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    2006-12-19

    Mathematical Maneuver

    Remember the MMM? A great demonstration of so-called "Pyramid scheme". This can be often seen in normal trades in small batches. However, MMM stands out for its huge cash flow and deep political influence. In my point of view, this is a very good mathematical maneuver of stock market. And politically, a lot of points are debatable. This is proven by the afterstory of Sergei Mavrody.

    2006-12-02

    A Song

    Exactly describe my mood on some black days:

    Down, I am down
    On the ground, sad and tired
    I'm down, it's over now
    Yes I'm down, should I like it

    It's deep and dark
    Deep down in my heart
    It's deep and dark
    Since we've been apart

    Is this love that comes around
    That takes me up light years higher
    'cause I wanna feel love once again

    It's deep and dark
    Deep down in my heart
    It's deep and dark
    Since we've been apart

    It's deep and dark
    Deep down in my heart
    It's deep and dark
    Without someone's love
    - Scorpions

    2006-11-29

    Portfolio Pix

    1. GG:
    I admit this is a quite volatile stock and gold price may be a little high right now. However, GG is a good inflation protective pick. Its return is steady in recent years. If it plummets, there would be a buyout.
    2. BMRN:
    A recommended pharmaceutical stock by Cramer. Such small companies are really hard to predict. A bubble? Maybe not. It has two products with less competition pressure and a positive earning will be boost impetus.
    3. CHK:
    Bet on democrats, bet on green energy.
    4. USG:
    Only follow Buffet. Some buyout or restructuring chance.

    2006-11-11

    Blog psychology

    In a timely, finite intensity point processed, limited capacitated, deterministic, correlated real world, blog is an infinite dimensional, infinite intensity, unlimited capacitated, random, uncorrelated virtual world.

    It's new way of thinking, but only complementary.

    2006-11-10

    Inflation consideration in your portfolio

    Look at the US inflation data , over 50 years, on a yearly compound basis, it needs roughly 4.5% annual rate to counter the effect. This is higher than simple time deposit. In China, counting from the economic reform, the case may even be worse.

    It's too simple a calculation and world is more complicated. But anyway, inflation is an important issue when considering your investment. Most mutual funds and high return financial products have positive correlation with inflation.

    Several ways to add some inflation protective to your portfolio.

    Treasury bills, bonds or CDs are basic choices. They are especially useful when you have certain financial target to meet such as children's education expenses. Of course, the target may rise with inflation as well.

    Gold is another choice. According to data, the actual purchasing power of gold over 50 years is doubled. This roughly equals to 5.5% annual rate. However, gold itself is more volatile and entry time is more important.

    Mutual funds should be also taken into consideration. In the disastrous 2002, the gold and resources funds are winners. Compared with the asset linked, they are less volatile and compared with fixed-income products, they are usually with a higher return.

    Correction vs. Collapse

    Date: 2006-11-11
    Ticker: %S
    Event:: Tons of alerts
    Title: Correction vs. Collapse
    Content:

    Look at ORCL chart, you would see a God-blessed stock. There are fluctuations but just normal corrections instead of collapses.

    However, this is just too abnormal a model. For most stocks, the fluctuations, often measured by volatility, appear in the form of rally and collapse.

    If we adopt a simple fractal point of view, on a longer time basis, the indices are the same as well.

    Especially now.

    This year's May collapse reproves the Almanac. However, after that, we have a straight rally which helps put DJI to its all time high and NASDAQ to a 5-year high. It's not hard to find numerous reasons to support the rally. However, at current level, skeptics begin to ring the alarm.

    An interesting result is when some researchers look into the volatility smile, they find it's partly due to investors are taken crisis into consideration. Human is fast learning. A fall into the pit, a gain in your wit. Most skeptics look back and cite history.

    Psychology matters much but not all. As a report has said, macro-economy understanding is lacked in investment companies. It's not surprising for investment banks or media to be so cautious. But only psychological or history considerations are far from convincing.

    The market may stay bullish until year end since the indicators are not disappointing now. However, after the holiday, trend would be clear whether the bubble sectors would correct themselves.

    Explosion of the hedge fund, private equity, M&A can be viewed as an alert from the capital market. Its increase is abnormal and can't be consistent. The return won't be satisfactory since all future cash flow are conjectures only right now. If this node deteriorates, the circulation will have problem and the collapse is on the way even other sectors are on right tracks.

    Anyway, hopefully nobody is going to break the holiday mood before Eve Ball finishs its descent.

    A time to gain, a time to lose
    A time to rend, a time to sew
    A time to love, a time to hate
    A time for peace, I swear its not too late
    -Peter Seeger, "Turn!Turn!Turn!"

    2006-11-09

    PBS NOW

    http://www.pbs.org/now/index.html
    Many programs can be viewed online.

    Trick of the market

    Just watched a documentary: "Who killed the electric car?"

    It's a Sony pictures production and you can google its official website. Besides, PBS Now has a program about the doc, mainly an interview of the director.

    This is a very good topic because it provides food of thoughts for people from all areas.

    The electric car is original supposed to be invented to address the energy "crisis" and global warming. These issues feel like some stocks which are always tagged "undervalued" but still keep on underperforming. The Hubbert curve has been proven by 70s peak. But what's wrong with electric car?

    At the small:

    It's about new product entry. iPod, BlackBerry, Bluetooth, ...... What's the strategy? Build up the whole chain or step by step by different entry pioneers and time slots? What about the competition with other alternatives?

    It's about consumer psychology. What does the consumer buy a car for? What's the cost to change to new products? Is EV's positioning well?

    At the large:

    It's about the "crisis". Is this crisis really a crisis? What's the story behind the scene?

    It's about government support. What techs should get support? Is the government to finish a final push or just break the market rule?

    It's about politics. Exxon, BP, Chevron, Ford, DaimlerChrysler, what kind of role these big names played in the story? What about Middle-East guys?

    It's about the mysterious dynamical economic systems, about sense and sensibility. How would EV affect the US economy? What does a healthy economic system stand for? Is it able to deal with crisis? Shall we be confident or hesitated to continue going forward?

    Too many can be explored. None is to-be-or-not-to-be but complicated. If you are interested, look into this.

    Your legend never will......

    2006-11-08

    Swap between Africa and China

    The Africa-China summit held in Beijing attracts much attention. The big basket of deals is considered to be China's big move both politically and economically.

    In an article (http://blogs.iht.com/tribtalk/business/globalization/?p=212), the author said it could be possible Africa would become a migration target for China's current low-cost labor market.

    That' quite impossible.

    If that's really the case, the westerns wouldn't overlook the chance. The labor cost in Africa may be really among the lowest in the world but additional costs would be highly formidable such as organization and transportation fees. The only possibility is still resources related. Some local processing may be value-added and cost efficient.

    Deals between China and Africa this time, sort of swap.

    2006-11-06

    Love's Secret

    von William Blake

    Never seek to tell thy love,
    Love that never told can be;
    For the gentle wind does move
    Silently, invisibly.

    I told my love, I told my love,
    I told her all my heart;
    Trembling, cold, in ghastly fears,
    Ah! she did depart!

    Soon as she was gone from me,
    A traveler came by,
    Silently, invisibly
    He took her with a sigh.

    Documentary

    PBS, one of main documentary producers in the world. Those videos and scripts are precious treasures.

    2006-11-02

    Follower

    Two picks:

    USG: Follow Warren Buffett, expect a M&A 48.3
    WAG: Follow Cramer's recommendation 42.11

    HANS, the turnaround guy,enter at right time but clear too early. Now see what long-term could bring.

    2006-11-01

    Limit and Market

    I once spent one hour to investigate the more than 40 order types provided by IB. The conclusion is some of them are really meaningful and easy to use. But the result is till now, I still only use market and limit.

    Some order types serve for specific purpose, like on mkt close, one trigger others or one cancel others, etc. But many are invented to capture market dynamics.

    It's hard.

    I believe every trader has encountered the following situations: when you set a limit order to buy at a reasonable price, chances are your limit order will be crashed by fast-moving market trend; when you want to ride on the trend and use a market order, chances are your buying and selling prices will just become the resistance and support prices. Read Chapter 11 in "The Legacy of Fischer Black", you may see an interesting statistics. Actually, I think such experiment should be extended from current binary bid/ask to a broader 1-dimension line.

    We are focusing on short-term here, more volatile and more gut feeling style. In this case, missing one opportunity to close a position in 1 min may cost you a whole day to come back. That means locked capital and increasing risk. That's why an intra-day player should be very good at spot bottom and peak.

    Pick up a good stock with up-down potential and enough liquidity. Check the history and news to find some hints. Read the headlines to know where it's going generally. Based on those and your experience, you should be able to tell what range its up and down should be limited to according to overall market. Then game starts. Better wait for the first roundtrip to appear and use that as benchmark. In short term, you may use that for as long as half an hour but watch out the risk. In long term, you can roughly guess the day move and set a limit. The best thing is when you come back at market close, you will find it has hit your limit and then turn around. It happened to me for many times. Hope it will work for you as well.

    M&A Party

    Each day watch the NYSE/NASDAQ gainer&loser list, you will always see some 20% jumpers. Probably, they are not some familiar names. Check out their fundamentals and you may wonder: Is this insane investment in the insane world?

    Definitely not and most of them are driven by one category of events: M&A.

    This is a buzz word in stock market. Lots of guys live on it, M&A betters, M&A hedge funds, etc. If such event does get triggered, party time then.

    The goods of M&A are multi-fold. It's more fundamental prone so you are more sure about the trend of acquirer and acquiree. It keeps up for some time usually so you are better protective from plummet. It's less correlated so you are exposed to less systematic risk than most other portfolio strategies.

    But that's not all of the story.

    Like all chased-up stocks, you have to spot the peak and trend. Fundamental matters but psychological effect is also important. You may pay a high entry premium just to find nothing left. Also, the M&A may break down due to many factors. If it does happen, disaster then.

    So I wish you to enjoy the party. But be smart and quick, don't be the bill payer.

    Long-term experiment

    Start a long-term portfolio experiment today. Pick three hot tech stocks with good prospect and less volatility. Hard to say whether the bullish is going to end but hopefully it would still advance a little, better more than time deposit, or at most fall moderately before Christmas. Snapshot the closing prices:

    ORCL: 18.47
    MSFT: 28.71
    INTC: 21.34
    Substitutes:
    IBM, CSCO, AAPL, CMCSA

    We will go back 2 or 3 months later to see what will be really happening then.

    About Renzo Piano (Excerpt from TIME 100: The People Who Shape Our World)

    Renzo Piano

    The Bellissimo Builder
    By RICHARD ROGERS

    Posted Sunday, Apr. 30, 2006
    Renzo Piano is an absolute master of light and lightness. He has a fantastic understanding of construction and the scale of pieces. I don't think there is anybody like him. He's the son of a builder who was very close to his father and very proud that he was a builder; it gives him tremendous roots. The unusual thing about Piano, 68, is that he works from small to big. I had never met an architect like that before.

    He doesn't approach a building from the point of an idea; it grows out of the ground. He's also one of the most elegant architects I know. He's elegant in person, but also his structures are very elegant, very humanistic. They aren't pieces of abstract sculpture. They grow out of understanding how buildings go together and how light comes through them; he designs roofs that pull light in. Piano has moved on from the massive machine—like the Pompidou Center in Paris, which we designed together and which is full of people, like a big climbing frame—to very beautiful museums and libraries. Each one is a bit more elegant. Piano has terrific range. I love the San Nicola football stadium in Bari, Italy, which is a massive statement—big petals of concrete that come out of the ground. Then there is the Beyeler building in Switzerland that is as light as anything. I won't say which of his buildings is my favorite. I will say he's my favorite architect. He's one of the supreme modern architects of his generation. He's also a fanatical sailor. He designs his own boats. When we were first friends, almost 40 years ago, he designed a concrete sailing boat. And actually it worked very well.

    Rogers designed London's Lloyd's Building and the Millennium Dome

    2006-10-31

    建筑

    建筑对于我来说,一开始只是一种美感的享受和结构的欣赏。然而随着自身经验的增加,感觉建筑真正意义上的美感和结构不仅仅来源于外表和传统的功能主义,而是对于居者的把握与引导。

    如果设计一个Library,Museum或者Workshop,你会选择什么样的布局?

    对于Library或Workshop而言,置身其中的人大部分寻求的是一种注意力的集中,外部环境应当成为思维的扩展,而不会干扰思维,有变化但不会过于丰富噪杂,一种开阔的环境或者自由的视野反而会起到不好的效果。
    Renzo Piano Building Workshop, Genoa, Italy
    Renzo Piano,我最喜欢的建筑家之一,在他Genoa的Building Workshop里面,采用的是一种广阔的视野,依靠地势而建的阶梯式工作间用玻璃天花板覆盖,然而我怀疑在日光充足的白天,这样的布局会影响工作者的注意力,因为光线是非常重要的因素。莫若分割成自由的小空间,而开在上面的玻璃天花板扩展了视野,白天最好封闭,而夜晚空间有限的扩展会补充思维的单调,起到放松作用,而不会破坏思维的连贯。
    Notre Dame du Haut, Ronchamp, France
    而对于需要思维扩展的Museum或者Church来说,一种自由,开放的空间表达则会有助作品的理解,比如Gaudi,Corbusier,Gehry的作品。
    Guggenheim Museum, Bilbao, Spain
    而其实在中国古代的苏州园林,也有很好的扩展,用类似镂空墙所产生的别有洞天的效果,改变了布局的单调,在贝聿铭的香山饭店的设计中,也采用了这样的改变,不过线条单调规范的此洞天远比苏州园林的彼洞天逊色。
    Fragrant Hill Hotel, Beijing, China
    通过这种自由随意的形式,有助于思维的放松,如果在这样的大环境中,放置类似于Library或者Workshop类规范的设计,会起到相得益彰的效果,反之亦然。

    "We shape our buildings; thereafter they shape us."

    — Sir Winston Churchill

    2006-10-28

    Three pillars

    Date: 2006-10-26
    Ticker: %S
    Event:: Read Duffie’s book
    Title: Three pillars
    Content:

    “The three pillars of the theory, arbitrage, optimality and equilibrium, ……”
    - Darrell Duffie, “Dynamic Asset Pricing Theory”

    This excerpt is a super elucidating explanation on financial theory, both in theory and practice.

    Pure arbitrage is only realized when your portfolio eliminate all the uncertain factors. For a more elegant formulation, see the vector space demonstration in Duffie’s book. If not, your portfolio is just hedged.

    Optimality is supposed to be the guideline of financial world. Though in behavior financial, they show doubts about whether there is a sure or could-be-derived utility for individual (I totally agree with this point of view in consideration of the extreme unpredictable weird incentive when people buy stocks), there seems to be really an invisible hand when we are making decisions. If we are put in an experimental environment, such effect may be more obvious.

    Equilibrium is how the financial machine runs. People want to buy and people want to buy.; equilibrium leads them. Sometimes demand and supply dominates which is often called liquidity. In a more general view, the whole financial world is not some Brownian motion, but a dynamical system at its general equilibrium which is connected by tremendous individual equilibria.

    So for arbitrage, we ask is our world really arbitrage free? Despite of correlations among atoms like stocks and bonds, uncontrollable financial innovations such as options, swaps, really make the world complicated.

    For optimality, we are wondering the term structure of people’s behaviors. Behind the simplification as Brownian motion, we are looking for more interaction to avoid tragedy like LTCM.

    For equilibrium, an interesting question is combined with optimality, is the world more beautiful with financial innovations? With options, it seems option underwriter and buyer are both better off. To be more complicated, the infinite persons’ big game is like a whirlpool. Everyone has the right to make and take any product; every product has its own demand and supply curve. Adding atoms, the game becomes really interesting.

    2006-10-24

    Spot jumps

    Date: 2006-10-23
    Ticker: %S
    Event:: Earning release
    Title: Spot jumps
    Content:

    There are many types of trading strategies. Betting on earnings is a common one. However, this is not a simple “to be or not to be” problem. The outcome may be quite complicated.

    First call EPS by Thomason is widely regarded as a threshold to measure a public company’s performance. But a single number can’t tell the whole story. Behind it, there may be scrutiny, sentiment, panic and more a newbie may not expect.
    You may lose in bull and gain in bear. For earning jumps, it is more obvious. The key is not only to know the general trend, but also to know it quantitatively and to resist your sentiment.

    Just share some experiences:

    1) DO NOT bet on a fundamentally deteriorated stock:
    If you are not a risk seeker, make your bet consistent in both short-term and long-term. This will help to limit the loss if you lose your bet.

    2) Four types:
    To spot the jumps, you should be first clear about current market's view point on the stock. Use a similar way to Friedman's, we label the stock by four possible tags: Good angle; Bad angle; Good evil; Bad evil. Generally, evil class includes the most rewarding one: Good evil and the most dangerous one: Bad evil. Good angle may rally but since expectation is already very high, investors are very picky. Room is limited and danger remains. Bad angle may plummet once but hopefully the jump is limited within 5% and rebound is expected in long-term.

    3) Overreaction:
    Most interesting thing in betting on earnings is to take profit from overdone in early rash. When news comes out, after extreme fluctuation, investors build early equilibrium in extended hours which is usually quite volatile and often overdone. For rally, usually prediction is a little hard. But for plummet, usually overpanic is easy to spot by rule 2). Of course, nothing universal. It depends on many factors. But with good timing, you may even earn after the release than before the release.

    2006-10-23

    Timing Tricks

    Date: 2006-10-23

    Ticker: %S

    Event:: any

    Title: Timing Tricks

    Content:

    “Timing is everything” may be one of the most famous Wall Street sayings. But as truth is, every simple principle is complicated actually. If any simple principle works, market can’t be efficient.

    Simply list several tricks here:

    1) On market open and close, volume is huge and price move is quite volatile. Many orders are market type. The market open rash may last for one hour till 10:30AM ET while market close period may only start from 15:50PM ET for about 10 minutes. For many stocks, one-day high or low may appear in these two periods. However, market open may be more meaningful for intra-day traders while market close is for next day.

    2) Noon is when most traders are out for a break. It may last for 2-3 hours. Volume is slow and spread is usually larger. What’s more important, for a “V” day, bottom may appear in such period too. It may be safer to buy now than on market open.

    3) Extended hours are important. Not only because most fiscal results are released before or after normal trading hours, the extreme volatility and uncertainty may give a good sensed trader more money than normal hours. Of course, risk is also proportional. A good bed to test your trader sense.

    All for today. To be continued.......

    2006-10-22

    Trust your LCD

    Date: 2006-10-21

    Ticker: MMM

    Event:: MMM 3Q result release

    Title: Trust your LCD

    Content:

    Have you once noticed the brand of your shirt’s buttons when you dress up? Have you ever wondered who makes the closure when you open a wine? If so, follow me.

    Headlines are mostly dominated by “models” like GOOG, MSFT, INTC, etc. But look deep and you’ll find the tailors and cloth producers at backstage. They are always there.

    Check out Dow30 and you will find some big names: JNJ, DD, MMM, PG……

    They are upstream and I like this strategy. In a gold rash, best way to make big money is not to be a gold rasher but a service provider. Like Wall Street? Be Bloomberg or theStreet.com. Like eBusiness? Be PayPal or Verisign. Speaking of LCD, what you see is not what you get. What you can’t see is what you should buy. Samsung, LG Philips, Sharp, are you going to predict No. 1, 2, 3? But 3M may get benefits from all by its optical film.

    It doesn’t mean upstream is always heaven or Dow30 are always God lovers. They may fluctuate, even slump overnight, but this fluctuation is more like true fluctuations. It should be textbook samples for chartists, should be picks of fund managers, and should be top considerations in your long-term portfolio. Just need the sense of fundamental to spot bottom and trend.

    Things will be just fine
    You and I'll just use a little patience

    -Guns N’ Roses, “Patience”

    When you are Lorenz’s butterfly

    Date: 2006-10-20

    Ticker: %S

    Event:: whatever

    Title: When you are Lorenz’s butterfly

    Content:

    Flap

    Wings of a butterfly

    Hurricane

    Wall Street's Sky

    If a butterfly can do that, you may wonder your sell of 1 MSFT or GOOG share may change Forbes list fundamentally? No way.

    So is this just because we don’t have wings or have fewer legs? Not quite possible.

    Actually the butterfly example is very similar to Wall Street case. We are exposed to short-term uncertainty and long-term steadiness at the same time.

    As individual, we care more about tomorrow will rain or not but not what the world will be after 100 years due to global warming. Similarly, for me, trading is more like to spot trend but not do fundamental analysis.

    Buy low and sell high. It’s the philosophy, meaning something universally true but useless. To know the market is to know bulk of investors outstanding like you. Now, it’s not Brownian motion. The market is just what you make.

    Of course it’s hard to predict when flew move. Sort of art instead of science. I refer you to Jim Cramer’s Real Money for a good introduction. It’s not all and DO NOT just read.

    Be an early butterfly but not a lonely one.

    And I'm feeling blue
    Things you say but maybe they're true
    Getting funny dreams again and again
    I know what it means but
    I can't explain

    -Scorpions, “Can’t Explain”

    What can’t be googled

    Date: 2006-10-20

    Ticker: GOOG

    Event:: GOOG 3Q result release

    Title: What can’t be googled

    Content:

    After YouTube acquisition, on its way to $500, Google gets another big boost today from its 3Q results. The stock may jump to $460 driven by the news, only $40 below the historical moment. My current feeling is it should at least kiss it once in short term and then show respect to gravity.

    The EPS is really somewhat absurd if we looking at the numbers. Financial sector companies usually have a habit to widely beat the expectations due to their secret operations. But for Google, this is just to say the market is too volatile and hard to predict. Actually, this time triumph is not as good as previous two beats, 12% and 16%. But it’s not linear and don’t forget the expectation is already very high.

    At current level, pessimism and optimism should reach a balance. Margin is good but maybe near peak, expansion is good but facing keener competition, core product is good but too single-handed. But, but, but……

    But uncertainty is exciting.

    Google has a good “heart”, huge free cash to prey as many preys as it wants, bubbled online companies as downstream, and tons of talents in its ideas reserve bank. How many catalysts you want, how many they get.

    Just watch out Vista, it may be a big blow to give Google a short heart attack. Anyway, it’s something going to happen on the way to be a grown up.

    Market should be efficient speaking of Google’s long-term prospect. But it would be still one of the hottest stocks to challenge any investor’s sense and sensibility in short term.

    It's something unpredictable, but in the end it's right.
    I hope you had the time of your life.

    -Green Day, “Good Riddance

    The American pick

    Date: 2006-10-19

    Ticker: AAPL

    Event:: Apple 3Q result release

    Title: The American pick

    Content:

    Like its logo, Apple’s 3Q result seems not so perfect. Yes, current quarter’s EPS is ok. Core products are not so bad. But there are still many cloudy signs. Forecasts not good as analysts had expected, iPod sales slowing down, future good but merely conjectures. If you have seen the market’s cautious reactions on other companies with even better results these days, you would be wise enough to sell off to avoid loss.

    But forget it. We are talking about Apple.

    So “disappointment” becomes company’s “conservativeness”. Positives less negatives result positive. Apple wins.

    This company seems to be an icon for American, an enterprise with profit and respect. For a long time, there are two stocks with “Strong Buy” tags all the time. One is Apple and Microsoft takes the other slot. But they are regarded different: a returned superman and a profitable evil. Listen to Jim Cramer’s program and you will know how many people buy Apple shares simply because they like this company. It gets supporters from iPod, Mac, Macbook, etc. A representative of so-called American spirit, sometimes I feel.

    So the release seems to be only a long waited catalyst. People are waiting for so long and who would be so picky at this supposed-to-be party moment. Nobody.

    That sounds insane but it’s true. If we can harvest profit, fundamental, love and dignity all in one stock, isn’t it perfect?

    Wall Street shows its sentiment sometimes.

    If you are looking for more such stocks, have a look at ORCL and CSCO.

    Is this love that I'm feeling
    Is this the love that I've been searching for
    Is this love or am I dreaming
    This must be love
    Cos it's really got a hold on me
    A hold on me

    -Whitesnake, “Is this love