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The Speculator
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• 25 literary traits every trader can use, 8/22/2002
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| | The Speculator
Bears in disguise, and other literary lessons
As we and our readers continue to look for investing tips from literature, a passage from Patrick O'Brian reminds us that bear markets can look like bulls until they bite.
By Victor Niederhoffer and Laurel Kenner
We received the following query on Aug. 22 from a Mr. Sri Viswanath:
Sir,
We are 20% from the intraday low in the Dow industrials and 17% from the closing low. Is that a bull market by technical definition?
Until recently, we would have hesitated to make pronouncements on technical issues of this magnitude. As a distinguished reader pointed out in a withering letter after one of our forays into the subject, neither Vic nor Laurel had ever spoken from the podium of the Market Technicians Association. However, that is about to change, as we explain at the end of todays column. (And none too soon, for Vic has recently developed a new interest: fundamental analysis. We will be introducing some brand-new fundamental ratios in this column in September.)
We will therefore take the bear by the paws and answer Mr. Viswanath's question with a pertinent passage from "Post Captain," the second book in Patrick O'Brian's Jack Aubrey-Stephen Maturin series that has been serving as our Speculator's compass this summer. In this scene, which is abridged, Napoleon Bonaparte has just ordered the arrest of every British subject, and Aubrey and Maturin are using their wiliest deceptions to escape.
In the narrow band of shade under the northern wall of the Carcassone a compassionate gendarme halted his convoy of English prisoners -- seamen from detailed and captured ships for the most part. When they had cooled a little, eaten and drunk, they began to look about them. An English sea-officer, wishing to impress the lady with whom he was traveling, spoke to the sergeant of the gendarmerie, and the sergeant whistled to the master of the bear.
"Papers," he said. "A Spanish passport, eh? Profession, bear-leader. Eh, bien: a led bear knows how to dance -- that is logic. But I have to have proof; it is my duty to see the bear perform."
Dragged by its chain and beaten by its leader till the dust flew from its shaggy side, the bear shuffled forward. The bear-leader played a hornpipe, and the bear staggered through a few of the steps before sitting down again. The sergeant began to bawl, "En route, en route, les prisonniers."
The convoys dust settled on the empty road. Silence.
"When one sea-officer is to be roasted, there is always another at hand to turn the spit," said the bear. "It is an old service proverb. I hope to God I have that fornicating young sod under my command one day. Ill make him dance a hornpipe -- oh, such a hornpipe. Stephen, prop my jaws open a little more, will you? I think I shall die in five minutes if you dont."
The moral of the story, of course: Never be too sure of a bear. They are masters of disguise.
Winners open their books to us, win canes
We received many excellent contributions in response to our call last week for literary characters with lessons for speculators:
Alexandre Dumas DArtagnan: From reader Kevin Clark of Franklin, Tenn.: I have two literary characters to propose. First, D'Artagnan. Not the young D'Artagnan of The Three Musketeers, but the mature D'Artagnan of "The Vicomte de Bragelonne." He creates an investment partnership with his old servant Planchet, now a grocer. His object is to make a huge speculative profit by restoring Charles II to the throne of England. His initial plan is to raise a force of 40 men, but after a long debate with himself reduces the number to 30, then 20 and finally 10. "I reduce myself, then, to 10 men; in this fashion I shall act simply and with unity; I shall be forced to be prudent, which is half success in an affair of the kind I am undertaking; a greater number might, perhaps, have drawn me into some folly. . . . Ten men who shall be as resolute as 40 who would cost me four times as much, and to whom, for greater security, I will never open my mouth as to our designs. . . ."
A second nomination is for Planchet, who is no mean trader on his own account. Here's a sample of his technique as he explains it to D'Artagnan. "I refused, pretending that I could not sell them for more than 900 livres. He accused me of usury. I begged him to repeat that word to me behind the boulevards. He was an old guard, and he came; and I passed your sword through his left thigh." "Tudieu! what a pretty sort of banker you make!" said D'Artagnan. "For above 13% I fight," replied Planchet. "That is my character." "Take only 12," said D'Artagnan, "and call the rest premium and brokerage."
Louis LAmours Tell Sackett: From reader Brian Wheeler of Norristown, Pa.: My first pick for a Louis L'Amour character would have been Tell Sackett. His patience, foresight, research and hard work all paid off in the long term.
(Note from Laurel and Vic: We are both great fans of LAmours Sackett series. Heres our favorite quote from "The Lonely Men," one of the Tell Sackett tales: "When you see Apaches youre worried, but when you dont see them youre maybe really in trouble. They could be all around you.")
Shakespeares Merchant of Venice: From reader Chon Hsing Ng of Singapore: I would like to contribute the following passage from Shakespeare's Merchant of Venice, Act 1, Scene 1, where the merchant Antonio said:
My ventures are not in one bottom trusted,
Nor to one place; nor is my whole estate
Upon the fortune of this present year;
Therefore, my merchandise makes me not sad. As one can see, long before Harry Markowitz and modern portfolio theory came along, Shakespeare had understood the concept of diversification.
More on Sir Arthur Conan Doyles Sherlock Holmes: From reader Art Cooper: The Holmes character is at least partly based on Doyle's medical professor, Dr. Joseph Bell of the Edinburgh Infirmary. Bell used his extraordinary eye for detail to make uncannily accurate diagnoses of the patients who came to him.
Holmes' penchant for observation of minute detail was thus based on real-world successful application. Although devoted to the keenest observation of detail, Holmes made it a point to gather all pertinent facts before generating a hypothesis. He kept careful records of background information: "For many years he had adopted a system of docketing all paragraphs concerning men and things, so that it was difficult to name a subject or a person on which he could not at once furnish information, " Doyle wrote in "A Scandal in Bohemia".
Indeed, Holmes went further and conducted his own empirical research; he could, for example, identify a persons profession by the shape of his hand. "I have made a special study of cigar ashes -- in fact, I have written a monograph upon the subject. I flatter myself that I can distinguish at a glance the ash of any known brand," Doyle wrote in "A Study in Scarlet."
Cooper also reminds us that our column on literary lessons omitted a quintessential speculative passage from "Silver Blaze."
"Is there any point to which you wish to draw my attention?"
"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes.
Next week, well look at one application of the above passage and put some numbers to it. As Holmes would say: "Data! Data! Data!"
Stock buybacks update
On April 18, we reported that, year to date, only 13 of the companies in the S&P 500 Index ($INX) had announced plans to buy back their own stock. We took another look last week and found the list had grown to 66 companies. As of Aug. 19, these companies had risen an average of 3%, compared with -4% for the S&P 500. We will send our buybacks list to all readers who write to request@dailyspeculations.com.
Final note
Vic will be the featured speaker at the September meeting of the New York chapter of the Market Technicians Association: 4:30 p.m. Monday, Sept. 9, Baruch College, 151 E. 25th St., Room 750, New York.
At the time of publication, neither Victor Niederhoffer nor Laurel Kenner owned shares of any equities mentioned in this column. They trade in derivatives instruments. They may be net long or net short depending on the market conditions of the moment.
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