Mar 10 - 4:00pm
The market behaved well today but it remains to be seen whether the rally is sustainable. In this week's final post I will relate a little bit more of "Reminiscences of a Stock Operator" and how it may apply to a short position in AnnTaylor (ANN).

Here's the quote: "The late Dickson G. Watts, ex-President of the New York Cotton Exchange and famous author of "Speculation as a Fine Art," says that courage in a speculator is merely confidence to act on the decision of his mind. With me, I cannot fear to be wrong because I never think I am wrong until I am proven wrong. In fact, I am uncomfortable unless I am capitalising my experience. The course of the market at a given time does not necessarily prove me wrong. It is the character of the advance-or of the decline- that determines for me the correctness or the fallacy of my market position. I can only rise by knowledge. If I fall it must be by my own blunders."

The chart is small and you will have to look close. Look at the spike in volume right in the middle of November. That is when ANN last released earnings. The price went to a new high on 4 million shares. Now look at the last bar on the right. That's todays volume on earnings release day. The volume was 2.5 million and the stock failed to move past a high set earlier in the week.

This tells me something about the character of today's advance. There were plenty of stockholders willing to sell at a price under the high of last week. Institutions own virtually all of this stock and when they finish selling to each other, who will be left to buy? Today's news on the stock was quite rosy. If you didn't buy today, what are you waiting for, a pullback?

I just don't think there is enough buying power to propel this stock much higher. Above 38, I admit my blunder. Though I'm sure I'll find better opportunities for profit in the days ahead, I'm tempted to treble my position. It looks more promising now than when I took the position initially.
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Mar 10 - 8:00 am
Today I am doing something I rarely do - hold a stock in my trading account through earnings. To be fair, this is my wife's trade and she was perfectly willing to take the hundred dollars she has made so far and step out of the way of tomorrow's pre-market earnings release.

I must respect her position so any losses from here are strictly mine.

The position in question as a short position of 100 shares in Ann Taylor. There are a great many things that make this a good bet in my opinion. Declining margins, weakness in the stock in the last few days, a high P/E, a weak overall market, less women in the workplace, and my wife's reasons - pushy sales people, overpriced merchandise and not the greatest fashions for spring.

The same data, with a different interpretation, reveals the risk in this trade. Their margins have declined but other metrics are good like their control of inventory, stocks are often weak before earnings due to fear, high P/E means this company is expected to do well and maybe it has, less women in workplace is just some statistic I saw in the newspaper and who knows how they came up with that, pushy salespeople often sell more than other salespeople and my wife has better taste in clothes than the masses.

Nothing to do now but wait. I am much more interested in the announcement and reaction than I am about the money. I believe in my convictions and will consider this a decent trade no matter what the outcome.
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Always listen to wife! (ANN up 5% in pre-market)

Mar 9
Reminiscences - "When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature."

And here's another quote that applies to today's market - "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."

Did I mention these quotes are from 1923?

Mar 8
Here's a great quote that applies to yours truly. "When you're trying to get out of a hole, stop digging."

Today I'm playing for a bounce in oil stocks. Crude is down and the commodities have been in a pullback. Already I feel I've made a mistake today, that is buying too soon. Another quote from Reminiscences - "One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eights in the world." And unfortunately my GUESS about where the market would turn has been proven wrong. My feeling about oil is very bullish but trying to catch the exact turning points is fool-play. Now I'm up against my stop-loss and if the drop continues, I'll have less capital to work with when the real turn comes.

The bottom held, at least for today. I might have bought in at a better price as the uptrend now looks like the real thing. Anyway, I've traded energy enough to have some feel for the tape.

Mar 7
Another great quote from Reminiscences. "Of course, if a man is both wise an lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line."

Mar 6
Re-reading "Reminiscences of a Stock Operator" has been enlightening. I am struck by how the emotional side of trading is no different now than it was in 1906. Markets change but people don't.

When I first read the book, I had probably made less than 10 trades. Five hundred or so trades later, every word rings true. Except for the part where he makes millions!

How is 2006 different from 1906? The biggest change is the availability of information. Some would say, too much information. There is certainly more information than an individual (or even an individual with a staff) can ingest, much less digest.

With so much "dope" available, from company financial statements and economic statistics to the plethora of commentary from TV, financial publications and financial blogs, one must find a way to sift and prioritize the mountain of fact, fiction and opinion that comes our way daily.

To do this, you must know yourself (my recurring theme) and what kind of trader you are. This subject is touched on in "Reminiscences". It you are a daytrader, company specific news (and even rumor and gossip), is way more important than economic indicators. An investor in ETF's needs to know all she can about the news that might influence that particular sector. A swing trader needs to be aware of a sudden push or turn in a stocks direction and how long and how far the move is likely to go. The initial surge in buying and selling could be the herd jumping in for a quick profit. The move might continue if conditions are right and the reason for the move is legitimate. Quoting from the book, "I began to realize that big money must necessarily be in the big swing. Whatever might seem to give a big swing its initial impulse, the fact is that it's continuance is not the result of manipulation by pools or artifice by financiers, but depends on basic conditions."
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I happened to record CBS Sunday Morning while I was giving piano lessons. I wanted to see the piece on David Hockney. Also caught on tape was this commentary fron Ben Stein. I found it so compelling that I painstakingly transcribed it from the VHS tape.
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An enjoyable must-read for any serious investor is the wit and wisdom of Warren Buffet in his annual letter to shareholders.
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I am working my way back to a cash position this week. I missed some great trades last week because I was over involved with getting out of some stocks that should have been cut-and-run but weren't. Having more than one or two stocks impedes my decision making abilities. Stop orders would help and I plan to make more use of them.