Invest in What’s in Front of you: Capital Allocation

Invest in What’s in Front of you: Capital Allocation

Management’s ability to allocate capital productively is probably the most underrated subject in all of investing. It is management's most important function. Capital allocation is what the management team does with the free cash flow the business generates. If it is invested efficiently the return on invested capital will over time, stay up in the mid teens or even higher. If management is fulfilling this responsibility a dollar invested in the business will be worth more than a dollar invested in the market. This means that the present value of the long term cash flow from an investment exceeds its initial cost. The proper goal of capital allocation is to build long-term value per share.

A company can choose to  allocate capital in the following ways...capital expenditures for growth, (research and development, mergers and acquisitions and advertising and promotion) or they can distribute cash to the shareholders through dividends and share buybacks.

The best way to determine if managers are good at allocating capital is to review the results of their past decisions. The best capital allocators are good and patient stewards of the shareholder's assets and often own shares in the company aligning themselves with their shareholders. They think and act like long term owners of the business. They gear both their strategic and tactical decisions toward maximizing the long-term intrinsic value of the business, even if it means forgoing lucrative short-term financial rewards or incurring the displeasure of the short-term-orientated analysts on wall street. It takes strong leadership to sacrifice near-term earning to make prudent investments that will enhance the company's long-term competitive position. In contrast, a management team that obsesses over quarterly earnings probably has something other than enhancing long-term shareholder value in mind, they are more likely to be interested on hitting their short-term numbers that have been written into the options they hold. Always check the proxy statement to see if the options held by management reward short-term incentives rather than the long-term.

I'll be writing about free cash flow, return on invested capital and capital allocation in future posts as I think they are the three most important things in investing. And remember invest with what is in front of you and don't try to predict anything. Concentrate on your process and the outcome will look after itself.  

Core Holdings and Portfolio Management

Core Holdings and Portfolio Management

Okay, it’s the spring of 2015 and you can see the stock market has far more risk in it than reward. You hold say 20 stocks. You have the bulk of your money invested in some solid dividend growth stocks. These are your core holdings. The types of stocks you want to hold on to. Why? Yield on cost! Remember the post awhile ago about dividend growth investing. These stocks are providing you with a growing stream of income that should only increase in the years ahead. Your core holdings have a tendency to be larger in market cap (but in my case, not too large) more established in their markets, and are the cornerstones on which your whole investment portfolio rests. They are like old familiar friends. You know in the long term you can count on them on being there.

This leaves everything else. You may want to lighten up on some positions or sell others outright before the market deteriorates further. Try to focus on the stocks in your portfolio that don’t pay a dividend. If you’re right about the risk in the current market place, you might be able to buy some of them back at more attractive prices. I know this sound’s like market timing but I urge you not to think of it that way. Focus on the risk that presently exists in the market and act accordingly. Maybe sell or pare back on your non dividend paying stocks that are over extended (way above their long term moving averages).

This is more of an art form than anything else and once you gain some experience in the market the process will become clearer to you. My advice is not to rush (like I do sometimes) and take your time and enjoy the journey because that is what it is.

One more thing. This selling or lightening up on positions to manage your risk is strategic and long term in nature. Most of the time investing involves just sitting tall in the saddle while you mosey on through town. If you cut down on the number of decisions you make you will find yourself making less mistakes and going through less stress in the process and that can only be a good thing.

Portfolio Management, Concentration or more Diversification

Portfolio Management, Concentration or more Diversification

  

There are two investors. Investor A runs a concentrated portfolio of five to eight stocks. He does all of his own due diligence. He accesses sedar.com and reads the annual and quarterly reports of the companies he's interested in. He inputs the companies metrics and ratios into a spreadsheet looking for trends over the last few years of the company's performance. He goes over the proxy statement and reads the bios of management and collects info on their compensation packages. He reads the M,D&A in the annual report to get management's views on where the company is headed and how they are going to get there. He reads the various press releases about the company published on sedar. He visits the companies' website to see if he can glean further clues about the prospects of the firm. He may even contact the company's customers and suppliers (fischer's scuttlebut) to gain further insight in how this company is viewed from the people they do business with. This investor still has to deal with his own psychological makeup as well as make sure he has a margin of safety when he buys his stocks. All of the information he has gathered about the companies he owns is his way of managing his risk. And finally he tries to take advantage of wager value in exploiting the market's inefficiencies and underused information. I'm almost out of breath just writing about all of this. Investor A in some strange way loves doing all of this. It is his process. He focuses on his process rather than the outcome. He likes to be in control and in charge of his destiny and his affairs. 

Investor B prefers to steal/borrow his investing ideas from other people (fund managers). Rather than handicapping the company he spends the majority of his time investigating the fund managers he wants to follow.  He insists that they run small concentrated portfolios with low portfolio turnover. He may even do some due diligence of his own but it will be at a much reduced scale than that of Investor A. He is more likely to visit morningstar's website to get the information about the companies he's interested in. He is a big believer in utility (putting in little while getting back a lot). He too will have to consider his psychological mindset, there is no way around that. Psychology trumps everything else put together. He will also insist on a margin of safety in the price of the stock he buys. He will handle his risk management by holding 15 to 20 or more companies to compensate for his lack of knowledge of the stocks he's holding in his portfolio. He will exploit the randomness in the market knowing that some of his stocks will do well over time and some won't. He is not bothered by this, he knows that even the best investors are only right about 66 percent of the time. He is out to make money over the long term just as Investor A is but he handles his risk in a different way. And he will use wager value in following fund managers who invest in the small to mid cap space where market inefficiencies are more apt to be found.  

There could even be an Investor C whose approach lies somewhere between the extremes of Investors A and B. The market is a multi-faceted place where there is no silver bullet. Every investor has to find the approach that is right for himself.

Proxy Statements, Part Two

Proxy Statements, Part Two

I’m back with more good stuff on the proxy statement. Let’s start with the board of directors. The responsibility of the board is to enhance the long-term value of the company for its stockholders. In executing its responsibilities a board has specific functions in addition to the general oversight of management and the company’s business performance. This would involve things like evaluating strategic initiatives, reviewing financial and business goals, approving the terms of a major acquisition, hiring outside council and all that other good stuff.

As for myself I have my own personal agenda. I prefer not to see more than seven directors on the board (I want to avoid the old boy’s club). I don’t want too many of the company’s employees on the board as I’m looking for an independent and objective voice to keep management’s feet to the fire. I don’t want to see a lot of the members with the same last name (despotism is alive and well). I prefer to see directors with short tenures to avoid complacency. Do all the directors own shares in the company and how many do they own? I hope they bought those shares themselves and didn’t have them handed to them. As you can see I’m a demanding boss, maybe that’s why I’m unemployed. The bottom line is that the board has to be independent. If not they are liable to go easy on management and rubber stamp what ever management wants to do, like boost the compensation package for the CEO.

And then there is the dreaded “related party transactions”, can you spell, ”conflict of interest”. Look for employees or directors who own stock in companies that are suppliers or customers to their own company. And look for family members who are being used as consultants. You get the idea; despotism again, isn’t human nature wonderful.

And lastly you want an independent auditor who doesn’t earn a lot of money providing consulting services to the firm, conflict of interest again. The proxy will tell you all the fees paid to the independent auditor.

After reading all this stuff about the proxy statement I think I’ll have a look at it myself sometime, which leads me to the next post. Do you really want to spend all this time doing your due diligence or would you prefer to let randomness do the heavy lifting for you. Stay tuned.

            

Proxy Statements, Part One

Proxy Statements, Part One

The best way to learn something is to teach it

somebody

Since I have already discussed M,D&A, it only seems fair to be talk about the Proxy Statement. In the Proxy statement, how should I put this, management has to disclose all the stuff they don't want to. Think of a married cross dresser who has to show the world his wardrobe. The purpose of the proxy statement is to provide investors with enough disclosure to make important shareholder votes when attending the annual shareholder's meeting. And no, I've never attended one, perhaps I should.

The proxy statement is fairly complex and there is a lot in it but I'm only going to discuss the fun parts.

Executive compensation, oh yeah, got to love this. A glimpse into the life of the rich and famous. Well not the companies I invest in anyway. It's not so much the salary but the employee stock options where the executives of a company make their real money. Now some executives deserve to be well compensated because of the results they provide to shareholders. But of course, human nature being what it is, some will dip into the troth a bit too long. Some points to keep in mind while perusing the proxy statement.

Look at the size of the employee stock options. If it is more than say, 10 million shares, it is probably verging on the obscene. If the stock goes up $1.00, the executive gets a nice $10 million boost to his net worth.

Compare stock grants to the current shares outstanding. If last year's grants amount to more than 10 percent of the shares outstanding, be careful. Not only is the executive getting a big payday, but when he decides to exercise his stock options he will flood the market with additional shares of stock thereby diluting the average shareholders holdings. Yes, Virginia, there is a Christmas. It would be a good idea to compare compensation with others in the same industry.

To be fair executive compensation is a balancing game. The company wants to attract and retain highly motivated and skilled managers to generate profits for the company while at the same time making sure that abuses of compensation are not taking place.

In the proxy statement, you will have full disclosure of executive and director compensation but be sure to read their biographies as well. It will give you added insight into their experience and background. That's all for now but I will have more to say about the proxy statement in my next post.

Management’s Discussion and Analysis (M,D&A)

Management’s Discussion and Analysis (M,D&A)

Okay you like the idea of stealing other people’s investment ideas. But you don’t really want to get into the nitty and gritty of analyzing any of the companies’ financials yourself. There is a short cut that offers maximum utility (getting a lot while putting in very little). You could always just read Management’s Discussion and Analysis of the company in their annual report. You can find the annual report of companies on www.sedar.com

There you will find disclosures regarding recent developments, trends, products, competition, and financial position of the company you’re interested in. There are legal filing requirements that management must adhere too as well, so they’re much more apt to be honest and deliberate in their discussion of the companies’ prospects than they are in the media.

And of course this is a great example of…drum roll please…Wager Value. You will be focusing on information that most other people are not taking advantage of. So let the rest of the world read their newspapers and magazines. Let them watch their television and be spoon fed advice that everybody has access too. And let them troll the internet for bullboards and blogs…oh oh, did I say blogs? Anyway, you get the idea. All this makes so much sense I might even do it myself...Wager Value...Be there!

The Hidden Message in the Stock Market Revisited, Part Two

The Hidden Message in the Stock Market Revisited, Part Two                                   

In lieu of my last post, permit me some observations…

Keep in mind that everything I talked about in my last post was after the fact, while it is true that I did notice the things I mentioned I was still looking out into an unknowable future where anything could have happened. When using this data about the adv/dec line and its momentum indicators there will be a strong urge to predict and forecast future market movements. I strongly suggest you resist that urge. Remember when you try to predict the future you will be facing two formidable antagonists, your Ego (yourself) and randomness (pure chance). Instead I think you will be better served by using this information to manage your risk. If the market is going up but losing momentum along the way, you may want to trim some of your overbought positions (it would be nice if they didn’t pay out a rising dividend) while putting some cash aside for future opportunities. When the market is bottoming and momentum is indicating that divergences are taking place you can take on some oversold positions with a “margin of safety”. Don’t forget to thank “Mr. Market” for the opportunity. And keep in mind these decisions will be few and far between, the market doesn't always have something to say.

Try to look out at the future as a series of outcome scenarios . Howard Marks has written about this and called them probability distributions. In other words various outcomes are possible and at different amplitudes. Basing your judgements on the current market environment ask yourself what are the chances of such and such occurring. This strikes me as a better way to utilize the information that the adv/dec line offers. 

One more thing, if you do notice the market is topping out or bottoming, pay attention to the sectors in the market. Oil topped out with the market in the late summer of 2014. And the material sector started their rebound off the the market lows of January this year. The market is an interesting place.

Your Own Personal Balance Sheet

Your Own Personal Balance Sheet

Every company has its own balance sheet that lists its assets and liabilities. The investor too has his own balance sheet that has its assets and liabilities. But we’re not talking about money here. Your assets are your underlying investment philosophy that houses the process you go through to achieve what you want to do in the market. What you want to do is to increase your return on investment. Your liabilities are what are holding you back from achieving that aim. Your focus should be on your process not the outcome. If you focus on the outcome you are tying yourself to the unknowable future which will cause you worry and angst as you grapple with the uncertainties of randomness.

Assets

Basic process involves

Margin of safety

Buy Cheap. Having a margin of safety will give you a tool in which to combat randomness. It will help limit your downside in the event of the unexpected. It is your most powerful weapon in your continual battle to cope with the randomness of events that confront you everyday in the markets.

Risk Management

Spreading your risk (buying a number of stocks and holding cash) and extending your time frames (long holding periods) as well as analyzing the current market environment (market breadth) is an additional tool you can bring to the battle field to face randomness. You will never really defeat randomness but maybe you can keep him at bay and maybe even use him to achieve your own aims.

Wager Value

Base your investment decisions on underused information. In other words try to do what most of your competition is not doing. Randomness feeds on conformity so it helps to be different. He may even have trouble recognizing you.

Liabilities

Psychology

Know yourself as best you can.

Human nature is insidious. You can do everything right, follow your process and execute your investment ideas flawlessly but one day the market will do something to disturb you. Someone will say something to worry you. You will feel the urge to do something, to tinker with your holdings and  the next thing you know you are lost and out to sea. If you have a sudden impulse to act, pause and think twice, consider the ramifications of your actions, it might save you some heartache and money. Now there will come a time when you should do something but those times will be few and far between and when they come your actions should be strategic and deliberate.

Learn to observe your own behavior, especially during times of trouble and worry. How you react to unpleasant events will shape and give form to everything else in your investment approach. Try to detach yourself from what is currently happening. Just observe the events around you and what is going on inside of you. What you are trying to do here is leave a trail of breadcrumbs back to yourself. In other words your problems aren't out there but in here, inside of yourself.

Risk Management

Risk Management

Suppose you bought  just one stock and put in your investment portfolio and held it for six months. Randomness (the role of luck) would play a huge role in the outcome of your investment. But if we apply a little risk management we can help mitigate our risk. We could buy three different stocks and hold them for a year. By increasing the number of stocks in our portfolio we have decreased the role of randomness in our investment outcome. And the longer holding period will further weaken the role randomness will play in our investments. The more stocks you add and the longer you hold them will further reduce your risk but it will reach a point of diminishing returns where you will be holding too many stocks and it will reach the point where it will reduce the return on your investments. So you have to find that balance between the two extremes. For me in my world I find holding 15 to 20 stocks pretty well manages the risk of being in the market, and the longer you hold them (time diversification) another type of risk can be eliminated as well. The number of stocks you hold in your investment portfolio will be a product of your experience and your approach to investing so there is no magic number. It might be 8 for a person who does a lot of his own research and has the courage of his own convictions. It's more a matter of your risk tolerance and taste. In the end as in all things experience will be your guide.

In the beginning managing your risk will be very much an objective (left brain) activity but after you have the experience of being in the market a few years you will develop more of a subjective approach (right brain). Like the tennis pro who can place a shot just inside a corner, you will develop a certain “touch” and know when to over weigh a holding here and under weigh another over there, when to trim a little from this position and put a little cash aside. Like a chess master you will have a “feel” for where to put your pieces and when to do it.

Financial Metrics and Ratios

Financial Metrics and Ratios

I’m a growth investor with a value bent so I want to buy growth but I don’t want to pay for it. That being said I want to focus on the metrics of a company that shows me it’s growing and becoming a larger more profitable enterprise. As always I try to keep things simple. I prefer to look at the operating metrics of a company first and let things fall into place after that. The following is a list of metrics that I like to see growing over time.

Revenues

Operating Income or (EBIT, earnings before interest and taxes)

Operating Margin                               (gross profit - operating expenses)

Operating Cash Flow

Book Value per Share                          

Free Cash Flow                                     (operating cash flow – capital expenditures)

Free Cash Flow per Share

Return on Invested Capital (ROIC)

Return on Equity (ROE, the Dupont formula which breaks ROE down into three components…

1)      Net Margin                    (net income / sales)

2)      Asset Turnover              (sales / assets)

3)      Financial Leverage        (assets / equity)

I also check to see if the company has retained earnings on its Balance Sheet. This allows the company to re-invest in their business for future growth. As I prefer smaller to mid cap companies I’m looking for scalable growth. I don’t want them growing too fast although that can be a good opportunity to get into a great situation early but it also increases the risk of the company getting ahead of itself and blowing up so you have to be careful.

Don’t get hung up on the precision of the numbers, they are only there to put you in the ballpark. Remember they are based on a lot estimates and assumptions on the Income Statement and the Balance Sheet.  The numbers should be your servant not your master. Following the trend in metrics like operating income, operating margin, operating cash flow, book value per share and return on invested capital can tell you a lot about the growth prospects of a company. (cannibalizing my own stuff already)

Management is especially important in a smaller company. Not only do they have to grow the revenues of the business, they also have to control the costs and risks of growing those revenues. They are responsible for allocating any surplus capital in order to expand the business of the company as well as negotiating financing needs with third party entities.So management is important. You might want to read about the CEO, CFO and maybe about some of the directors on the board as well. Now if I could only follow my own advice.

I guess that’s all for now. This was only meant to be a quick overview of a rather large subject. I’ll post more about financial ratios in the future. The learning process never really stops once you get your nose into this stuff. But if you like it, its fun and in the end empowering as you are developing a skill set nobody can ever take away you from.

ROIC is the after tax operating income relative to the capital invested in the firm, where capital is defined as the sum of the book value of debt and equity, net of cash and marketable securities.

ROE relates profits to the equity investor (net profit after taxes and interest expenses) to the book value of the equity investment.

These are profitability ratios which show how much value management is adding back to the company over time. Probably, two of the most useful ratios in all of investing.

The growth of book value or equity per share is a key item as it shows that the value of the investment dollar of the equity holder is increasing and therefore creating additional wealth over time.

Books and Resources

The Edgar Online Guide to Decoding Financial Statements by Tom Taulli

Financial Intelligence by Karen Berman and Joe Knight

Wager Value

Wager Value

Hit em where they ain’t

Willie Keeler

Back in the eighties I use to go to the racetrack to bet on Thoroughbred Racehorses. It was a good training ground for investing in the stock market. I came across a term by handicapping author,  James Cramer. He called it Wager Value.  Essentially it meant focusing on information that other handicappers weren’t using. Whereas most people who went to the track used speed ratings and the horse’s current form shown in the past performance tables, Cramer like Stephen Davidowitz before him focused on trainer patterns, track bias and result charts. He reasoned that if he based his handicapping (estimating probabilities) on underused information, the horses he would come up with would help provide him with more attractive odds. So he might estimate a horse’s chances of winning to be 3-1 while the tote board (based on everybody else opinion) would have the same horse going off at 8-1. This is the very heart of handicapping a horse race, betting on the horse who has the best chance of winning relative to his odds.

Applying the concept of ‘Wager Value’ to the stock market you would want to focus on the inefficient areas of the market. Small capitalization stocks tend to be a major source of inefficiency in the stock market. Most mutual funds and institutions want to increase their assets under management so they can grow their businesses and get bigger. Most of them get so big that they price themselves out of the small cap world. The small caps end up being too illiquid for the giant institutions to bother with so they are forced to move up the food chain to the large caps. This means there are less people buying the small caps and fewer analysts following them. This makes them prone to being mispriced. The small cap world is an ideal environment for the small do-it-yourself investor who is far more nimble and quick than his huge institutional counterparts. Of course small caps can introduce additional risks as well. They tend to more unstable then the large caps. They often have just one or two products lines and a smaller customer base. They can be overly dependent on a few key individuals in the executive suite. So you have to be careful. These risks can be mitigated by concentrating on companies that are serving a potentially big market and that actually have growing revenues, cash flow and earnings. You also like to see management own a good portion of their own stock. If it's run by a founder CEO, even better. It’s an attractive area to explore and their financial statements can be easier to read as well, and its great fun and after all that’s all part of the game.

In my own portfolio I hold about half my stocks in large to mid cap names (1 or 2 billion and up), while the other half is in small caps (under 1 billion) so I run sort of a barbell approach in my own investing. It’s a matter of taste. You might want to have just a few of them in your portfolio or hold many and maybe have a larger cash position, it’s up to you.

Great patience is often needed as these firms can be out of favor for periods of time and in this day of the internet can be the subject of bear raids so it’s important to be familiar with the underlying fundamentals of the company. You don't want to be shook out of your position. There are some great small cap mutual funds out there where you can get some unique investing ideas in this area. 

The small do-it-yourself investor gives up a huge advantage to the financial establishment in ignoring this area. Remember when investing you have to have some sort of edge over your competition and the small cap world is a great place to exercise it. And Canada is basically a small cap market and an ideal place to go hunting for under followed small caps.

Portfolio Management

Portfolio Management

Rule Number One. Keep your investing money separate from the money you need to live on. There is an old racetrack saying, ‘Scared money never wins’ and it is the truth. In other words don’t bet the rent money on the horses or the stocks.

There is a lot of talk about asset allocation in the financial world. I largely ignore it. If you are a passive index investor it does have some merit but if you are a stock picker like me you don’t need it. This world is filled with two types of people, 95 percent of them want take your power away from you (the church, the medical world, the financial world, the media, and probably the government as well) and there is maybe 5 percent who want to empower you. Generally they will not sound like everybody else and tend to go their own way. I say this to warn you about the financial industry. There is just so much bad advice going on out there. Look at it this way, you go to a party and say pleased to meet you while at the same time you’re thinking what an asshole. You say one thing outwardly but are thinking something different inwardly. This applies to all of us as individuals but more importantly it applies to all the so called organizations of the world (governments, financial institutions, medical establishment, the church). They all say one thing but are thinking something else. Think about how the big Banks all talk about the great service they provide you with while they hit you with hidden service charges. So take what the financial world tells you with a grain of salt. End of paragraph.

Take your investing money and separate it into two piles. One pile will be to buy stocks with while they other will be in cash. If you’re a conservative careful investor you might want to have 50 percent in cash and 50 percent in stocks. If you are more aggressive it might be 10 percent in cash and 90 percent in stocks. The Current Market Environment discussed a few posts ago will guide you in this area. And forget Bonds. They are not setup for the small retail investor. Just my opinion of course, if the markets are looking rocky you may want to hide out in a bond ETF for awhile, it’s up to you. Let experience be your guide as it has been for me.

Another thing is to spread your risk. You do not want to put all your money into three stocks. You need to diversify your holdings but you don’t want to over diversify either. I would say you should own at least 10 stocks preferably more to be properly diversified. And you would want them in different industry groups as well. I personally hold 22 stocks in the financial services, industrial, tech, energy, commercial real estate, infrastructure, healthcare, manufacturing and food exporters areas etc…and each industry group will have sub groups within them. I also own several Master Limited Partnerships. It all comes back to spreading your risk because random events can occur disrupting your portfolio so you have to have it structured so you won’t be shaken out of your holdings.

I have most of my money in what I feel are my best ideas so my portfolio does not have an equal amount invested in each position. When you start off you probably don’t want to do this but as I have said before let experience be your guide. As you gain more experience you may want to weight some of your holdings heavier than others.

And lastly all of my investments are in Canada as I find Canada to be a fairly inefficient market. Some will tell you, you have to be invested globally but as many of my companies do much of their business abroad I already have global exposure. I guess that’s it. If I’ve forgotten anything I will talk about it in future posts. The first 5 posts I’ve done pretty much encapsulate my approach to the markets so far but I am still learning.

This is my 5^th post in two days after starting this blog yesterday. I have looked upon what I have done and it is not bad but I am tired and will rest even though this isn’t the seventh day. 

We are at the Post

 We are at the Post

Investing in the stock market involves using both sides of your brain, the left (reasoning logical side) and the right (intuitive feeling side). As your knowledge base expands your feeling intuitive side will play a much bigger role in your investment decisions. My advice after being in the market a number of years is do not rush and try to learn everything at once. Take your time and learn it bit by bit and enjoy the journey. Investing in the market will offer you many rewards but it will test you at the same time. It will shine a light on your character weaknesses and expose them to the light of day. I think this is all part of the learning process we all must go through.

As I believe we create our own reality, whatever happens in our lives and in our investing is a reflection of what is going on inside of us. A person who is willing to examine himself and his own behavior will do better in the market and maybe in his life as well. If we do create our own reality as I believe, our thoughts and feelings are the tools we use to carve out our existence as we know it. Since the Stock Market is the sum total of all of its participants it is the result of everyone’s consciousness. This would make it an ideal barometer of raw emotion and feeling. You can see this in the market as Fear and Greed as the market swings wildly from one extreme to the other. As it moves through these extremes it presents the self-aware investor with opportunities to make good long term investments at attractive prices.

It’s been my experience so far that investing in the Stock Market involves

1)      Psychology  (what’s going on inside your own head)

2)      Current Market Environment  (what's going on inside the market's head)

3)      Stock Selection

4)      Portfolio Management

I’ll discuss these topics in future posts. The market is essentially a discounting mechanism, it represents the sum total of everybody’s information (left brain) and feelings and emotion (right brain). At times of extreme market behavior (fear and greed, oversold, overbought) it pays to be contrary and do the opposite of what everybody else is doing. Sort of what George did in the old Seinfeld series (my favorite episode by the way).

I guess that’s all for now. I decided to write this blog as sort of a diary to myself. Maybe somebody out there in cyberspace will benefit from it as well.