Daily Dose of Optimism

Daily Dose of Optimism - Birinyi & Associates "Most Accurate" Blog Forecaster

I have been a participant in the Weekly Blogger Sentiment Poll, run by Ticker Sense, the blog of Birinyi & Associates. The poll is a binary (bullish/bearish), short-term prediction of S&P 500 performance.

One of the participants in the poll, Fallond Stock Picks, recently compiled the results of this poll to determine which blog was the most accurate forecaster of market performance.

I was pleased to learn of the results: the Daily Dose of Optimism (your humble blogger) was the most accurate forecaster for the survey period (link to results):

I haven't put a whole lot of specific effort into my forecast, other than the effort I normally put into reading news and charts, but I guess I'm not too surprised by the result - I am bullish, which has been the winning position for the last few months, and most of these bloggers are bearish.

My early readers hopefully already knew that this blog wasn't completely useless as a source for information, and for newer readers, here's some proof that I am more clued into the market than other finance bloggers. I realize that isn't saying much, but it should count for something as far as how you allocate the time you spend reading finance blogs.

While we're on the subject of studly paper trading, I will also refer you to my Motley Fool CAPS watchlist. Up until recently, I was using CAPS to track my stock watchlist, and the performance was mostly respectable. Here's the summary:

I really like CAPS for paper trading efforts and sharing ideas, better than anything else I've tried, and I still look a the site about once a day. However, I haven't been actively managing my stocks on the site in some time. If DDO readers care, or provide additional feedback based on what I share on CAPS, I'll continue to maintain the CAPS list with comments. The future is in your hands. Thanks for reading! - Ed

Blog of the Week: Mark Klein, MD on HBS

Mark Klein, MD, has been posting comments on the NYT DealBook blog. Here's a sample:

DealBook: the famously outspoken hedge-fund manager, will soon have something new to brag about. The New York Observer reports [he...] is gearing up to move to a $45 million penthouse he is buying on New York’s Central Park West.

Mark Klein, MD, posts a comment:

Mark Klein, MD: Having such wealth today is little consolation for even the very rich. Their chances to enjoy a stable family life are as low as everyone else’s. [As someone who was] raised in an America when divorce was very rare, and common sense, delay of gatification, and self restraint still had social currency, [I find] today’s cultural milieu very creepy.

This piqued my interest: why is this guy trying to rain on the envy parade? After all, when DealBook (or any business publication) writes something like this, it is about hero-worship, not hard thoughts about social implications.

I had to investigate, and a Google search for Mark Klein, MD led me to (I assume) Dr. Klein's blog, Calling 'Em as I See 'Em. He looks a little like Dick Cheney, and he is running for president. Maybe he could run as Richard Harbert Wulker Cheyney, and get elected through the same mechanism that put President Bush the Second in office (ie: name recognition).

As far as relevant content for DDO readers goes, this post caught my attention:

HBS tuition and living expenses have more than doubled over the past decade while the buying power of graduates' starting salaries have more than halved when denominated in housing price dollars.

(Above chart--HBS median starting salaries for new grads.)

In practical terms a $100,000 salary before taxes in New York City, Boston, LA and the San Francisco would leave barely enough to rent a so-so 1 bedroom apartment.

This is why I'm skeptical high SAT and GRE scores measure anything about the capacity for critical thinking. I suspect they measure quite the reverse. High scorers are mostly those with finely honed skills to learn and identify with the received wisdom of the day.

Such folks end up staffing the grim dictatorship of the prevailing orthodoxy then get seriously bent out of shape by people like me.

Crazy, funny, and generally accurate? You decide. Can anyone confirm whether the MBA "starting salary" figure includes first year bonuses? I would guess that it does not, and thus skews the figure downward. - Ed

First time to the Daily Dose of Optimism?

If this is your first time reading the Daily Dose of Optimism blog, thanks for stopping by! For some background on this blog, see my about page. This post provides the best ways to keep current on the site:

(a) Sign up for email updates. Enter your email in the "DDO Email Subscription" box at left and click subscribe. You will receive email updates, only on days when something is published. OR,

(b) Sign up for a free RSS reader. Try Newsgator or Bloglines (I use Newsgator's free web reader). Once you've created an account, click on this link to automatically add the DDO to your newsreader. Then, login to your RSS reader. It will take a little tinkering to get the hang of RSS for all your web reading, but it is well worth the time.

Long-time DDO readers: this post will stay at the top of the blog for the forseeable future, and new posts will appear below. Happy reading! - Ed

Why aren't more major-league investors blogging?

Here's a question you've probably wondered: why aren't more major-league investors out there blogging?

I'm talking about guys who successfully manage serious money, not just another wannabe (like yours truly).

I think an obvious reason that real pros don't blog now is that great investors are making scads of cash, and there's not much reason to divert time away from that activity if it's working.

But when it comes to investors, and I say this speaking from my own experience with this blog, I think another key reason that weighs on would-be professional investor-bloggers is that serious investors are reluctant to "give away" trade secrets.

From the worst to the best of the bunch, the thinking is generally this: "if I told you how I looked at companies, you would copy me and ultimately eliminate my advantage."

So here's the question I've found myself asking: Is it really possible to give away investing trade secrets?

Seriously! Think about it:

Warren Buffett has close to 30 years of his ideas available for free, on a publicly accessible site.

Joel Greenblatt recently noted in The Little Book that Beats the Market that there's no reason to think that sharing his "magic formula" would cause it to stop working because of the key to making it work is the discipline involved in sticking to the formula.

Richard Dennis said something very similar back in 1989, in Jack Schwager's Market Wizards, about his Turtle Trader experiment, where he taught 23 people how to trade, with great success, over the course of a few years:

JS: Didn't you have any reluctance about giving away trade secrets?

RD: Sure, but I don't think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. 

I always say that you could publish trading rules in a newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as we taught our people. What they couldn't do is give them the confidence to stick to those rules even when things are going bad.

Taken together, I think these quotes point to the fact that your livelihood will not be negatively impacted because you take to writing publicly about professional decisions.

For professional, brand-name investors, the idea that one would be giving away trade secrets is valid - if you were the only one writing and you put everything single aspect of your process out there. But chances are, you're not going to get into the details about your screens, or how you tossed out the first forty-nine companies - you'll just focus on walking others through the story on the one company that you kept.

Given that the blogger chooses the level of disclosure about his means, pros should instead focus on three solid opportunities presented by a blog:

(1) Trying to communicate with others who may know nothing about your idea, by making the exposition "as simple as possible, but not simpler," will push you to state the thesis in such a way that you'll expose flaws and strengths in your thinking that you might not have been aware of.

(2) a blog is a great way to get ideas on companies heard by others, who may know more about the situation than you do. Chances are, if there's something you haven't heard, someone will find it and tell you what that was. However, if they like the idea, they just might buy alongside you.

(3) Along these lines, if you're really onto something in your analysis, the blog will dramatically increase the likelihood that your views will attract quality media attention to your idea, on your terms. That can't hurt investment returns, presuming your thinking is correct. Publicity shy investors can be consolled by the fact that their ideas get complete representation on their own terms. 

(4) The cheapest positive: writing for an audience is a a gratifying experience. Gaining attention for one's writings is addictive; if you're not careful, you get "hooked" on traffic, and start doing stupid things like neglecting your primary employment, significant other, friends, etc.

If a fund manager is on CNBC plugging their picks, there's absolutely no reason why they can't have the same logic written down on a blog. The blog offers the advantages of a having a substantially longer shelf life, and one is not constrained by artificial time and format limits of television.

Ultimately, putting one's own ideas out there is more honest than the alternatives - feeding a few quotes to a reporter. There's no way to accuse an investor of a hidden agenda if you state the facts as completely as needed to convey an idea.

In fact, when you think about what the angry-letter writing activist investors are doing to achieve their returns, it is almost laughable in comparison with the ability to state your case in as much detail as you like, potentially reaching a company's entire investor base and news media, for free, on the web.

Critical mass of investing readers is building. Why wait for Barron's to decide your ideas are ready to get published? You might as well get started publishing them yourself. Of course, if Barron's wants to hop along for the ride later, you're not going to stop them. Barron's would probably appreciate the fact that you helped flag their attention in the first place anyway. - Ed

MarketWatch Struggles with Wall Street Blogs - Part 2

(I wrote the text below over my winter vacation as part of one of my 2006 predictions, but hadn't found a reason to publish it until the prior post on MarketWatch. For my original response to MarketWatch on Wall Street blogs, click here.)

Major media makes people foolish. Television is by far the worst culprit, but pretty much any information source where the communication stream is one-way is guilty.

I think the reason for this is simple: there's no effective way to engage with and challenge something broadcast via a major, one-way communication portal. When you realize that yelling at the TV will only get you so far, viewers become docile, resigned to the fact that there's not much to do when you don't trust what you're hearing other than disengage, and turn to American Idol.

For example: how do you call "bullshit!" on a major media outlet in such a way that a similar audience who heard the original message also hear yours?

• Write a clever letter: which, if they don't completely ignore it, will get about five seconds of airtime in a marginal format.
• Start your own: estimated cost to start a TV station or newspaper: $25 million

Choices are fairly grim as far as leveling the playing field between those who control the organs of major communication, and those who merely watch them. Of course, there is still the web, but I grant that we are in the infancy of information on the web, not anywhere near the peak. As clever as you may be on the web, it will be a while before you reach the audience that major network television stations do, every day of the week.

So, while I do think that the web will eventually be the dominant way that people get their information, it's interesting to see how those who currently control communication (ie, journalists and their publishers) feel about us newcomers - whether you call us bloggers, writers, citizen-opinion columnists, citizen-publishers, morons, etc.

After all, one of the highest values of most journalists is that every American is equal, right?  Theoretically, journalists should be the most excited that the average American now has an outlet for their opinions.

Of course, in practice, it doesn't quite work that way. Journalists of all stripes think one of two things about the interactive dynamic of the web.

• It's great: there are a good number of smart people throwing out ideas for free, which can be copied by major media outlets who do the same thing for money (these enlightened folks are in the minority).
• It's nothing special: because there is no quality filter - any idiot can, and generally does, participate.

I've spoken to two journalists off-line about blogging (without discussing my own.) Leaving aside how egalitarian most journalists pretend to be in print - typically while trying to dictate how other people and organizations should behave - it is fascinating how in-egalitarian journalists are when it comes to the average person's right to participate in their domain of (ahem) expertise - the marketplace of publicly expressed ideas.

Sample journalist opinion of blogs: "just another asshole with an opinion."

It's preposterous when you think about it: If journalists had their way, everyone with a pulse would vote, but no one would be able to have their voice heard publicly unless they authorized it. Journalists, who spend more time than anyone filling pages with rhetoric about democracy are also those least excited to see it actually practiced through the free exchange of ideas on the web. It's a rich irony, and a sad one. - Ed

MarketWatch Struggles with Wall Street Blogs

MarketWatch had a piece on finance blogs Thursday. The author, David Weidner, spends most of his energy re-affirming the fact that pretty much the only reason to read Marketwatch is for Herb Greenberg.

Two things about the article stuck out:

• Weidner spent 1/4 of his article writing about a blog that doesn't exist. Based on this, I assume that he only bothered to write the article because someone from Dealbreaker gave him a draft press release. Calling the first 750 words of his column "rushed" would be a polite way to describe how poorly he covers this topic until he reaches the subject of Dealbreaker.
  
• Weidner did not mention Jeff Matthews, who writes the best finance blog out there. This probably explains why Weidner doesn't understand what the "media keeps yabbering on about" when they yabber about blogs. Although Jeff is also a bona fide hedge fund manager, his OSTK campaign - on his blog - helped make him a figure in CNBC's televised coverage of the company.

Now, unlike Weidner, I spend some time reading through his archives before writing this piece, and I found that he basically writes "gossip"-type columns that rehash old news.

Hence, it is not much of a surprise that the blogs he considers "the best of Wall Street [blogs]" - Wall Street Folly and Under the Counter - are the ones most like his own.

With content as good as Jeff's out there, that Weidner is either not aware of it or chooses to ignore it while celebrating average finance-gossip blogs - the sort that someone who knows nothing about finance can relate to - makes me wonder whether he simply doesn't understand much about the subject he writes about, and prefers to read stuff that doesn't push that knowledge envelope. - Ed

Update: See part two of this piece for related thoughts.

The Market for Online Finance Portals

Quick stat on the market size, should Google choose to enter with Google Finance:

December 2005 - Unique Audience (Source: Nielsen/NetRatings via Crain's):

1. Yahoo Finance - 10.6mm
2. MSN Money - 9.8mm
3. AOL Finance - 8.1mm
4. Forbes.com - 8.1mm
5. Dow Jones Online - 7.5mm (inc. MarketWatch and WSJ)

Not bad numbers...and although I really like aspects of Yahoo's site, I find that in general this is a poorly served market (ideas brewing...) - Ed

Internet Censorship in China - Much Ado about Nothing?

A reader forwarded me a Bloomberg column on how Microsoft et al have allowed their technology in China to be used in support of government censorship activities.

I've read about this issue in the past, but I've had a hard time getting concerned, unlike most of the journalists who write about it. A few things on how I interpret the censorship story:

• Small firms are (generally) better than big firms. The primary advantage of a big firm - as ably demonstrated by Google, Yahoo and Microsoft - is access to capital via equity or debt financings. However, when it comes to an issue like censoring the web, if there are only a few huge firms in an industry, all of whom are desperate to one-up the others, they will make any concession necessary to stay ahead. Government can regulate a few large, eager counterparties. However, government is far less effective at dealing with a swarm of small companies. Small is the new big.
• Technology firms are not idealistic, and why does anyone think they should be? Sure, you have Craig Newmark, but he wouldn't be an icon if he weren't totally out of synch with the industry. The moral quandry he presents to the industry and its investors is otherwise unheard of: "You mean, given the chance to sell out and become filthy rich, you wouldn't do it?" (Of course, it's not like they sold 25% of the firm to eBay or anything...wait.)
• Censorship probably doesn't matter, but getting a network installed does. Think of the technology as a "trojan horse." So, China agrees to allow the installation of an internet infrastructure as long as they can "censor" it. Then try to imagine that with all the engineers produced in China every year, that no one will figure out how to get around it. To me, that just isn't plausible. And let's say that no one could get around it - if it were so important to citizens - they could work to get it changed. If the alternative to installing a high tech infrastructure with some restrictions is no infrastructure, the country is better off to have the seeds be planted.

That's about it. Column is reprinted below, in full. - Ed

Bloomberg: Chinese Should Boycott Microsoft and Yahoo (William Pesek Jr., 01/17/06

Web bloggers call it the ``Great Firewall of China.''

Not that most of China's 1.3 billion people would know what that is. The vast majority can't afford to surf the Internet to learn how the biggest names in technology are helping China hold them back. The 100 million or so who can afford it run up against a massive censorship campaign in Beijing. 

Such complicity among companies that keep a straight face when claiming to be about democratizing information and knowledge is why the Web hasn't had the expected effect on China. Instead of the Internet altering China's political system, China has changed the Web -- and that may have economic costs. 

First, think of the irony of all this. ``American media companies so far have been very unwilling to take on the Chinese Communist government,'' said Ted Fishman, author of ``China Inc.'' ``They grow up in this culture of free expression and all information for all people, and yet when they go to China, they change their tune very rapidly, agreeing to all of the censorship measures the Chinese government puts on them.''

Recent examples include Google Inc.'s adjusting services to leave out content blocked by Chinese censors, Yahoo! Inc.'s helping authorities convict a local journalist, Microsoft Corp.'s closing a Chinese-language Web site that officials didn't like, and Cisco Systems Inc.'s selling filtering equipment to aid the thought-police.

Ranting on Other People's Blogs...

Until you've spent some time posting (at least) one decent comment on someone else's blog, you won't understand the power of a blog as a quick and dirty tool for discovering what you think, and for making connections on a subject you weren't already aware of.

Of course, once you've tried posting that comment, you'll also realize what it means to own one's ideas, and how when you write it somewhere else, you're trusting (if you care) that your brilliance is not lost either to the internet ether or to the vicissitudes of whatever technology platform they've chosen.

Even realizing this, and having started my own blog, I often can't help myself when it comes to comments.

To wit, Paul Kedrosky brought to light a quote from the Economist about Google as religion (which I had also read earlier this evening, and have reprinted below the break for readers), and which I couldn't help but respond to.

Note that some of these ideas are based off ideas I worked out in the much longer post, "Google...Thy Enemy is Within." - Ed

Testing Clusty, the Clustering Search Engine

I'm giving a test to a new search engine... Clusty.

Here is my primary requirement: type in a ticker, get it as the top result, and go directly to Yahoo Finance.

Google gives me the annoying header bar which prevents me from copying links to YF pages. Even worse, if you don't remove the frame immediately, click on a sub-page (like, chart, stats, etc), and then try to remove the header, Google deposits you on the original page, and not the page you were looking it. Try it and you'll understand. This can't be an accident.

And as far as pulling up the quote and link associated with a given ticker, well, Yahoo's own search engine is unreliable at this. (See this example of Yahoo vs Google.) Unfortunately, Clusty is similar to Yahoo in this respect, but perhaps the time saved by not having to remove a header gives it an edge.

Clusty's "categories" are new to me - I'm fairly sure I don't care about them - but we'll see how useful it is. - Ed