1. The return of Gallo to the Denver Lineup, and his previous absence must be the reason that they were winning before and can be expected to lose now. Such a new beginning should be used in markets to determine the distributions after a new event like the first up opening in x days or the first red or green in the colored co-movement chart that Doc updates on daily spec.

2. I have always eschewed the development of systematic methods based on anomalies for making an extra buck in individual stocks for a different reason than Richard Roll who finds that they never do half as well in real life as they do on paper. My reason is that by the time you consider the extra 2 or 3 percentage points you can make from them at the best, your customers if you have any couldn't cover the cost of their fees and be left with anything good. And if you don't have customers like me, then the return you could possibly make from them would never be sufficient to cover your expenses.

Louis L' Amour in The Iron Marshall has written a great Horatio Alger story that has almost as much accurate stuff about New York City in the 1850s in it and great Titanic Thompson con man stuff in it, as does his usual Western fare, always written with a topographical map at his side. However, I repeat that his constant emphasis on boxing technique as the deciding factor in who gets ahead and his inability to flesh out the endearing personal nobility of relations between friends the way O' Brian or Schaeffer can makes much of his work very shallow.

4. The overreactions in the market last week show how waiting without trading for the time when you normally would have been squeezed out, but then going in big is a viable strategy. The main problem with this is what would have happened to you if you did this the day in October 2008 the market anticipated the inevitability of the community organizer's election and dropped 20% in two days.

5. It is always amazing to me to read the GaveKal analysis of the influence of world events on stock prices. They invariably come to the same conclusions as me, almost always in favor of the long term drift, and almost always taking a contrarian approach to investing. They have a good essay on why they are bullish on Japan now. Based on such things as that their market is underweighted and undervalued relative to other markets, and their own history, it is likely that easing will occur, and that the nuclear crisis was much more contained than fearful reports made it out to be. I have never seen a GaveKal analysis that I didn't agree with except for one of their favorite hobby horses about how the inexorable and unbeatable new type of virtual company arising a la Carefour that can make an infinite rate of return et al.

T.K Marks comments:

The fade Gallo system of basketball handicapping reminds me somewhat of a client that we used to have when I first started out on the floor. There was this direct line phone to a brokerage concern that would ring all day long with order entries. Nothing particularly noteworthy of having with having a busy client, but it was the type of orders that piqued my novice interest.

You see, every order that was entered was a cross: Buy and sell equal amounts at the same price, whether above or below the market, or at the market. As I obviously found the net result of all these transactions to be unduly homeostatic in terms of P&L, after about a week of observing this curious phenomenon I finally mustered up the temerity to ask a grizzled sort twice my age what was the purpose of this.

He just looked at me blankly for a moment before succinctly advising, "Don't worry about it."

So about two weeks later, and after I had passed his vetting process I guess, he out-of-the-blue explained what all those crosses from particular brokerage house's crosses were about.

Their experience being that the equity of most retail accounts having short half-lives, their thinking was to take the other side of every one of their customers' orders.

It was my first exposure to any sort of trading system. And although it was as regimented and rigidly fixed as could be, those characteristics had nothing to do with mathematical calculations and everything to do with human nature.

As far as they were concerned, when it came to silver futures traded in a retail account, everybody was Gallo until proven otherwise. In the long-run I'm not sure what the karma consequences of presuming that everybody is a hoodoo waiting to happen, but the people from that brokerage house were obviously no strangers to some of the darker corners of psychology.


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