Market Review: Reminiscences of a Stock Operator
Sunday is May Day, day of the international worker.
And as luck would have it, not fifty paces from our office in downtown Baltimore, there sits an anarchist bookstore called Red Emma’s. So in a small display of solidarity with the international worker, on Friday went to check it out.
We took James Boric with us…and a note pad…and a copy of ‘Reminiscences of a Stock Operator’ by Edwin Lefevre [See Book of the Week, below…]
James Boric is the publisher of a newsletter called Penny Stock Fortunes and a trading system called the MST trader. Seven out of every ten of his recommendations are profitable…and since he started using his system nearly three years ago, he has comfortably beaten the market.
‘Reminiscences of a stock operator’ – on the other hand – is probably the single most important book on trading that exists and James cites it as an important influence on his trading strategy. So by reading pre-selected passages to James, in this shrine to socialism, labor and non-profit activity, we hoped he might spill the beans on his trading system…
We started with this passage from chapter 3:
Livermore: "If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating."
Boric: "There are a million different ways of losing money in the stock market, but the fundamental fault I see is almost always the same: Not having a system. Whether they are lazy or they just like to fly by the seat of their pants, I don’t know, but the market always gets them in the end. I’d say the biggest factor in my success has been discipline…discipline to stick to a system which I know is profitable even when I have ten losing trades in a row."
At this point our food arrived…hummus, celery sticks and brown bread. We ignored this anarchist feast and dove back into the book…
Livermore Ch. 3: "It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation."
Boric: "Yeah…very important…don’t get married to your positions. It’s a classic way of losing money and another reason for using a system. My system has no memory and it doesn’t care if the market’s going up or down. My ideas, on the other hand, can be influenced by almost anything, the latest news story…a conversation…even the weather…"
Livermore Ch. 7: "When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stock on a scale down, I buy on a scale up."
Boric: "Ok…the MST system is built on this principle. Momentum, strength and trend. To make my picks, I screen the markets for stocks that are moving with purpose. I’m not trying to hit the peaks or the bottoms, but trying to catch the move. It’s a much higher probability strategy."
Livermore Ch. 5: "If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit."
Boric: "Nothing needs be said. If it’s not complying with your system, don’t touch it. You’ve gotta be strict…"
We picked up a newspaper from the stand next to our table. It was called "Industrial Worker." We started reading from it…
"May Day – Our Labor Day! May Day, when nature, herself in revolt against the trammels of the ice and cold, with sun and earth in harmony, preaches the gospel of progress! …True, our masters have given one day a year as a day of Labor. We, the militants of labor, want no day contaminated and disgraced by legal sanction.
"Your Labor Day means the perpetuation of capitalism; ours means its overthrow. Your Labor Day symbolizes the enslavement of the workers; ours their approaching liberation…"
"My Labor Day means golf," said Boric, polishing off his fair trade coffee and packing his laptop away. "Let’s go…I’ve got a plane to catch…"
The Daily Reckoning
May, 01, 2005
P.S. With Boric’s permission, we posted the full MST trading methodology on the Internet last week.
— Daily Reckoning Book Of The Week —
Reminiscences of a Stock Operator
by Edwin Lefevre
The all time classic book on stock trading is a must-have for every trader’s library…Or buy the book on CD, so you can listen in your car on the way to work…
THIS WEEK in THE DAILY RECKONING: "Zebras that reside on the outside of the herd are calculated risk takers. They know there is always a chance a lion could pounce out of the bush, wrap his gigantic paws around their neck and fatally sink his fangs into their jugular. But the allure of lush green grass, fresh water and the cool breeze is worth the risk of an attack."
For more zebras and lions, see James Boric’s superb essay from Thursday, below…
A THOUSAND CLOWNS 04/29/05
By Bill Bonner
"Often, the best way to deal with something that you find absurd is to take a step back and laugh. Bill Bonner advises his readers to employ this strategy when trying to decipher what our world leaders are really trying to save the world from…"
AHEAD OF THE HEARD 04/28/05
By James Boric
"Last week, Steve Sjuggerud warned readers that now was the time to bet against small-caps. Today, you get the other side of the story – straight from the mouth of our small-cap superstar, James Boric. Read on…"
THE MONEY SHUFFLERS’ VIG 04/27/05
By Marc Faber
"The notion of one’s child as a doctor sends chills of fear down parents’ spines, engineers gravitate to plying their craft on money instead of real stuff, and the $600/hour lawyers are depressed to the point of working nearly 24/7…
THE STORY OF ENERGY 04/26/05
By Addison Wiggin
"What would the world do without energy? Computer access would be virtually impossible; businesses would shut down – life, as we know it, would come to a standstill…."
INTRACTABLE PROBLEMS 04/25/05
By the Mogambo Guru
"Much to the Mogambo’s surprise, more and more people are realizing something must be done about the U.S.’s economic difficulties, namely the twin deficits…but he also knows that the solutions will be quite costly…"
FLOTSAM AND JETSAM: U.S. Dollar Forecast – "Still Room for a 20% Rise In the Buck"
THE U.S. DOLLAR IN ZURICH
by Dr. Steve Sjuggerud
Greetings from Zurich, Switzerland – what has to be the world’s most expensive city…
Man, it’s living up to its reputation. The Bar Au Lac hotel is going to run me more than 640 Swiss francs a night. And I scribbled down the prices of what I ate for lunch at the Brasserie Lipp… "Salad with Asparagus" (28.50 francs) and "Grilled Beef Filet" (49.50 francs).
In plain English, that means my hotel is over $500 dollars a night… and those two lunch selections ended up running over $60 bucks. Ouch!
Wait a minute! Now, before you give me a hard time for spending too much, let me just tell you, this is the way it is in Zurich. The U.S. dollar is worthless here, which makes me wonder about the U.S. dollar forecast.
While everyone talks of a dollar crash, this trip to Zurich is more evidence that the dollar has already crashed. Europe is outrageously expensive. And some time soon, the exchange rates between Europe and the U.S. will move back in line… meaning the euro (and Swiss franc) will fall, and the dollar will rise.
You Can’t Buy Nothin’
Two classic gauges of prices around the world are a cab ride from the airport and high-speed Internet access… These are not "prized" activities; these are part of everyday international business. And here, yet again, Zurich proves it’s outrageous…
Our 10-minute cab ride from the airport to the Bar Au Lac was $50 bucks. Now again, don’t think I’m living high on the hog – this wasn’t some sort of limo or black car service. It was a dingy (for Swiss standards), small, old white European van (if you’ve been in Europe, you know the little vans I’m talking about). Fifty dollars!
And you won’t believe Internet service. I pay about $40 bucks a month at home for high-speed Internet. Here in Switzerland, it’s over $40 a day! No joke! Since the city of Zurich is wireless, the hotel doesn’t have wireless access for guests. So I have to pay SwissCom daily for wireless access.
Of course, if you sign up for a week’s access, they’ll give you a discount… 200 francs for the week. That’s $167 dollars in a week for high-speed Internet!
The U.S. Dollar Forecast: Why the Buck Could Strengthen by 20% or More
I track three primary indicators for currencies…
Interest rates. All things being equal, the country with the higher yields will see its currency rise versus the country with the lower yield (deposits in the U.S. pay nearly 3%, while Swiss ones pay less than 1%).
Purchasing power. When one developed country’s currency is significantly out of line with another developed country’s currency, it’s like a stretched rubber band – things return to "normal" over time. (A Big Mac in Switzerland, for example, is 82% more expensive than a Big Mac in the States, according to The Economist magazine).
The underlying trend. Trends in currencies tend to stay in motion for longer than people think. In 2005, the trend in the European currencies has been down versus the dollar, but so far the fall has been minimal… and there’s plenty more room on the downside in the euro and the Swiss franc.
Of course, Switzerland is an extreme case. With the exception of the dollar’s massive rise in the mid-1980s, Switzerland has always been more expensive than the U.S. – by about 30%. The currency markets seem to like the stable, conflict-free economy with a solid legal system and a country with significant gold reserves.
Forecasts for the Euro: Overvalued and Struggling
However, the euro area does not include Switzerland. The euro’s big countries are Germany and France, which are struggling much more than the U.S. right now. A few examples:
Interest rates are lower than the States, at closer to 2%.A Big Mac in Europe (for example) is 25% more expensive than the U.S.The trend in the euro in 2005 has been down, though the fall has been mild. The ducks are in a row.
Zurich is the most extreme example… but Europe is darned expensive, any way you figure it. The rubber band of currency values is stretched to an extreme right now. There’s no good reason a Big Mac is 25% more expensive in euros. A Big Mac will return back to "normal" pricing in euros. And the way that will happen is the expensive euro will lose some of its value.
You may not agree with my U.S. dollar forecast. That’s fine. You don’t have to "buy" the dollar, as I have been recommending this year. But you really ought to think twice about any holdings you might have in euros.
I am here in Europe now, doing the research… and I am poorer for doing it, as the U.S. dollar is so unbelievably weak right now. The rubber band will bounce back. It always does.
P.S. For those of you who are interested, my research led me into a meeting with some Zurich-based investment bankers, and, as luck would have it, we literally stumbled onto a fantastic new investment idea. Here’s the story:
And The Markets… (Courtesy of the Rude Awakening)
WTI NYMEX CRUDE