Daily Dose of Optimism

Is the world really about to end? or...

Putting market moves in perspective:

Typically, the gap between 2% down days is less than 100 to 300 days.

According to Birinyi & Associates, who tracks this sort of thing, for period ended this past week, the S&P 500 has not had a single day where the index was down more than 2% in about 950 days.

Said another way: we've been in an exceptional stretch of calm. Looking at data back through 1928, the next longest period without a 2% down day ended around 1970, and there have only been five other periods greater than 700 days in about 80 years.

(Check out TickerSense for more info. Data as of Jan 27, 2007.)

Perhaps this week merely reminds us that the market has down days sometimes, too. As a result, I interpret the fear I see all around as a good sign.

Jim Cramer talked about the need to rotate into defensive stocks. The formerly invincible brokers took a mighty beating. China, the country that was supposed to make us all rich, is now the country whose markets will send us to the poor house.

Electronic trading, once viewed as a sign of progress, is now considered a suspect in the decline. Dow Jones revealed that its computers miscalculated the DJIA for 70 minutes. The SEC is taking a look at the performance of the NYSE's Hybrid Trading system. This suspicion about electronic trading comes on the eve of the implementation of the most significant regulatory embrace of electronic trading in a decade, if not ever.

The old saw is that fear of a pullback is the sign of a bull market with room to run. When people view pullbacks as an buying opportunities, that's considered a sign of bear markets to come.

Based on the response to this decline, I still think this market will end the year higher than it is today. - Ed

What a Dinner at Gallagher's Inspired

In mid-January, I had a celebratory dinner of sorts at Gallagher's Steakhouse, which was recommended to me as one of the last restaurants in the country that still serves dry aged beef. I'd been curious as to exactly what dry aged beef was for several months, ever since I was misinformed that the steaks at my favorite steakhouse, Mastro's, were dry-aged.

Dry-aged beef is a method by which top drawer steaks were prepared for consumption in the days prior to vacumn technology. Beef is kept in a meat locker just above freezing temperatures for anywhere up to 30 days, so its natural enzymes can break down connective tissues, tenderizing the steak. The steak loses moisture during this process, causing a concentration of flavors. Mold forms on the outside of the meat, so the outer layer has to be discarded, making dry aging wasteful and expensive. Because "wet aging" using vacumn bags can be completed in a few days and is said to produce a better result with less waste, dry aging is now rarely practiced.

I was unsurprised to learn that Gallagher's only serves one dry aged cut of steak, which was my choice; my girlfriend had the filet (not dry aged). See the full menu here. Anyway, to cut to the chase: Gallagher's pretty much sucks. The steaks weren't terrible, but they were prepared with a real lack of care. And, as you might expect for NYC, the meal, with tip, cost about $200. The best aspects of the meal were (a) enjoying it with someone I love, (b) the wine, a Penfolds Thomas Hylands 2004 Syrah ($43), which retails for $12, and (c) an idea.

A week later, after some reflection on this meal, I decided that instead of trying out other steakhouses in the city, I would learn how to prepare a mean steak dinner myself, and to boot, I would find a great wine store and get top shelf wines at retail prices. I figured that if I wasn't totally hopeless, I should be able to prepare a decent steak, and I couldn't go wrong buying wine at less than a 300% markup over retail.

I'm happy to report that the experiment has been an ongoing success, and my steak technique improves each week, as does my appreciation for great wines. So, if you're wondering why this blog posting has been light of late, it is basically a result of a lot of cooking, eating and drinking, all of which require preparation time (shopping and cooking) as well as relaxation time (eating and talking).

I've discovered some great resources for learning about wine, one of which was this great episode on decanting wine by Gary Vaynerchuk of Wine Library. I now decant every wine I drink for anywhere from 20 minutes to five hours using this decanter from Crate & Barrel:

Caption: Ed decants some red wine

So, if I'm not posting here on the weekends, well, don't worry about me. I look forward to the possible creation of some wine blog in the near future. In the meanwhile, back to business. - Ed

Google Video: Warren Buffett at the University of Florida

I came across this great video of Warren Buffett speaking to MBA students at the University of Florida. The entire video is about 1 hour and 30 minutes long, but I highly recommend it, particularly if you have never actually seen or heard Buffett speak. Having read many of his letters in the past, I was interested to see Buffett animate the same material in person.

Many of the questions address the 1998 implosion of Long Term Capital Management and the crash in emerging Asian markets, so I assume that the video was filmed around then. I don't know that Buffett is as spry today as he was in this video, but I was nonetheless impressed by his enthusiasm and energy. Now, it could be my imagination, but I also sensed a great deal of nervousness. For a $40 billion man, he is remarkably human and self-effacing; there are those who have achieved far less, but are far more comfortable with blustery self-promotion (yes, I'm thinking Trump.)

So, let me focus on what I found to be an overlooked but inspirational excerpt (begins at 55:20 of the video):

Q: What's the benefit of being an out-of-towner, as opposed to being on Wall Street?

A: I worked on Wall Street for a couple of years...and I've got my best friends actually, on both coasts, and I get ideas when I go there...but the best way to think about investments is to be in a room with no one else and just think. And if that doesn't work, nothing else will. 

I have been sensing for quite some time now that the prerequisite for me taking my investing game to the next level is basically spelled out above. In that spirit, I find this an inspiring reminder to remain focused on my objectives. - Ed

Living for the Marshmallow

The true secret to marshmallow success is knowing what you want and keeping the end goal in mind, and doing whatever it takes to achieve your big marshmallow dream rather than gobbling all the mini marshmallows along the way. True sustainable success can only come with patience, perseverance and a steady eye on one’s long-term goal. Link

Ralph Waldo Emerson on Charting a Course

Do not go where the path may lead, instead go where there is no path and leave a trail.

- Ralph Waldo Emerson

A Quick Map of Corporate Hierarchies

From Gaping Void:

Weekend Quote - The Importance of Specialization

Old post from 8/9/05 - I was reminded of this quote today while reflecting on the virtues of a relatively concentrated portfolio...particularly this phrase, "it whittles the world down to a more manageable size." In a world of 24-7 information overload, I say, Amen. - Ed

Here's a section from the movie Adaptation, (screenplay by Charlie Kaufman, loosely adapted from the novel The Orchid Thief by Susan Orlean) that I like to read every once in a while. This passage contains perspectives from a botanist and on the importance of passion in life on both a large ("makes the world go 'round") and small ("makes the world manageable") scale.

Consider it a re-phrasing of Buffett, with an added twist for those of you who don't like overly-peachy interpretations of life. - Ed

John LaRoche: The point is ... that every one of these flowers has a specific relationship with the insect that pollinates it.  There’s a certain orchid [that] looks exactly like a certain insect.  The insect is drawn to this flower, its double, its soul mate, and wants nothing more than to make love to it.  After the insect flies off, it spots another soul mate flower and makes love to it, thus pollinating it.  And neither the flower nor the insect will ever understand the significance of their lovemaking.

How could they know that because of their little dance, the world lives?  But it does. By simply doing what they are designed to do, something large and magnificent happens. In this sense, they show us how to live.  How the only barometer you have is your heart.  How when you spot your flower you can’t let anything get in your way.

Susan Orlean: (Narrated) Life seemed to be filled with things that were just like the ghost orchid.  Wonderful to imagine and easy to fall in love with, but a little fantastic, and fleeting, and out of reach.

There are too many ideas and things and people, too many directions to go.  I was starting to believe the reason it matters to care passionately about something is that it whittles the world down to a more manageable size.

A Example of the Steps to Success in Action

Mark Gerson, CEO of the Gerson Lehrman Group, originaly tried to start a business that published industry reports for money managers. Unfortunately, that idea was a dud when it was first founded in 1998.

Rather than give up, Gerson met with an average of 10 potential clients a week. He learned that Wall Streeters want access to industry experts, not more reading material. He changed the company's strategy to providing direct access to industry experts for investors who'd want to speak with them.

Gerson Lehrman has since grown from a two man operation to a staff of 43 with 274 customers, who pay as much as $500,000 a year to be hooked up with the firm's roster of experts. As of 2003, sales hit $25 million, and the company was profitable. (Source: Crain's, Jan 2003) - Ed

New Years' Resolutions - Money & Happiness

Something to note for your New Years' resolutions... - Ed

"Anybody who thinks money will make you happy, hasn't got money."

- David Geffen

Michelangelo (?) On Goals

The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.

     - Michelangelo