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IN THIS ISSUE  
Volatility Unmasked
Sticking to My Day Job While I Think ‘Opportunity’
MEET THE TEAM
  MaryEllen Tribby
Publisher
  Jedd Canty
Business Director
  Nicole Reynolds
Marketing
  Jon Herring
Editor
ANALIST/EDITORIAL CONTRIBUTORS
  Charles Delvalle
  Andrew M. Gordon
  Dr. Russell McDougal
D.D.S.
  Rick Pendergraft
Tuesday, May 20, 2008
   
  Volatility Unmasked  
 

 

Lynn Carpenter

Someone—maybe you will remember who—perhaps it was Thomas Jefferson, supposedly wrote to a friend, “sorry for the long letter. I didn’t have time to be short.” I forget the details, but the sentiment is dead on.
 
For the last few Thursdays, I’ve been tackling the subject of volatility. It’s an area fraught with gobbledygook and frosted with complexity. When it is mentioned at all, only its most peripheral uses are explained. For instance, you can find a great deal of writing about using the VIX—the Chicago Board Options Exchange Volatility Index. It’s claimed that when the VIX is too high, fear is too great—and investors being dummies have it wrong—the market is actually ready to rise not fall.
 
The problem with this, other than a lousy attitude, is that it really doesn’t work very well. And on top of that, it’s the least important thing an investor could know about volatility. We face it every single day when we invest. Either our stocks have a lot of it or a little. And what we really need to know is how to identify it, measure it and what do about it.
 
So thanks for the dozens of letters saying you liked the series so far. There’s more this Thursday. Overall, the reaction is that what I am explaining is understandable and useful. Glad to hear it. But Manu did add a question:

“Lynn,
 Hi, I really like you for telling me all this. It definitely is helpful.
My problem is when to get in and when to get out short term …”

Well, Manu, not this week, but next—I will have a volatility view on that when we get to the Bollinger Bands, which are not nearly so mysterious as they seem. Until then, though, if you are following a stock up, go back and see the article on the bull-support trend line. You may find that is just what you need for placing stops.
 
I’ll just add one more letter today, from a pro in the consulting business, what R.O. says is important, I think. I’ve underlined a key thought… 

“Lynn,
It is great to hear of you again!  I was with you for a short time at Fleet Street… In my consulting business working with senior executives we have coined a phrase... senior executives are either 'complexifiers' or they are 'simplifiers'.  It does not mean that the work is simple, but some have the ability to put things in terms that people can understand... they help people save time, and more important take action on opportunities.  In my opinion, you are one of those scarce folks... a 'simplifier'.
 
“I have loved reading the free emails... volatility explained not in a way to confuse and show your brilliance but in a way all of us can understand.”

That’s a nice compliment. I have this to say. Simplifying concepts is hard work sometimes. Occasionally, there’s an easy question. From a five-year old, “what do you mean sand? What’s sand like?” Answer from me—it’s dirt that feels like sugar.
 
Most cases are not so easy. The truth is that you cannot simplify things very well unless you understand most of their complexities. That’s why I appreciate it so much when you write to say something I’ve written is simple and easy to understand.
 
On my own part, it’s why I admire people like Warren Buffett, Peter Lynch and John Bogle. All three are great investors, great minds. And all of them are capable of talking about what they know in the most direct way. Buffett in particular seems able to coin a great phrase or tell a good anecdote on the fly. One of these days, maybe he’ll write a book.
 
Peter Lynch has. Try “One Up on Wall Street” if you haven’t already read it. It’s not a new book, but I will tell you that Lynch gave me a lot of courage by putting investing at the level of common sense. We all have it—even if those smarties with their contrary VIX index mumbo jumbo don’t think so.

Respectfully,

Lynn Carpenter

P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

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  Sticking to My Day Job While I Think ‘Opportunity’  
 
Charles Delvalle  

Everyone that follows my writing knows that I love music and being creative. So that’s one of the big reasons why I stepped outside the box and wrote a poem about Ben Bernanke.

Now I knew I’d get some responses. But I had no idea that a simple poem would garner so much. About a third of the responses I got said the same thing. I think Robert S wraps it up when he said…

“Charles; Don't quit your day job ;-)”
Bob

Thanks for the honesty and most importantly, the smiley face. If it weren’t for that I’d think you were just being rude!

But not everyone was as nice as Bob. Nick decided to say…

“Sharing poetry is fine and honorable.  Sharing awful poetry is merely distressing.   I suppose the subject matter can be blamed.”
 Nick

Nick – Harsh! My poem is distressing! I’m sure even Edgar Allan Poe had critics, so I’m not offended. One e-mail even went so far as to criticize the structure of my poem. I guess people will always criticize, even when other readers are saying…

“I love your poem, please keep it up. Please write some more.”  
 Veronika

“That was a great poem on how are economy is at this time. I enjoyed it. Thanks Charles.”
Darryl H

“Ahhh.... you are so talented in so many areas. Not only are you a smart investor, but you are also a musician and a poem writer. Maybe there is another hidden talent in you? The poem was great and straight to the point. You should write more stuff like that. Thanks, Charles!”
Julia.

“You tell it like it is bra. Way to go. No sugar coating for the grain of salt he's forced down America's throat. And thanks for calling the bankers the criminals they are too. You're keeping things in perspective, no matter how artsy poetry can be. Way to go bro.”
Vaughn M

“Excellent. Cute, and precise. Balances comedy with tragedy. Should be mandatory for college profs to have posted on every Econ 101 chalkboard.”
 William C.

Another reader, Tom H. even said that I didn’t take the poem far enough. He said…

“Kudos on the poem.  The only problem is it didn’t go far enough.  For one thing, I’m sure you know that Bernanke is just a puppet of the money cartel which operates behind the scene.  It’s time for all you writers who know this to be true start educating the masses before it’s too late.  Also, time to start exposing the criminals in congress (that’s almost all of them except for Ron Paul and a few others) who understand that the “Federal Reserve” is a rip-off of every American, and yet perpetuate it for their own rewards.”

But my favorite response was from a reader who responded by writing a poem…

I bet you didn't know it, but your quite a poet,
this short ode to Ben, I'd have to give it a ten,
It covers it all, both great and small, 
the issues it brings out, it makes me really doubt,
if our Ben is sane, or his ideas just inane,
time will only tell, if everything goes well,
our if this country goes to hell.
Aaron B.

In the end, the reason why I wrote the poem was to try to take a typically boring subject (finance) and turn it into something more interesting. I’m not a poet, I think it’s obvious. But by reading and taking in what the poem said, readers could easily understand that Bernanke is trying to fix the economy with the wrong tools. Instead of inflating the economy to avoid a recession, why not let things unwind a bit to get rid of some of the excesses? It’s far too logical of an answer to be implemented. And let’s not forget that no one wants to slow the economy – it’s far too unpopular.

Perhaps the most striking thing about this particular batch of feedback was that about 85% of it came from our female audience. I found this interesting because it’s never really happened before.

Typically, about 90% of our feedback comes from men. So I’m glad to see the women writing in. And keep it coming!

Not Everything Is About Poems…

In last week’s Unplugged article I talked about how late the mainstream media was in bashing the gas-tax holiday idea.

Funny enough, I got a great bit of feedback from Tom S. who probably hates me, my long hair, and everything I stand for. He wrote in with…

Charles, it seems now you spend more time talking politics than giving advice about investing. You do have experience in that area, Don't you? After the last few months I begin to wonder. Are you tap dancing to hide your inexperience or lack of knowledge? How about doing a series about your favorite investing topic? I would really like to begin liking your articles and maybe even eventually liking you.(you never know!) Get off your soapbox, please!!!
Tom

First things first, the subject line of your e-mail was “What has gas got to do with the economy?” Tom, even Rick Pendergraft’s seventh grade son knows how gas affects the economy. When his civics teacher asked the question, he was the only one to realize that higher gas prices meant his parents would spend less money on eating out, or buying him toys.

Second, I’ve only talked politics twice since February. Here is the list of topics I’ve spoken about in IDE in the past month…

05/16/08 - Green is in… But Why?
05/09/08 – An ode to Ben Bernanke
05/02/08 – Chinese car manufacturers
04/25/08 – Microsoft’s attempt at taking over Yahoo
04/18/08 – The affects of the gas tax holiday on the economy
04/11/08 – The necessity of trying again and again to investing success
04/04/08 – Is the bull run in gold over?
03/28/08 – The Fed bailout of Bear Stearns
03/21/08 – Are precious metals a sell?
03/14/08 – How recessions affect the market.
03/07/08 – The LED revolution
02/29/08 – When are taxes too high?

Tom, you asked for me to do a series talking about my favorite investing topic… well here you have ten (not counting the two political ones you hate so much) you can go through to enjoy.

Most people who’ve read my articles understand that I look at politics in search of triggers that could make us all some money. That includes looking at decisions that would adversely affect our economy. In the end, if the government makes decisions that will push up the price of food, wouldn’t you want to know? Or would you simply look at who made the law – Republican or Democrat – and just go with the flow?

Listen, Republicans have made some bad decisions as of late (ethanol pushing up food prices. Had you looked at that one objectively you’d STILL be making a killing) and Democrats want to make bad decisions (windfall profits tax, just to name one). For you and me to be successful at investing, we have to look past political affiliation and instead look towards the opportunity.

I don’t care who’s in office – Hillary, McCain, or Obama –all three are going to make some good and bad decisions which will give everyone amazing opportunities to make money. So let’s stop thinking ‘Republican’ or ‘Democrat’.

Instead let’s think OPPORTUNITY.

To your success,

Charles

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