Thursday, June 30, 2011

Distributing $CROX

[guest post by TS]

Reading, Reading, Reading, and a wee bit of watching. That's the life of a speculator.

You read that right: speculator.  And proud of it. An investor makes careful, well-thought-out, mathematically enforceable/supportable decisions for long-term purchases, and will not back out of a purchase without careful deliberation.  I'm no such beast.  In the air of the Victor Niederhoffer I learned of via his autobiographical The Education of a Speculator, I make snap decisions in an effort, using knowledge gleaned from dozens of sources, to augment the fortunes of my descendants--my success is ongoing.  Niederhoffer's book was in fact at the top of my summer reading list two summers ago.

Having said that, it's difficult for the average person to look at a company like Crocs, Inc. and see a global company.  What they see are the Beach and Cayman (Classic) bright-colored Croslite shoes on the feet of their kids, not a strongly positioned global retailer.  They are clearly not, unlike you and me, reading the source material available at  I found the following in the 10-K, filed on 2011-02-25, which gives some clue to the global distribution of Croc's products:

Use Approximate
Square Feet
Ontario, California
Warehouse 399,000
Narita, Japan(1)
Warehouse 289,000
Aurora, Colorado(2)
Warehouse 264,000
Leon, Mexico
Manufacturing/offices 226,000
Leon, Mexico
Warehouse/offices 214,000
Rotterdam, the Netherlands
Warehouse 183,000
Shanghai, China
Warehouse 76,000
Niwot, Colorado
Corporate headquarters 69,000
Niwot, Colorado
Regional offices 60,000
Tampere, Finland(3)
Warehouse/offices 60,000
Melbourne, Australia
Warehouse 48,000
Shenzen, China
Manufacturing/offices 32,000
Den Haag, the Netherlands
Regional offices 27,000
Padova, Italy
EXO's Regional offices/manufacturing facility 28,000
Regional offices 26,000
Gordon's Bay, South Africa
Warehouse/offices 24,000
Niwot, Colorado
Warehouse 15,000
Shanghai, China
Regional offices 13,000

Distribution does not a successful brand make, but it does help with getting product in front of the buying public to replenish supplies that are moving off the shelves.  What other small companies are similarly seeking a global footprint to enhance their long-term survival?


Change is Good

Things are really changing at SKX. A press release yesterday stated that
"Total Apparel Group, Inc. ("TAG") (OTC Pink: TLAG) today announced that its wholly owned subsidiary, Total Licensing, Inc. ("TLI"), has partnered with Glamm Industries, LLC ("Glamm") to develop and market timepieces for SKECHERS US"
Another licensing agreement with LF USA, a subsidiary of Hong Kong-headquartered multinational Li & Fung Limited, to produce a SKECHERS Fitness apparel and accessories collection for men and women.
"The SKECHERS Fitness Apparel collection will build on the success of SKECHERS Fitness Footwear, which now includes technical running collections as well as styles designed for training and all-day wear. LF USA’s Regatta division will design, produce, distribute and market the collection"
Along with Sketcher's new shoe line, it appears they are intent on increasing their revenue streams. I'm rooting for them.

Wednesday, June 29, 2011

Hurry Up and Wait Please

Photo by Karina Gerbst

My patience on Sketcher's (SKX) seems to be working. It was up nicely yesterday. The news from Nike (NKE) , Crocs (CROX), Timberland(TBL) et al are boosting interest in this sector.

Sketchers is a battered down value stock. Other than defining the idiom "A rising tide lifts all boats", what else is happening here? Well, I do see change. Sketcher's main customer Brown Shoe (BWS) had a good earnings report last week. I hope this is a sign that the stuffed inventory channels are thinning out. Sketcher's has its own e-commerce shoe website. Its shoe prices for their "Toner shoes" seem to have come down slightly. I am hoping that their new pricing is the adjustment needed to boost demand. Looking at the upcoming seasons, the "Back-To-School" and Christmas sales will help tremendously.

Sketcher's is the only publicly traded company that sells the "Toner Shoe" style. Reebok & Asics are the other main sources of this style of shoe and are privately owned. If you want a stake in this new market and you're not Warren Buffet who can buy the whole company when he likes an equity, then SKX is your only choice.

 The controversy seems to be that Sketchers is now trying to enter and compete within the crowded fitness shoe arena. “Skechers Fitness has grown from a single style into a performance running line, training line, and an everyday toning line,” Skechers President Michael Greenberg said in a statement. "The apparel collection will build on the company’s Sketcher Fitness Footwear line, which now includes technical running shoes as well as styles designed for training and all-day wear." The new line is coming in 2012.

According to SeekingAlpha
Sketchers’ current attempt to expand the recognition of its brand into other realms of footwear may invariably diminish the perceived and/or actual focus of the brand on providing products appreciated by loyal consumers. Skateboarders and individuals who wear toning shoes appear, at least at first glance, to be unrelated groups of consumers....

How can you rate the current sentiment?
Comparing the current quarter earnings to last year's quarter, the results will be more of a measure of progress than an actual beat; However, the current consensus is that there will be vast improvement in the last half of the year.

The next earnings report is July 25th. Barring an early press release announcement, what could you use to read the current sentiment on SKX? The July 2011 options expire on July 15th, before the reporting period and the August 2011 options expire after the report.

Using the premise that an option straddle is a hedged bet composed of calls and puts can a price range be defined by the break-even points? I would like to experiment with a weighted blend of prices for a range of options for the next 30 days. Just like the VIX, would you be able to find a range of prices, and actually measure the incremental wisdom of the total crowd? The VIX volatility index is used by options traders to calculate options premiums (i.e. options prices), and also by S&P 500 traders to determine the expected daily range for the S&P 500 stock index and futures market. Only I would be doing it for one stock. The math may be over my head. Need to do more homework....

It seems to be a very volatile range. Prior to yesterday's run-up the range was quite different than this morning. But a simplified historical range of stock prices might be a more powerful piece to the puzzle that I thought.

Monday, June 27, 2011

$NOK as Penny Stock

[guest post by ..TS.]
You probably would have never thought of Nokia as a penny stock, especially has it still has some $60B in sales and a $20B market cap, but it's stock price recently dropped below $6, putting it in spitting distance of the $5/sh definition for a penny stock.  Just as Citigroup, Ford were once penny stocks, and very nearly GE, Nokia, which has been a major force in mobile telecommunications for decades, has nearly touched these fabled depths.

How do we play penny stocks?  Well, generally, we're advised to steer clear of them.  But, remember, penny stocks can generate the greatest returns in one's portfolios, especially if news and/or results bring them back from the proverbial brink.  Realistically, what company with some $15B in cash is really at the brink?  Well, RIMM has $20B in cash, and look at it's gyrations.

Now, I have not implemented exhaustive research on $NOK, but based on a couple of flimsy items, I plunged into a bunch of calls at $9 and $10 for Jan 2012 early this morning:  they just leaked details of a Windows Mobile touch phone, they just hit a 52-week low, and... I just have a vague feeling their management doesn't want to be seen as roadkill along the telecom/info highway.  A Windows Mobile phone? Really?  With new iPhones coming out every two weeks?  Well, now that Microsoft and Nokia are the mobile underdogs (and better positioned than Palm ever was), they should be able to gently gobble marketshare back from Apple.

What do you think?  Rash?  Ridiculous? Irresponsible? Let us know.


Intuition and perfect information

Any idea I can think of is already out there. That's not suppose to be a depressing thought. My new idea or intuition has already been invented, and has a blog or group following waiting to be discovered. A complete new world that sees things from a different perspective. I suck at math, even thought I had way too much of it years ago; Maybe, I have just forgotten most of it from disuse. No, I suck at calculus. But that doesn't stop me from getting nuggets of ideas from quantitative finance theory. Intuition is a very useful thing. Use it as confirmation that you are headed down the right path.

Apply that to any idea or perspective. Follow that information into another parallel universe. Follow the path down "the rabbit hole".

Friday, June 24, 2011

Are Short-Term Value plays an Oxymoron?

I lean towards battered down "value" stocks. I find a stock and then get extremely excited; However, when I start writing, talking or doing research, I need to remember to constantly suppress my cognitive biases. There are too many to mention, but the biases that apply to this post are:
  • the tendency of someone to overestimate the probability of a favorable outcome coming to pass in a given situation
  • inaccurately perceiving a relationship between two events, either because of prejudice or selective processing of information.
  • ignoring an obvious (negative) situation.
  • excessive confidence in one's own answers to questions.
Please bear with me on that last one - Overconfidence. How can an introvert like me have such wild mood swings? The narrative goes as follows: I find a stock and get extremely excited. If you did a Google search on the definition of conviction, my picture would show up. Time passes and nothing has happened, I start to doubt myself. I finally sell in frustration and depression.

Is a Short-Term Value Play an oxymoron?
TrashStocks says:
"Absolutely not.  Value can exist for a short time.  Day traders bet on it.  How do you define value?  Is value buy-and-hold? or are there value "windows"? 1 day, 1 week, 1 month, 1 year, 1 decade?
interesting idea...
just as a bubble is essentially a window of opportunity, both for momentum traders and for people who short stocks.
momentum on the way up, shorts on the way down" 

War Stories
We all can recount of a memorable personal experience, especially one involving challenge, hardship, danger, or other interesting features.  As my limited trading experience increases I will accumulate these war stories.  This will wean me from a lot of these biases. Of the remaining list, I will just need to be more disciplined.

One bias I hope I don't lose is the tendency to seek information even when it cannot affect action. This has served me well in the past. My latest battered dog is Brightpoint, Inc (CELL). It is a good company that has been battered down because of an announcement by AT&T that they are acquiring T-Mobile. The perception is that CELL would likely lose its current contracts and be shut-out from the newly merged behemoth.

Wall Street Journal has stated
"Overall growth in wireless customers on monthly contracts has stalled as the market has become saturated. Sprint, AT&T and Verizon have all managed to keep a tight grip on their customers, but T-Mobile's losses of contract customers accelerated to 471,000 in the first quarter from 318,000 in the fourth quarter and 60,000 in the third."
The much-publicized AT&T merger with T-Mobile is not a "done deal;" it will likely be next year before a decision is made on whether to allow the country's second and fourth largest wireless operators to merge.

Thursday, June 23, 2011

Momentum Trading $CROX?

[guest post by TS]

Somebody-perhaps several somebody's-is/are expecting $CROX to hit 26 by July - they bought 500 $26 Calls at .55 - if it hits $26, they'll triple their money.

Before I could join the party, the contracts went up $.05... The July $25's have also just seen a bunch of activity.

Does this action qualify $CROX as a momo play?


[Editors Note: as of market close on July 6th, the July 11 $26 call's are up 185%, closing with a bid of $1.70...the referenced traders on June 23rd have now slightly more than tripled their money.  CROX underlying closed today at $27.62.]
[2011-07-12: and right back down:
| 26.00 || CROX110716C00026000 || 0.70 || Down || 0.01 || 0.55 || 0.65 || 74 3,766 | ]

Monday, June 20, 2011

Volume Indicator Experiment

Let's turn up the Spinal Tap Amps here...
In the equities market, high volume can occur from capitulation or irrational exuberance. In fact, conventional wisdom has traders looking for equities with volatility spikes as a trigger. The problem is that high volume can occur anywhere along the cyclical range of an equity. It can occur at the bottom of the range, the middle run, or the top of the range.

What started this First Experiment
This thought process started with the idea that price, volume and $volume [price * volume] give different information to a trader; However, can the same technical indicators for price be used for volume or $volume?

There are several forward looking technical indicators for price volatility, such as the S&P volatility index ($VIX) &  CBOE Nasdaq Volatility Index ($VXN). There are several backward looking technical indicators for price.

First Experiment
What if the key to volume analysis is not the high volume signal, but the appearance of a low volume tick. Low volume indicates indecision or indifference. This volume data should be looked at in relative terms.

A backwards indicator for price is the relative strength indicator (RSI). I took the RSI indicator and used it on an equities' historical volume data. The volume data is very erratic but it did show a trend. Volume can vary tremendously from one day to the next or it can remain constant for months. What was interesting was to  increase/decrease the time period averages to de-emphasize/expose a volatility spike. For example, using the standard 14 period average seemed too long for the volume data trend.

Second Experiment
I'm in the middle of taking the S&P ($SPY) historical volume data RSI and comparing it to an individual equities' volume RSI. It is requiring  longer time frames to even out cyclical trends. For example, the S&P could be at the top of its periodic range and the individual equity could be at its bottom.  Maybe I could work out a correlated volatility of the broader market as a whole. Sort of like a Beta of volume volatility. Send me a note if you think of something.

With a quick glance towards the equities market, it appears that low volume is a forewarning of a spike in volume. Barring any external events, does the length of the relative calm indicate indecision or indifference?

What about a forward looking indicator? Can you think of a predictive volume indicator, usually based on another criteria, that can be modified?

Saturday, June 18, 2011

Follow theTrend mantra, but watch the street signs

In the efficient-market hypothesis (EMH) there is an assumption that all the smart investors will know what to buy or sell, so the retail investors should just follow them.

If you could ask a trading legend any question what would it be? Can I drive your Ferrari? No? What is the "Holy Grail"? Why are the people doing what they are doing?...... If someone like me were lucky enough to be able to approach a legend, I would not waste his time with unanswerable questions. I would look for ways that would help him, as well as help myself in my trading.

Watch out for the stop signs!
If you viewed research as a Google Maps web mapping application you could visualize it as starting off with a view of the whole world. The "follow the trend" mantra would give you a road map of the local  neighborhoods. Look around for a different prospective and read articles from different fields. The leading gurus would narrow it down to the right "street view" level;  But you have to observe which way the street signs are pointing.

Friday, June 17, 2011

$WGO Fell Off the $RIMM

[guest post by TS]

The only reason to include $RIMM and $WGO in the same blog title is to highlight their earnings woes reported Thursday. RIMM, the former champion of the smartphone, has been cored by both Apple and Google.  Winnebago, maker of big ticket RV's, is merely a victim of the economy.

Somebody is playing Winnebago in the options market.  Yesterday's (or just recent?) volume in $10 Jul 11 Calls was some 2000 contracts, and in the $7.50 Jul 11 puts some 1000.

My view on Winnebago is it represents the bottoming of the RV/manufactured housing market.  The recession did a Lehman on Fleetwood Industries, and WGO is feeling the heat (or cold?) through way depressed sales.  But, as jobs and housing creep back up, expect to see great things from WGO (at least from the current lows).  Check out Winnebago's balance sheet - quite healthy (though perhaps cashflow ain't what it was).


Thursday, June 16, 2011

Will Facebook Make the RockMelt Browser Popular?

According to Wikipedia, RockMelt is a social media web browser. The project is backed by the Netscape founder Marc Andreessen.  It integrates a unique technique for surfing the web that focuses on Google Search Social Media, in particular Facebook and Twitter. RockMelt supports Windows and Mac OS X platforms. RockMelt is based on Google's open-source project Chromium.

You can download  it here. Need some help?

Just recently Facebook has collaborated with RockMelt on a new version of the socially savvy web browser.
TechCrunch says it’s been known unofficially as the Facebook browser.

Where does this leave Bing Search?
Microsoft has it's own deal with Facebook.
"Bing is surfacing in search results which Websites users' friends Liked.
Bing director Stefan Weitz told eWEEK those Websites will bubble to the top of search results. For example, friends who have "Liked" a recipe will have those Webpages surfaced in search results.
Bing will also retrieve information about users from Facebook on the search-results page, and even let users post Bing Shopping recommendations on their Facebook wall.
Moreover, the all-important Bing Bar also includes a universal "Like" button to let users tag any Website they prefer. RockMelt, it should be noted, has already taken a similar approach for its Web browser.
All of these Facebook integration perks are geared to give users personalized search results based on the opinions of their friends.
What this means, opined Duane Forrester, senior product manager with Bing's Webmaster Program, is that decisions can now be made not just with facts, but with the opinions of trusted friends. Forrester added:
"By integrating social signals from the social sphere, we can help guide searchers to the best results. If people feel something is worth calling out socially as "the best," it's obvious hearing their opinions at the time someone is scanning for search results can have an impact on click choices made by that individual searcher."

Google & Twitter have their own versions
Google has the +1 button which allows user to share search results.

TechCrunch continues
"Now, most socially savvy websites already include a “Follow us on Twitter” link, and it’s not exactly an arduous task to click on the link and then sign up to follow a company via the Twitter website. Still, the Follow button should make the process even simpler by not requiring readers to leave their current website"

Wednesday, June 15, 2011

How Are You Wearing $CROX?

Whether you wear $CROX shoes or think they're the antithesis of any fashion sense is immaterial - what matters is: do you think the secondary market for the stock has any future?  I do, and have since the Fall of '08, when $CROX was bottoming out.  I had read the 10Q's and 10K's and saw nothing but strength and common sense in the management of this company.  People around me echoed the "ugly shoe" and "going bankrupt" mutterings that the company inevitably attracted, but they had not read the SEC filings, they had not seen the evidence of a rabid customer base and an expansionist new management structure.

While the stock has been the place to be over the past 28 months, the real glory has shined in the near- and long-term call options.  I'm currently positioned in a vertical spread involving strike prices at $20, $30 and $35 for the Jan 2012 calls.  While the $20's are nicely in the money (I seldom buy ITM, but it's nice to do periodically), the $30 & $35 will only pay off if $CROX appreciates significantly, which is in no way guaranteed.

Clearly, I'm not concerned about loss, merely about maximizing upside.  Is this too risk-tolerant for your portfolio?


[Note/Quote 6/16/2011:
"WJB Capital's chennel checks indicate the new Crocs Chameleons are selling "like hotcakes." The analyst said the biggest concern is that the company didn't realize just how big of a hit they and and didn't make enough of them. Shares are Buy rated with a $26 price target."  ..TS.]

Pandora Media's Box Opens

[guest post by TS]

Don't open Pandora's box, or so the myth goes, or pestilential things will come out.  Or, rather, they already came out, and only Hope remains in the box.

Well, at midnight last night Pandora Media, Inc. filed a Notice of Effectiveness with the SEC to state that their S-1 filing was ready to go, pricing today at $16, giving them a $2.6B valuation - you can bet that valuation will be a wee bit higher by close of business today.


[Editors Note: I bought LNKD the morning it priced, picking up several round lots for $83, and selling five days after for $94, eeking out about 12% return. I immediately bought some $80 July 11 puts, which fluctuated quite a bit with LNKD's gyrations, some of which led me to buy more puts at a lower strike price and a later expiration date - probably a mistake, but lets see how the market treats Pandora ($P).  ..TS.]

StatusFilled at $22.80
Quantity200 Shares
Order TypeMarket
Time in ForceDay
Trade TypeCash
Market SessionStandard
Order Date06/15/2011, 09:52:27 AM ET
Cancel Date
Order Number9999999

Tuesday, June 14, 2011

Shiny Finnish on Them AAPLs

[guest post by TS]

Folks, sorry for the blogging equivalent to a comedienne's one-liners, but will Apple be making deals with both the devil and RIMM, after their licensing deal with Nokia???  Actually, making deals with the bad guy isn't really necessary for Apple, since their CEO owns a chunk of Disney stock, and the leader of their retail stores is now leading an old name in retail, JC Penney ($JCP), giving the iPod/iPad invention machine a potential new market....


Paint Your Own $AAPL

[guest post by TS]

Okay folks, I know you've gotten used to Apple telling you how best to spin your electrons, positrons and other sub-atomic particles so as to avoid quantum malware from infecting your atoms... but did you expect them to sell unlocked iPhones???  Nobody did.  Then, they hired the enemy (Peter Hajas), and the whole world changed.


Purple Cow Short Interest Metrics

Seth Godin talks about the need to be remarkable, and even bizarre, to grab the attention of the right people. After all you are unlikely to notice a cow on the road unless it is purple in color. I have talked about short interest before in another post.

Let's change the topic to the color purple.

Internal Struggle 
I'm still not sure what is more important, the days to cover or the percent short interest. In the last post, I compromised and combined the two metrics. The following is my attempt, on a small data sample and with no back testing, to expand on the idea.

If you multiply the percent short interest * days to cover you are actually double counting the first metric.

a)(Volume Short / Float) = percent short interest
b)(Volume Short / Float) * (Float / Average Volume) = Volume Short / Average Volume = Days to Cover

So to emphasis each metric {percent short interest & days to cover} I will attempt to establish the mean, standard deviation and variance of  (i)the candidate's  industry %short interest sample & (ii) candidate's industry days to cover ratio sample.

Percent Short Interest
This short sample is a breakdown of one industry by percent short interest. I generated it in If I sort by  percent short interest column you can see that there are three types of  records, with large day to cover ratios. I derived the average, calculated the standard deviation and mapped the percent short interest to a bell curve using standardization.

Click on the Data Table below to see the results. Lets do a comparison to the days to cover; On a bell curve the first 6 lines are above the first standard deviation, with 4 not applying to the usual definition of short interest ratio. "Investopedia indicates a bullish guideline for the days to cover when it is greater than eight days to cover."

Clickable Data Table
Shares Float Float Short% Days To Cover Avg Vol(K) standardization
37.47 0.1526 5.56 1029.41 1.713946415
27.06 0.1468 30.18 131.66 1.6065934
19.81 0.1413 6.86 408.23 1.504793127
72.17 0.1345 15.01 646.65 1.378930971
37.39 0.1340 4.74 1056.48 1.369676401
81.8 0.1253 4.86 2107.32 1.208646878
60.76 0.0865 8.26 636.29 0.490492225
39.5 0.0565 2.1 1063.13 -0.06478199
4.86 0.0516 19.26 13.02 -0.15547678
9.53 0.0495 9.69 48.62 -0.19434598
9.98 0.0442 10.47 42.1 -0.29244442
18.13 0.0418 2.44 311.36 -0.33686636
39.18 0.0414 4.33 374.9 -0.34427001
48.15 0.0375 5.84 309.1 -0.41645566
7.18 0.0347 25.43 9.8 -0.46828126
289.2 0.0193 1.68 3313.68 -0.75332202
386.71 0.0110 1.3 3280.47 -0.90694789
17.5 0.0091 6.64 24.1 -0.94211525
6.72 0.0064 1.02 42.33 -0.99208993
27.04 0.0025 1.15 57.94 -1.06427558
6.59 0.0010 0.61 10.68 -1.09203929
5.96 0.0009 0.58 8.94 -1.09389021
8.29 0.0004 0.78 4.61 -1.10314478

average 0.06

stDev 0.05402736

variance 0.002918956

skew 0.694462922

Days to Cover (Short Interest Ratio) Data Table
Now let's generate an excel data chart of  days to cover data. Get a list of industry competitors from ValueLine that your equity candidate belongs with. Or use to get competitors in that industry.  Next, get historic days to cover data from the last 12 months.

The candidate averaged around 4 days to cover over the 12 months, and had a standard deviation of about 1.5 days. In other words, my range of 2 standard deviations gave me {+1 to +7 days}.

The industry standard deviation was different. My sample industry had 11 companies, ranging in all sizes and shapes. The bell curve skewed dramatically to the right and gave a mean of ~6 and standard deviation of 5. This would result in a range of {-4 to +16 } for 2 standard deviations.

There were several months where competitors had the 2 and 3 standard deviations barriers breached on the ratio data table. My initial assessment of the candidate's days to cover was done using the "rule of thumb" proposed above by Investopedia. After including the data of it's competitors, the candidates ratio was near the average days to cover and not really shorted by the bears dramatically!

My conclusion is a simple one. Make sure that both metrics exceed the normal standard deviation before acting on them. When you see that the days to cover ratio exceeds the normal limits of the bell curve check to see if the %short interest is in this higher standard deviations also.

A Purple Cow or in other words, what is remarkable about this?
The 12 month historical days to cover ratio data showed that this particular industry grew more and more bearish as we approached the present environment. Can I conclude that the last 6 weeks downturn have affected the short sellers? That may be stretching the limits of a simple empirical experiment. What should be noted is that the days to cover ratio is a dynamic indicator that changes with the external environment. That what appears to be a high number for one candidate may be normal for that industry, at this current time.

Sunday, June 12, 2011

What Richard Pryor Can Show Us About Trading

Do you remember the movie Brewster's Millions with Richard Pryor?
"Brewster is a minor league baseball player. Unknown to him, he had a (recently deceased) rich relative. In order to test if Brewster knows the value of money, he is given the task of disposing of $30m in 30 days. Brewster isn't allowed to have any assets to show for the $30m or waste the money in any way. If successful, Brewster gets to inherit $300m. The biggest problem of all however, is that Brewster can't tell anyone what he's doing, so everyone thinks he's crazy. Add to this the fact that if he fails, two scheming trustees will get their hands on the money, Brewster's task is not an easy one." Written by Rob Hartill

What can Richard Pryor teach us about trading?
We strive to make large sums of money, without draw downs using our trading plans. What if we tried to lose large amounts of money, on purpose? Are the two plans diametrically opposite?

I forget how the movie ends, but it was produced in 1985. No spoiler alert.
Richard Pryor and John Candy are close to ruining the whole thing by being lucky.

What does luck got to do with it?
Maybe in the comments section you can add more components, but I am conveniently breaking down my conceptualization of trading into three parts - Knowledge/Experience, Natural Talent/Skills and Luck Dependency. Luck remains constant, and is shared by everyone. The probability of chance is 50/50 chance of winning. To increase the probability of success you need a trading edge. The other two parts determine your success rate.

Legend A - Knowledge & Experience B - Natural Talents & Skills C - Luck Dependency

What does talent have to do with it?
I have seen other blog articles of what natural talent or skill is required to learn how to trade. You can add your own criteria, but here are just a few to get the idea started. There are a lot of professional traders who blog. Too many to mention here. Go to community to get involved.

Natural Talent or Skill in:
  • Analysis
  • Emotional Quotient
  • Vision/Perception
  • Motivation
  • Preparation
  • Consistency
  • Persistence
  • Bravery
  • Self-analysis
  • Risk-Taker
  • Flexibility
  • other things you can name....
What does knowledge have to do with it?
Knowledge is the sum total of experience, study and reading you have absorbed.
Knowledge is the first step of taking that information and assimilation into your trading repertoire or skill set.

Knowledge is knowing when or how someone is "gaming" the system and where the sharks are. HFT  remains constant, and is shared by everyone.
Knowledge is knowing what software & hardware to use to get the best results. Latency Arbitrage & Liquidity Detection is also shared by everyone.
Knowledge is knowing the different time frames for different styles.
Knowledge of back testing and algorithmic programming.
Knowledge of relative valuation techniques.
In this conceptualization, knowledge can incorporate any style and class of asset. I will not delve into particulars. Just know they are stacked here.

So why do new traders have a low success rate?
In my conceptualization, the Venn diagram changes as we develop as traders. All three circles are not the same size.  This explains why new traders have trouble in the beginning. Luck may remains constant, and can be factored out since it is shared by everyone; However the luck dependency circle actually has other things added in.

LUCK Dependency = Luck + undeveloped talent skills + unknown knowledge & experience

As we acquire knowledge the stack grows, the reliance on luck diminishes; As we assimilate and develop talents the equilibrium changes. As we get better, the knowledge and talent circles grow. There may be people who can start out right away making money with natural talent but that is unusual, but don't tell me that new traders are doomed to fail at this endeavor.

Friday, June 10, 2011

Thinking Differently May Just Be Something Necessary for Survival

Thinking Differently May Just Be a Necessity.
Time and time again, you hear about a person who had to relearn how to do something or was forced to do a task differently because of an external accident.  The mechanic who loses his eye sight and has to learn how to interpret  his new depth of vision. The musician who loses his hearing, can still play with a new understanding of sound.

It's a rebirth of the soul. A way to attack a problem from a new perspective. A new way of doing things. 

Ted Talk: Taking imagination seriously
Janet Echelman found her true voice as an artist when her paints went missing -- which forced her to look to an unorthodox new art material.....

Friday Stock Survey - June 10, 2011

I am trying out a twitter/rss feed survey. The questions will be from the meta-physical to the mundane. The key though, is that it will be feedback from twitter and will be anonymous. 

Results, if any, will be posted after a few days. Inspired ramblings and advice are encouraged.

Do you want controversial questions or ones that provoke deep thought? Those are usually two different things!

Results, if any, will be posted after a few days. Inspired ramblings and advice are encouraged.

Friday June 10, 2011
Do you use "top-down, macroeconomics" style analysis?
How about "bottom-up" analysis?
Or something else? How do you do it?

Use this form for a longer answer
You can answer via @michaelgmoore direct message from twitter [!/@michaelgmoore ] for quick concise answer.

Want to tweet / email  this to other users? Copy this link.

Thursday, June 9, 2011

Cloud Computing and its life cycle

Cloud computing refers to the use of  data/software resources accessible via a external computer network, rather than from a local computer. Users or clients can perform a task, such as word processing, with a browser and with services provided from a cloud based vendor's computational resources.

Pros and Cons from a business perspective
According to Wikipedia, benefits from Cloud Computing are depicted below:
  • Agility improves with users' ability to rapidly and inexpensively re-provision technological infrastructure resources.
  • Application Programming Interface (API) accessibility to software that enables machines to interact with cloud software in the same way the user interface facilitates interaction between humans and computers. Cloud computing systems typically use REST-based APIs.
  • Cost is claimed to be greatly reduced and in a public cloud delivery model capital expenditure is converted to operational expenditure. This is purported to lower barriers to entry, as infrastructure is typically provided by a third-party and does not need to be purchased for one-time or infrequent intensive computing tasks. Pricing on a utility computing basis is fine-grained with usage-based options and fewer IT skills are required for implementation (in-house).
  • Device and location independence enable users to access systems using a web browser regardless of their location or what device they are using (e.g., PC, mobile phone). As infrastructure is off-site (typically provided by a third-party) and accessed via the Internet, users can connect from anywhere.
  • Multi-tenancy enables sharing of resources and costs across a large pool of users thus allowing for:
    • Centralization of infrastructure in locations with lower costs (such as real estate, electricity, etc.)
    • Peak-load capacity increases (users need not engineer for highest possible load-levels)
    • Utilization and efficiency improvements for systems that are often only 10–20% utilized.
  • Reliability is improved if multiple redundant sites are used, which makes well-designed cloud computing suitable for business continuity and disaster recovery.
  • Scalability via dynamic ("on-demand") provisioning of resources on a fine-grained, self-service basis near real-time, without users having to engineer for peak loads.
  • Performance is monitored, and consistent and loosely coupled architectures are constructed using web services as the system interface.
  • Security could improve due to centralization of data, increased security-focused resources, etc., but concerns can persist about loss of control over certain sensitive data, and the lack of security for stored kernels. Security is often as good as or better than under traditional systems, in part because providers are able to devote resources to solving security issues that many customers cannot afford. However, the complexity of security is greatly increased when data is distributed over a wider area or greater number of devices and in multi-tenant systems that are being shared by unrelated users. In addition, user access to security audit logs may be difficult or impossible. Private cloud installations are in part motivated by users' desire to retain control over the infrastructure and avoid losing control of information security.
  • Maintenance of cloud computing applications is easier, because they do not need to be installed on each user's computer. They are easier to support and to improve, as the changes reach the clients instantly.
A brief history of cloud computing can be found here.

Life Cycle Model
The technology adoption life cycle model describes the adoption or acceptance of a new product or innovation, according to the demographic and psychological characteristics of defined adopter groups. The process of adoption over time is typically illustrated as a classical normal distribution or bell curve. The model indicates that the first group of people to use a new product is called Innovators, followed by Early Adopters. Next come the early and late majority, and the last group to eventually adopt a product are called laggards.

A description of benefits and drawbacks of the technology adoption life cycle model can be found here.

New Stage for Cloud Computing
Cloud computing seems to have reached a new stage. Everyone is talking about how to incorporate cloud computing into their business plan. Google cloud is here to stay. Apple has come out with their iCloud and will also offer at least some of the services for free. We all make fun of the Microsoft "to the cloud" commercials.

It seems like the cloud idea is at least in the "early majority" phase, maybe further down the bell curve. How long will this last? I don't know, but the first test will be when a leading vendor is hacked and private corporate data is lost. Security, Privacy and Legal issues will arise. For many IT pros, the most important consideration for all cloud based services is that they have to depend on servers that someone else owns and controls.

Actually, the "Hybrid Cloud Model" will most likely prevail. A hybrid storage cloud uses a combination of public and private storage clouds. Hybrid storage clouds are often useful for archiving and backup functions, allowing local data to be replicated to a public cloud. HP, IBM, Oracle and VMware offer technology to help manage the complexities of performance, security and privacy.

Wednesday, June 8, 2011

View of the Economy Slowing Down

First of all, I want to stress this is a simplistic overview of a left-brained person who is overly analytical.

The question this morning raised by all the pundits on TV is if the gradual slowdown of the economy is devastating for the stock market. Seeking to illustrate this question,  I'll create a chart, using generalization of what happens when a random company encounters our current market. No consideration of age, value, sentiment, growth, etc. was factored in. No consideration of what the company does with its "top line" revenues is considered. I'm using the K.I.S.S. principle

I have three states for the companies in this chart. Revenue growth is used, but as a doorstop to prove a point. I have three states for the gross domestic product (GDP)

A company can have revenues that are { Growing, Stable or in Equilibrium, Slowing }
The economy can have %GDP that is  { (>)Growing,(0) in Equilibrium, (<)Slowing }
The resultant status is the third column.

Company GDP Resulting Consequence
Growing Growing ?
Equilibrium Equilibrium ?
Slowing Slowing ?

Maybe GDP is not a good measure whether a company will succeed or not. The conclusion is, that the GDP really has no direct relationship to the growth of a company, maybe the market share does....

Let's use Market Share.
Market share is
the percentage or proportion of the total available market or market segment that is being serviced by a company. It can be expressed as a company's sales revenue (from that market) divided by the total sales revenue available in that market.

The total market segment can be expanding or the individual company's market share can be expanding; Likewise, the market segment could be contracting or the equities market share could be contracting.

Company Market Share Resulting Consequence
Growing Growing Growing*
Growing Equilibrium Growing
Growing Slowing Growing
Equilibrium Growing Slowing
Equilibrium Equilibrium Equilibrium
Equilibrium Slowing Growing
Slowing Growing Slowing
Slowing Equilibrium Slowing
Slowing Slowing Slowing*
* depending on rate

It points out the obvious, that a growth company will do well in most situations. It will do well if the economy is in a bear or a bull market.

The interesting discovery is that if a market share for an industry or sector is expanding, the expected results might be counterintuitive.
If the market share is decreasing then the growth of a company can be growing and in equilibrium with good results.
If the market share is stable then the growth of a company can be growing with good results.
If the market share is growing then the company has to be growing faster than the market share for good results.

It's not whether the macroeconomic GDP is declining or expanding; it's the market share of your product declining/expanding. If your revenues are not growing as fast as the total market share, your basically shrinking compared to your competitors.

How do you measure market share?
Calculating Market Share
How to define Market Share