While not central to the site, the following listings and notes are integral to it and underlie its centrality.
Some entries may appear here and also in the Index for the other Separate Section on Stock Selection because they have relevance to both. Underlined entries are for the most part linked to other entries or pages.
In a standard distribution curve, the greatest number of occurrences (in this case, people who participate in the stock market, investors, speculators, professional fund managers, and trust fiduciaries who manage portfolios for beneficiaries) occurs at top of the curve. Most people lose money, putatively on the order of two out of three participants. Click the chart to englarge it.
The numbers of losers (in the millions) spill down both sides of the hill until the count reaches those who break even over time, and thence downward on each slope away from the peak until the curve reaches winners on each side. The farther out on each tail, the bigger the profits of those fewer and fewer winners until the single biggest winner on each side is reached. The people whose names appear on the chart have made enormous amounts of money. But the very biggest winners are invisible and unknown. These have not got the irrestible ego compulsion to create themselves into highly visible, public personae in the manner of
(his book), whose names appear as exemplars on the chart. (The two fellows on the right are easily recognizable to Keynes readers as members--as he himself was--of his "Snap," "Old Maid," and "Musical Chairs" market-players crowd.
(GTE, p. 155-156.)
The chart shows both tails are winners, but the bigger winners are to the right where the "speculators" dance vs. the left where the the "investors" stroll. The former repeatedly buy and sell, buy and sell changing conditions. Their holding period is from a few minutes, or less, to several months, or more. The investors, to the contrary, buy and hold, even marry, companies they love. Their holding periods range from years to a lifetime. In the end, though, they both do the same thing. They finally sell, or their successors sell. It comes down to a matter of, 'how long is your holding period?'
The accumulation of wealth is a function of three variables. The magnitude of the gain of each transaction. The number of transactions. The leverage applied. Thus a 1% gain a day for six weeks using put and call options giving a leverage of 10 to 1 compounds money to the same level of wealth as buying lake-front property in Central Florida and holding it for 25 years, gaining 12.5% per year---in both cases 1900% of what you started with.
I believe greater safety and superior gains result from the willingness to leave stocks and the stock market from time to time. What you find here in this site is intended to bring you well down the curve into the big-winners area on the right side of the bell where the blue vertical lines on the chart rise (large version) to intercept the curve.
When I was a Student at Bologna in 1497, the Bishop of Rimini became my Patron. One of his nephews and I had become fast friends at the University, and the Bishop, who had studied in Rome with my Uncle Lucas when I was still a boy, took a liking to me and my theories of Astronomy and the Revolutions of the Celestial Bodies. Later, when I was at Ferrara, I would summer with him and his Household at Rimini on the Coast. After marrying, my Wife and I often stayed with him on our Journeys to Rome. I honor his Patronage and good favor by displaying this token, his Coat of Arms here.
For this version I am indebted to a contemporary of yours, Mr. James Wolf, and grateful for his kind permission to display, from his fascinating site on heraldry, the Bishop's arms, which you may see in the Ecclesiastical section of his site http://digiserve.com/heraldry.
This is Edward O. Wilson's book, Consilience: The Unity of Knowledge Alfred A. Knopf New York 1998 ISBN 0-679-45077-7. The book is about a single answer to everything. For me, I find its premises flawed, but it is one of the most impressive, expressive, and important books of your time and well worth the attention you may or should see fit to devote to it. The perfect antidote and counter balance is Teilhard de Chardin's The Phenomenon of ManHarperCollins New York 1975 ISBN 006090495X--an extraordinarily impressive book in its own right, written more than 40 years preceding Wilson's book.
Wilson, in the otherwise comprehensive, wide ranging index to his book gives short shrift to Teilhard and to the subject of Energy. He mentions neither. (Energy in the sense wherein metaphysics lies beyond physics.) Wilson is too fine and honorable a scholar for me to dare think of his motive as sinister. Nor can I attribute it to ignorance (impossible, given the universal range of his knowledge and experience and what he is attempting to achieve in his book). Nevertheless, I find his silence regarding Teilhard utterly and amazingly surprising. The only remaining alternative is that he has been inherently blindsided, unaware, by the uniquely personal presuppositions upon which he has launched his observations and the arguments of his theses.
Teilhard was proposing "complexity" and "complexification" half a century before the current discussion fad of "complexity theory" to which Wilson devotes several references in his book--more old wine in new skins--not that that is bad: the new skins are elegant and necessary.
An objective reader will find, I believe, that, in fact, Teilhard's seminal work underlies much or all of what Wilson is talking about--absent the admission of noumena. Both men are scientists, extravagantly creative, but where Wilson is suave and urbane Teilhard is visionary. At any rate, if you read nothing else this year, these two, plus Huntington's are the books to read.
What on Earth you ask, does all this have to do with stocks and investing? See Books.
". . . the cosmos and human consciousness are infinite and there can be no end to their exploration." --Barzun, op. cit. p. 483. The Market will always continue to evolve and change--in four ways: its components, its magnitude, its velocity, and its volatility. The underlying forces of greed and fear seem to abide as characteristics in the human psyche (if they are evolving at all--they are!--taking multimillennia, or longer, to manifest discernible change) while the mechanics of their appearance in the Market metamorphose from generation to generation thus requiring continually new approaches to successful investing and speculating.
This is the seminal work on the random walk in stock prices which correlates with the efficient market hypothesis. Written and edited by MIT Professor Paul H. Cootner, The Random Character of Stock Market Prices is the definitive compilation of academic articles from professional journals up to 1964. It has a lot of heavy mathematics interspersed through the text and presents all the pros and cons from every angle. Unfortunately it is out of print and apparently not for easy sale anywhere, but libraries will have it, especially in big cities with major universities. M. I. T. Press Cambridge, Revised Edition,1970 536 pp.ISBN-0-262-03009-8
The theory first espoused by Heraclitus and later by Jung that everything reaches an extreme, then runs to its opposite. Doesn't that describe the stock market perfectly? And, of course, that ties in with my theory concerning the Orbitings of the Celestial Bodies and the very Motion of our own Earth itself by which all the Bodies of Heaven traverse our Skies. Those which rise, set; those which set, rise.
Hegel (note) played Johnny-Come-Lately to Heraclitus's premise, inventing new nomenclature: thesis, antithesis, and adding superfluously another layer, synthesis--which was not Heraclitus's idea at all. I hold that 'antithesis' itself becomes the new 'thesis.' You do not need the third layer which Hegel trowels on. It introduces a whiff of permanence about the whole thing which is not warranted at all by observation or evidence. And Marx and Engels fell for it. In their dialectic, when the proletariat prevails, there will be no further need for class war because the goal synthesis will have will have been achieved. There is no final synthesis to the rising and setting of the Sun, just the next rising and setting. The cycle continues...eternally.
The stock market is an enantiodromian phenomenon par excellence.
...those who fill your web browser, mail box, and financial TV program screens with trivia, blather, persiflage, and drivel.
Most of what passes for stock- and stock-market information is street-theater, a form of entertainment--like Hollywood, Broadway, Sports, and Politics. It has color, glamor, dynamics, controversy, excitement, and its own peculiar brand of "truth" which tens of millions rush to embrace--to the enrichment of the purveyors thereof.
"It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professsional investor and speculator are mainly occupied otherwise.
"For most of these persons, are, in fact, largely concerned , not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is worth to a man who buys it 'for keeps,' but with what the market will value it at, under the influence jof mass psychology, three months or a year hence.
"The actual private object of the most skilled investment today is to...outwit the crowd, and pass the bad, or depreciating crown to the other fellow." (Keynes, GTE pp. 154-155) (Ed. note. This was written in 1935.)
Many portions of Keynes's great book, The General Theory of Employment, Interest and Money ("GTE"), are important; much of it is difficult, dated, and dense, the rest easy and timeless. It is the timeless parts, which he expresses in clear, colorful, early, twentieth-century British English, which have keen and present interest for the Market and Market players.
I think some of these parts are so valuable that I am taking the liberty of quoting here for you at somewhat greater length than I usually do with similar authors and observers.
Keynes was indeed oxymoronically a 'colorful' 'economist.' His mother was the Mayor of Cambridge. He married a Russian ballerina. He was an inveterate speculator (as Bursar of King's College, Cambridge, he made the school rich). He was an acerbic critic of famous people with whom he did not agree or who did not agree with him. Bertrand Russell (with whom he was on good terms) is alleged to have said, "When I argued with him, I felt that I took my life in my hands, and I seldom emerged without feeling something of a fool."
He crossed policy swords with Wilson, Clemenceau, Churchill, Roosevelt and came up winner (after some delays) each time. He denounced the Treaty of Versailles and particularly vigorously condemned the magnitude of the war reparations demanded by the victorious Allies from a defeated Germany after World War I, feeling it would later cause a disaster in Europe. He was right. Hitler came and with him catasrophic World War II. (See "animal spirits," "six pretty girls, and "market solvency.")
The book (There is a web copy on the Internet of the entire text, I believe; I have not checked all of it, but their pages match the source pages I use from my original hard copy of the 1936 edition--sometimes the text pages on the Web are down, but it's worth a try if you are interested) : The General Theory of Employment, Interest and Money Harcourt, Brace & World, Inc. New York (no date shown, but Keynes's Preface is dated 1935--most sources cite 1936 as the publication date). If those web pages are down or
for more on Keynes you may want to look here.
...without action pays no return. (After T.H. Huxley.) Other of his writings worth quoting here, "Perhaps the most valuable result of all education is the ability to make yourself do the thing you have to do when it ought to be done, whether you like it or not; it is the first lesson that ought to be learned; and however early a man's training begins, it is probably the last lesson that he learns thoroughly." --Technical Education, 1877
Also, "The chess board is the world, the pieces are the phenomena of the universe, the rules of the game are what we call the laws of Nature. The player on the other side is hidden from us. We know that his play is always fair, just, and patient. But also we know, to our cost, that he never overlooks a mistake, or makes the smallest allowance for ignorance." --A Liberal Education, 1868
Stock prices are at the top. Ignore the blue curve in the middle. Observe that whenever the magenta curve drops beneath the 'low threshold' level (click to enlarge) and turns up, then a substantial period of rising prices takes place, often over several years. The y axis and 'momentum' and 'vernier' scales on these timing charts match precisely (though you don't see the numerical values: it's the levels that count, not the numbers). Prices are logarithmic scale with recent or current sets expanded vertically to fill visual space. The up-to-date current chart will give the present position of the market. See long-term record of profits and losses for 'low-threshold' events based on the article "Timing, Bear Markets, Hedging."
'Metatrope' or 'metatropal' [<Gr. a pleonasm meaning changed in position or form coupled with turning] defines the whole rising and falling market process; 'anatropal' for rising markets and 'catatropal' for falling ones; more popularly, 'dunes and ponds.'
The site creates and uses mathematical constructs generated weekly from the sequential random behavior of stock prices.
It is important to note the distinction between method and system. Method is a way of doing things. System is a specific procedure using two or more methods.
The site provides methods (tools--which are ways of doing things). You, the investor or trader, provides the system (the choice of the manner in which the tools you have selected are uniquely applied). Thus, your results will differ from mine or your neighbors as long as we are not using identical systems. Further, neither your system nor your neighbor's will be identical to mine.
The site creates charts form price sequences in stocks, ranging from a few days to decades. It scrutinizes cycles, but not the usual kind. These are self adaptive and variable in periodicity.
Monetary conditions are the primary catalyst in stock-market behavior.
Their most objective, de facto measure of impact is interest rates which are the price of money. When it is abundant, the price is cheap, rates are low, and monetary liquidity is plentiful.
When money is scarce, it is more expensive, rates rise, and liquidity diminishes.     The chart shows the rise and fall of stock prices as the top curve. Below it, is a combination of interest-rate series (click the chart to enlarge). The correlation is evident. When the series ascend, they bespeak abundant liquidity and concommitant rising stock prices. When liquidity is diminished, market prices fall, or the market becomes labored, narrow, and dangerous. Although stock values may rise for a while longer, the risk of loss is great in times of diminished liquidty.
The lower square wave (the yield curve: 90-day U.S. Treasury Bills less 10-year Treasury Notes) is the governor. It overrules any counter positive evidence the upper wave may be offering.
Rising or plateau liquidity is a sufficient cause of rising stock prices most of the time, but not a necessary one.
New ideas / old ideas
"The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds." ---Keynes (once more!), the last line to his Preface in GTE, p. viii
Observations and Method, Limitations of
"They (physicists and naturalists) are now beginning to realise that even the most objective of their observations are steeped in the conventions they adopted at the outset and by forms or habits of thought developed in the course of the growth of research; so that, when they reach the end of their analyses they cannot tell with any certainty whether the structure they have reached is the essence of the matter they are studying, or the reflection of their own thought. . . . in fact they are caught in their own net."
"But observation is rarely neutral; it rests on pre-conceptions and pre-perceptions. In fact, close obervation can be a hindrance to scientific thought if it fastens too hard on outward appearances. A better way of observing consists in overlooking visible details, in neglecting observation (to put it rather strongly) and in viewing objects in geometrical fashion--seeing the Rabelaisian quintessence."
"The human mind will find patterns where none exist. It will see patterns in random data. A turn-of-the-century statistics book put it this way: 'Too fine an eye for pattern will find it anywhere.' In other words, you're going to see more on the chart than is truly there.
"Also, we don't look at data neutrally--that is, when the human eye sees a chart, it doesn't give all the data points equal weight. Instead it will tend to focus on certain outstanding cases, and we tend to form opinions based on these special cases. It is human nature to pick out the stunning successes of a method and to overlook the day-in, day-out losses that grind you down to the bone. Even the most honest researcher will tend to bias data toward his or her hypothesis. It can't be helped."
--William Eckhardt (in Schwager p.113-114)
And yet . . . "processes and procedures of simplification ... produce clarity and ... a sense of having got the matter under study right." " ... lucidity, a quality that often comes out of a process of simplification. Lucidity, I maintain, is almost always desirable. About simplification, however, one can feel ambivalent."
--Yi-Fu Tuan (Escapism 1998,   p.23, 24)
"The fact is that we are shifting rapidly from a Cartesian view of the universe, in which the accent has been on parts and elements, to a configuration view, with the emphasis on wholes and patterns . . ."
--Peter F. Drucker (The Age of Discontinuity
1969,   p. 350)
Samuel P. Huntington in another context says it beautifully in his fine book, The Clash of Civilizations and the Remaking of World OrderSimon & Schuster New York 1996 368 pp ISBN 0-684-81164-2. (p. 30)
"Simplified paradigms or maps are indispensible for human thought and action. On the one hand, we may explicitly formulate theories or models and consciously use them to guide our behavior. Alternatively, we may deny the need for such guides and assume that we will will act only in terms of specific 'objective' facts, dealing with each case 'on its merits.' If we assume this, however, we delude ourselves. For in the back of our minds are hidden assumptions, biases, and prejudices that determine how we perceive reality, what facts we look at, and how we judge their importance and merits. We need explicit or implicit models so as to be able to:
1. order and generalize about reality;
2. understand causal relationships among phenomena;
3. anticipate and, if we are lucky, predict future developments;
4. distinguish what is important from what is unimportant; and
5. show us what paths we should take to acheive our goals."
Dr. Huntington is an outstanding example among your contemporaries of clear, encompassing thinking and elegant style. His book is also, I think, possibly the World's most important at your turn of the Century. As one of your more widely world-traveled and sensitive observers states it, "His logic is impeccable--unfortunately."
The first color portrait you see of me when you come upon the site appears elsewhere on the World Wide Web. I am famous even to this day! This portrait of me is from the excellent site at the
Istituto e Museo di Storia della Scienza, Firenze. The Museum and Institute have kindly given permission to show this portrait of my portrait here. The original, I am told, hangs in the Uffizi. I do not know who painted it of me, nor the year. In the U.S. recently, registered with the Patent and Trademark Office, there were 25 trademarks which list the use of my name, a variety of web sites, and a blizzard of email addresses which offer my name as their nom de plume. I am impressed at this residual fame after five centuries, but a little nonplussed. I understand lawyers name their groups after themselves, even in my time by and large a prideful bunch. Occasionally, an Italian family in my day would name its trading enterprise after itself. But the frequent use of my name in North America, Europe,and Asia in the year 2000 by all manner of enterprises puzzles me. Nevertheless, I am honored and wish them very well each and all in all their endeavors.
The Practice of the Stock Market has more in common with Medicine than with Astronomy. Astronomy rests on an array of intractable mathematical facts--the Orbits of the Celestial Spheres. Medicine is susceptible to personal analytical intrepretations--despite the existence of multitudinous perceived facts upon which which it rests. Two Doctors of Medicine in Bologna, presented independently with the same pathologically afflicted Patient, can easily arrive at very different diagnoses and prescribed therapies. Under one, the Patient dies. Under the other, he lives and thrives. It is much the same with the Market.
". . . professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks the likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.
"Investment based on genuine long-term expectation is so difficult today as to be scarcely practicable." (Keynes, GTE pp. 157-157) (Ed. note. This was written in 1935.)
The antithesis of probability is randomness. If you are literate and invest or trade (in anything), here is a book that is easy, erudite, and delectable to read. The author is classically educated and up-to-the-minute hip in content. The writing style has a sort of understated wise-guy tone which you may find endearing, offputting, or both. See Nassim Taleb, Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life Random House New York 2005 368 pp ISBN-13: 9780812975215
Holman Jenkins in The Wall Street Journal, January 14, 2004, wrote, "Nature creates probabilities that, given enough time, are certainties: Someday something will bump into the earth, perhaps fatally."
That's what happens to all the characters, usually fatally, in Taleb's book, with the exception of himself.
In the penultimate paragraph of the same article, (which extendedly is about space, the solar system, and civilization--subjects dear to my heart as you can tell if you have read around much on my site)--Mr. Jenkins says, "Mr. Bush's sherpas are already plotting private accounts as a way to transform Social Security from a burden on labor productivity into a property right for individuals." (See my articles on this topic--Stocks and Social Security and A Solution.)
Probabilities will be the paramount consideration (trumped only by politics) in fixing Social Security. I advocate stocks in private accounts because my findings are that they are 'safer' and far more rewarding. Some responsible people agree with me wholeheartedly, others violently (but gentlemanly) disagree equally wholeheartedly.
(See Cootner, above.) I saw the phrase used recently by a financial journalist in one of your blather publications. Future research will show, I believe, that there was no such thing as random or 'random walk.' There are only laws--of which we have as yet no understanding, nor even suspicion of existence--which govern all phenomena.
Table 'low-threshold' buys 1920-2002, detailed results of all trades as of August 16, 2002
What did you learn from the entire experience?
"Mostly I learned a lot about the firm and myself. I have a lot of respect for Salomon's willingness to understand what happens in the markets. If you want to play the game, sometimes somebody is going to get assassinated, sometimes somebody is going to make a speech at the UN, and you're going to be on the wrong side of the trade--it's just the way it is. Exogenous events are sometimes exogenous events. They really understand that."                     --Bill Lipschutz, down $90 million on this trade
These are an alternative to your doing your own investing yourself. They can also be your relegating your family to one of Dante's levels of Hell in the Inferno if you have set up a testamentary trust or other irrevocable trust with no provision which allows your beneficiaries to appoint and to change investment advisors who will have full investment-management discretion or to change and appoint a successor corporate trustee.
Corporate trustees with interminable tenure have no incentive to actively manage portfolios. They have every incentive not to. If they buy a stock, and it goes down, they have erred in the eyes of the beneficiaries. If they sell a stock, and it goes up, they have likewise erred. Wouldn't it be better to do nothing, year after year after year? You bet it would. Do nothing if the stocks are rated investment grade. None can fault you--except the condemned, but toothless beneficiaries.
'Sins of the fathers' visited upon the sons and daughters--hubris, your supreme pride in presumng to know what's best for your children (or for anyone else after you are gone) and tieing up them, or other heirs, irrevocably, forever, without recourse or appeal. Don't do it!
Werner Heisenberg in 1927, of course, had much to say about this with respect to quantum mechanics, "The more precisely the position is determined, the less precisely the momentum is known," as well as physicist Freeman Dyson at Princeton University (quoted in Insight on the News Magazine, Vol.16, No.16, May 1, 2000, p.33), "You live with uncertainty just as you do in science. Science is mostly just a lot of clever tools, but that's what science is basically. It is a tool for getting knowledge." The Heisenberg site, mounted by the American Institute of Physics, is a gem and trove of fascinating information in layman's terms about Heisenberg, quantum physics, the Uncertainty Principle, and his controversial role in Germany under Hitler.
. . . comes from the aggregation of continually profitable choices versus the increasing limitation of losing ones.