple will kill a person. There is no question that football players and professional boxers have problems with dementia from the repeated blows to the temple. Vinh Tu's beefy coach was an idiot and bully. The first lesson in learning how to head a ball is teaching the kid to watch the ball into his/her forehead, and the best way to teach that lesson is to have two kids soft-toss the ball back and forth, as if they were playing pepper.

There is very little risk of head injury in amateur boxing; if it is properly worn, the head gear protects the temples and the upper jaw – the two places where you can get hurt.

What is stupid about the design of football head gear are that the helmet is allowed to float; compare the design to military headgear where the webbing and the helmet are cross-braced so they move together.

Tom Marks is skeptical:

InjuryA humble postulate: Nearly all orthopedic and neurological injuries related to professional sports stem from the fact that eons of evolution hardly designed the human body for the unique stresses these activities put on it.

Sports-related head and knee injuries aren't going away anytime soon, especially the latter. Somebody could design a more efficient helmet, but only nature could design a knee that could better withstand the unnatural rigors of playing running back in the NFL. And there's nothing hasty about nature. It tends to deliberate long and hard.



I've always been partial to the notion that reality is largely an illusion, one crafted by presumptions that are largely imposed upon us. All too often what we conclude is an immutable function of what we expect. Which is problematic because society lies, and that's where we get the expectations from.

From a recent NYTimes piece:

"…when the German naturalist Alexander von Humboldt told a friend, a Parisian doctor, that he wanted to meet a certifiable lunatic, he was invited to the doctor’s home for supper. A few days later, Humboldt found himself placed at the dinner table between two men. One was polite, somewhat reserved, and didn’t go in for small talk. The other, dressed in ill-matched clothes, chattered away on every subject under the sun, gesticulating wildly, while making horrible faces. When the meal was over, Humboldt turned to his host. “I like your lunatic,” he whispered, indicating the talkative man. The host frowned. “But it’s the other one who’s the lunatic. The man you’re pointing to is Monsieur Honoré de Balzac…”

Vincent Andres adds:

There is a nice novel on Humboldt, Measuring The World .



Within any family there is almost always a complex group dynamic at work.

These dynamics increase exponentially the larger the family. With say, 11 siblings, the consequential in-laws, and the inevitable army of nieces and nephews pursuant to the Irish-Catholic paradigm, these dynamics could get so complex as to be fully understandable in theory only.

So much so that if there were a quantitative analogue to something like this, Einstein himself couldn't wrap his arms around it. It's an elusive phenomenon.

But sometimes it can be all so amusing. Sort of.

Though I would be loathe of course to single anybody out, but say hypothetically for instance that the oldest of the 11 may have a somewhat out-sized sense of self, including some sort of primogeniture entitlement to usurp control of even the most pedestrian of undertakings, like painting the kitchen of Grandma's house.

How something like this could necessitate a painstakingly detailed, two-page e-mail memo that somehow contained a quote from Leon Trotsky (I guess it was a stab at collectivism) sent to a veritable mob of relatives on exactly how to go about this task pushes one's imagination to the limit, no less their patience.

Naturally, consistent with full-blown CEO syndrome (no known cure), the architect of this grand directive can't do any of the actual hands-on work, because, fresh from the Hamptons, this week he's unfortunately up on Martha's Vineyard,"…one driveway removed from where the President is staying…", as he saw fit to inform his fellow gene poolers.

I found this all so typically tedious until I saw here in my in-box that one of my sisters who deals with diagnostic codes for a living just decided to ruffle the peacock's feathers a bit, conferring on him the rare honor of a number. Kind of like James Bond being 007.

In her otherwise business-like response to his communique, it begins: Dear 301.81

I Googled the figure. It is a DSM code. Five digits and a decimal point have never spoken so eloquently. Here is the definition .

Isn't humility grand. However involuntary it may be.

What a fine afternoon.



One of the most ridiculous things is to see market move on projections made by various forecasters, almost invariably with an axe of their own. But regardless, several queries about such projections should be made:

1. Are they accurate.
2. Do they provide any new information
3. If true, would they have any impact on the market.
4. Are they self referential to help a position or status along.
5. Are they counterbalanced by anyone else projections.

Almost more ridiculous than this are the moves on consumer confidence. The confidence is 99% correlated with past stock market moves, and is backward looking and indirect and one of many such confidence surveys which are random in aggregate over and above the stock market because they are all adjusted seasonally different ways or not.

Tom Marks adds:

I had a recent brush with market absurdity myself. The other day I received an e-mail from some sort of ex post facto gypsy inviting the unwashed masses to his seminar in a midtown hotel where for a couple of grand admission he would impart the finer points of recognizing a false breakout.

Prior to this gentleman's generous offer to defog my confusion, I had thought that conclusive proof of a false breakout was when me and everybody else dumped the stuff we had all just rushed in to buy because some generally acknowledged "key resistance level" had been breached. This may unduly untechnical, but generally speaking whenever something loses money, it didn't work. That's a terse truism that I'm not sure I'd be able to discuss for an entire day, no less charge two thousand dollars apiece to get people to listen to it.

Then again, if I were a regional sales representative for a leading snake oil manufacturer, hopefully they would have ample warehouse space because they would be stuck with a large inventory.



 We have almost every Shakespeare play and Greek tragedy on Wall Street rolled into one tale with a little Tom Wolfe for good measure. Some days King Lear, some days Rosencrantz and Guildenstern.

Tom Marks writes: 

In a perfect theatrical world the whole thing would be a colossal performance art piece with Bernie having not only had the original 50 billion safely secured in an escrow account, but having turned it into 100 billion by having been short crude all the way down. So Bernie, accompanied by a gaggle of his doctors, comes out one fine morning to face the pack of media wolves camped outside his princely co-op and announces that the whole confession thing was just a misunderstanding, citing an adverse reaction to medication for Lyme disease by way of plausible deniability. He walks away scott free, the Carnegie Deli names a sandwich after him (bologna on wry), his investors flusher than ever, and the audience (meaning us) left with their jaws agape in classic WTF fashion. It would be theatre of the absurd's finest hour, while at the same time being the only rationale explanation how 50 billion dollars could somehow evaporate. 



CarouselOrdinarily when the football season starts, I wait all week for the Sunday games. It's my favorite sport at this point in my life for the reason that it entails only one day to follow. (Life's far too interesting to be be glued to TVs and newspapers all week obsessively following something as mundane — if addictive — as sports. But football is only one day, so I can get my fix with only a minimal time commitment.) The only problem is it takes place during my favorite months of the year and that has always caused more than a little cognitive dissonance. I hate to waste beautiful autumn afternoons inside. Yet, it's such compelling competition. A Faustian deal: Sacrifice the peace of nature for the violence of football. Made worse decisions.

So anyway yesterday I had planned to watch the games when my phone rang about 9 AM. It was my buddy, Jeff. Wonderful guy, accomplished marathoner and sailor. Told me that he had not felt entirely right on Thursday, so went to the doctor. Left the next day with a new friend, a stent in his heart.

So it goes.

Not easily one to be deterred, though, he and his young lad of a son, Mick, 4, were to set off for a daytrip from San Francisco to picturesque Santa Cruz, about 85 miles down the coast. His lovely wife, Cathy, staying home to do some paperwork, he kindly asked, Want'a go?

Took the inland route down Route 9 through the Redwoods. Twisting around the wooded turns, could smell them in the sweet air as we sped past.

Had never been to Santa Cruz before, and to the fellow uninitiated, highly recommend it. Pure postcard. A time gone by.

Had lunch on the wharf. Folks fishing off it, sea lions barking 'neath it. The rollercoaster and ferris wheel of the broadwalk as a backdrop. Pointed out to me and his son ("Don't tell your mother") the balcony of the apartment that he and a former girlfriend had shared some 30 years prior. Hard to beat for an impromptu afternoon.

After young Mick had his fill of rides and candy, we made our way back North. This time hard by the coast, Highway 1, 'twixt cliff and surf. Exhilarating.

What a wonderful daytrip. Recommend it to anyone visiting out San Francisco way.

Even should it be a football afternoon.

Steve Leslie barbecues:

Years back when my father was alive our ritual was to spend Sunday evening together. I would play and walk a round of golf in the afternoon, listening to the game on my Walkman. Then come 7 pm I would fire up the grill, turn on Prime Time on ESPN and start the cooking. The traditional fare would be beef. One Sunday it might be brats soaked in beer and mailed from my excellent friend in Wisconsin. Another, could be steak, sirlion, London broil or strip. We would have ribs, country style, baby back, pork, beef, you name it. I would prepare the ribs in the morning, steaming them for two hours to make them extra tender. I would add some liquid smoke to enhance the taste. Then I would slap on the specialty sauce and store them in the refrigerator for later use. Beans and corn-on-the-cob were the usual sides. A nice cocktail such as a Jack Daniels on the rocks, or a glass of merlot, accompanied the meal. We would eat while watching the show and would laugh and smile when Chris Berman did his "he could go all the way!" All the while, my faithful companion Stoli, a purebred cocker spaniel and named after the vodka, would stand by ready to chew on the rib afterward, provided it was beef. Pork ribs were off limits — too brittle and they damage the insides of a dog. Then we would turn on Fox TV to catch Martin, In Living Color and Roc Live. Shanaynay, Men on sports, Heavy D. — priceless moments. After all these years, the times I spent with Dad stand out as the highlight of my life. He has been gone for nearly a decade now. Stoli passed away two years ago. Now there is just me left and I no longer cook on Sunday evening. There is a void in my heart that will never be replaced. Perhaps that is as it should be. One thing is for certain. Our Sunday evening was more valuable to me than any football game before or after. And I would give plenty for one chance to go back and relive the moment with those two just one more time.



Dan GrossmanCan someone give some explanation why Intrade indicates Obama 59% likely to win and McCain 41%, while the polls show them about even?

Are there any other web sites you find useful in predicting the election?

Alex Forshaw replies:

The polls don't show them as even. Additionally, the most credible polls (Gallup, Rasmussen, ABC/WP) are generally the ones which show Obama with the largest leads.

Real Clear Politics has a summary of some of the major polls.

Tom Marks and Jason Ruspini add:

There are two methods to predict the election.

The prediction markets such as Intrade and Iowa Election Markets (chart) are probably the best predictor.  As of 10pm EST today Intrade is giving 57% chance for Obama and 43% for McCain. Iowa is also 53 vs 47.

Another way is to look at polls. However, the polls generally cited by news organizations are national polls which on the surface is fundamentally flawed since it is the Electoral College Vote and not the Popular Vote that determines the election result.

What you must do is look at state polls and infer the Electoral Vote implied by these polls.  Fortunately there are some very nice web sites that do the work for you.  They automatically look up the results of the latest polls and apply statistical adjustments (such as weighting polls differently depending on accuracy and timeliness, or performing Monte Carlo simulations to incorporate the inherent inaccuracy of any poll) to come up with their forecast.

The three best Electoral Vote prediction sites based on state polls are:

Vanderbilt U. Economist A. Moro's Forecast

Sam Wang's Princeton Election Consortium (chart )

Five Thirty Eight

Reading about the methodologies these sites use can be interesting for those who are statistically oriented.  Most people probably only care about the result.  Currently Prof. Moro gives 314 votes for Obama. Prof. Wang gives him 311 while FiveThirtyEight gives 309 to Obama. (As every schoolboy knows it takes 270 electoral votes to win the election).

In summary, both methods of prediction currently favor Obama. The rough equality shown by some national polls is misleading.



T MarksA good friend from the Comex metals pits told me about a year ago he wanted to eschew the violent volatility in those markets. Recently at one point, silver had dropped about 5 1/2 bucks the last month alone, $27,500/contract.

Looking for a more placid pastime, went eyeing individual stocks. Amongst others, recently some of the biotech persuasion. Out of the frying pan, into the fire. Oops.

Bought 5000 Elan at $24, quickly went over $37. Analysts were saying eventually over $70. Clinical results come out, a few patients got sick out of 31,800 on the new drug.

Check out the chart for your basic what-the-heck picture. He didn't get out after the first big gap, saying that it was still only a few bucks underwater from his entry, and wanted to weather the storm.

The next gap though was a doozy!

Mark Isbic writes:

You can get the same momentum and potential with the Casino stocks with less risk of being blindsided by a study from pencil pushers. I'm long LVS and Wynn. At least with these you can see the future and potential with less chance of being blindsided and a large upside. Certainly the same could be said for other groups, but I'm not a professional trader like the majority here. I simply follow a few groups, build a position when they get slaughtered and hang on for the hopeful rise. As usual I'm always a little early. The only thing i own that resembles a biotech is Merck. I bought it a few weeks ago at 35 only to watch it go down to 31 or so the next day based on what else, a study on Vytorin. The shorts love to hate LVS because of the big P/E, debt issues etc., but in my humble view it has the most potential to run the fastest because it has a great storyline with Singapore's Marina Bay Sands and with most stocks it's all about the story lines.



DostoevskyI'm re-reading The Gambler, by Fyodor Dostoevsky, who, like Ayn Rand, is associated with the literary branch of the Romantic Realism school.

Behind the roots of The Gambler lies an industrious irony that I've always found fascinating, and if not already aware, your sensibilities probably will as well.

I am a firm believer in the notion that almost all art is autobiographical, at least on some level. The reasoning being that the creator can never fully detach themselves form the body of their personal experiences, especially the darker ones. Which is why it's always instructive to be familiar with a novelist's or playwright's bio, as at some point it is going to creep into their work, consciously or not.

One of the most prominent examples is Eugene O'Neills' Long Day's Journey Into Night, in which he cathartically addresses his uneasy family life as a young man, including an unvarnished treatment of his mother's struggles with morphine addiction. It is a brilliant play, but if one is familiar with the playwright's background, painful to read or observe, so one can only imagine how torturous it most have been to write. So much so, that even though his masterpiece was written 11 years prior to his death, he contractually stipulated that it not be published until 25 years following his demise. And he went so far as to arrange having a copy of the manuscript placed in a document vault at Random House until such time. Widow saw otherwise though, after only three years. Did an end-around, donated the rights and royalties to Yale, voiding the original contract's terms.

In his novella, Dostoevsky also lets some of some of his foibles bubble to the surface. But he took it to another level, one which speaks directly to the genesis of that book's interesting inspiration.

In order to pay off some chronic gambling debts, roulette being his bete noir, he requested an advance from a shady publisher. But in order to receive the funds, he had to double down and further wager that he would be able to complete the work under a short and strict deadline, even though it was known that he was already in the midst of another pressing project. Per the deal, if he failed to meet the deadline, and it was assumed that he wouldn't, then the calculating publisher would not only have exclusive literary rights to all his future works for the next nine years, but also without any compensation at all to the author.

Forced to negotiate from a position of abject weakness, Dostoevsky nevertheless accepted the long and risky odds and franticly set about writing about what else but the perils of gambling. Talk about making lemonade out of lemons.



EducationI rarely use stops in the ForEx market, but yesterday I decided to use one for this trade, and the result is something right out of the currency trading no-no's in Education of a Speculator.

Broker: The SL got executed correctly at the quote you specified at 1.55185
ME: It was the bottom tick
ME: market spiked right toward my stop and then continued away
Broker: The quote got reached as you can see on your chart
ME: sometimes you see these huge short spikes on the chart, are those always correct?
Broker: There was no spike, the spread was wider due the NFP news release
ME: how can one see the spread at any given time?
Broker: You use for example the Min/Max Graph which will give you the valid quotes for order execution
Broker: Please have in mind that Candles are only used as price indicators to predict future price movements.
Broker: Candles give you only the average price per time period and cannot be used to see order executions
ME: what was the bid/ask at the time the stop got executed?
Broker: The quote was 1.55144/861
ME: how many pips wide is that spread?
Broker: the spread was 10 pips at this time
ME: thats a horrible spread especially for eur/usd
ME: thats more then 10x the .9 spread advertised
Broker: During news releases this a common spread
ME: y?
Broker: Please have in mind the spread are variable and spreads will widen during news releases
ME: if the spread was .9 at that time, would the stop still have been triggered?
Broker: No.

Chris Cooper clarifies:

There is a big difference between stops based on executed trades (ticks) and stops based on quotes (bid or ask). The forex market typically provides only quotes. If the liquidity providers at your trading venue all decide to back off for awhile, the inside bid/ask may move dramatically, because the liquidity has temporarily evaporated. This normally happens around major news releases, and around 5:00 p.m. Eastern time when trading quiets down. Using stops based on bid/ask at these times is suicidal. Don't blame the broker — it's your own fault for not knowing better.

Tom Marks remembers:

Tom MarksYears ago in my bumbling youth of a silver trader on the floor, I adventurously ventured from picking the low-lying fruit to be found in the pit and started to get an additional nocturnal fix trading with the dealers overnight.

And what a cagey lot they proved to be.

Given the itch, I would call up and they would make a five-cent market. Somewhat wider than the ordinary half-penny spread to be found during most of the daytime hours. That should have been the first clue, but, hey, I was young and impetuous.

So the would-be boy genius would make his gentleman's wager of five lots and implore his new best best on the other end of the line to kindly stop him out should the market make an adverse turn of 20 cents, a $5000 loss.

I did this about four times, paid my $20k in tuition at that stately School of Silliness before the lightbulb, however dim it might have been, finally lit up above my head.

Used to the (somewhat) organized chaos peculiar to the pit, I finally asked the guy about the times and sales. He explained that such niceties didn't exist in the midnight hour. It seems in that parallel universe prints held no sway and quotes were the order of the day.

I asked, OK, how many of you guys are playing in this card game? About three of us, he explained.

I smiled at that, however wanly, and waxed Nietzschean: Alright, they fleeced me, but didn't kill me, therefore I'm stronger.

That is, of course, until the next lesson rears its head. There are few things as continuing in life as continuing education.



NisonNison's Japanese Candlestick book talks about record sessions creating new highs higher than the day before's. They have significance in some situations. I've noticed the similarity with athletic competition records where new records just surpass the prior records by a hair. Like today we made a new high, but then fell back. We've had a series of new highs. I heard a college basketball team saying that after expending a lot of energy to win, they wouldn't do much hard practice while waiting for the next championship game. There seems to be a sense of let down or relaxing once the new high is achieved, the pressure gets released, or, as the press always says, profit taking.

Tom Marks adds:

One spectacular exception: Bob Beamon's astounding long jump at the 1968 Olympics. Records are broken, but rarely pulverized like this, as the numbers bear out. From Wikipedia:

Sports journalist Dick Schaap wrote a book about the leap, called The Perfect Jump. Prior to Beamon's jump, the world record had been broken thirteen times since 1901, with an average increase of 6 cm (2½ in) and the largest increase being 15 cm (6 in). Beamon's gold medal mark bettered the existing record by 55 cm (21¾ in.) as he became the first person to reach both 28 and 29 feet….The defending Olympic champion, Lynn Davies of Great Britain, told Beamon, "You have destroyed this event", and in track and field jargon, a new adjective - Beamonesque - came into use to describe spectacular feats. Beamon landed his jump near the far end of the sand pit in which jumpers land. The optical device which had been installed to measure jump distances was not designed to measure a jump of such length. This forced the officials to measure the jump manually which added to the jump's aura.


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