“The Inimitable Jeeves” by P.G. Wodehouse

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Basically a collection of short stories (with some links between them) involving Bertie getting caught up in his friend Bingo’s schemes to win over some girl he has just fallen in love with (different girl each story.)  Very funny stuff!  Didn’t quite like the narrator as much as the last Jeeves book I listened to though.

“How to Make Money in Stocks” by William J. O’Neil

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William O’Neil is the famous founder of Investor’s Business Daily (ironically now printed only weekly) and seems to deserve his reputation as a pro stock picker.  He shares his secrets in this book (along with plenty of plugging for IBD products…).  He outright refutes the concept of a “random walk” (throwing darts directly at Malkiel?), claiming it is definitely possible to beat the market.

CAN SLIM is O’Neil’s stock picking system (it’s not a weight loss system as the name may imply):

  • C – Current earnings per share >20% higher than same quarter one year ago. Also check that sales are increasing over the last three quarters.
  • A – Annual earnings per share growth of 25 – 50% over past 3 years. Also look for high ROE.
  • N – positive News. Don’t be afraid to buy a stock making new highs. Don’t worry about P/E ratio at all. Focus on newer companies (<10 years since IPO).
  • S – prefer companies with smaller number of outstanding Shares – easier to budge price.
  • L – (Leaders vs. Laggards) DON’T buy stock which has retreated to the point it looks like a bargain – too much risk it will keep falling. Buy when going up and hope it keeps going higher. Look for breakout after 7-8 weeks of stable base. Look for high, increasing relative strength. Average up if you must (when your pick is up a few %) but never average down.
  • I – look for increasing Institutional sponsorship, especially from high performing mutual funds.
  • M – sign of Market top: “distribution day” (distribution as in “selling”) – major indices flat or down on increased volume from previous day, occurring on 4-5 days in 4-5 week period.  When a bear market is detected, get into cash fast.  Then wait for the signs of a bull market before jumping back in: look for an up day, followed within 4-7 days by a “follow-through” day of very large gains (~2%) on heavier volume than the preceding day.

After all that…O’Neil admits that only 10 – 20% of his picks have ever turned out to be real winners. So, the savvy investor must be aggressive about limiting losses. Always cut and run if stock goes down 7-8%.  Think of it like insurance.  A variant that yields same results but is maybe easier to swallow: sell half at -5%, other half at -10%.  Given that expected gains on remaining winners are 20-25% you’ll still come out ahead if you can pick winners only 1/3 of the time.  If you must invest during a bear market (not recommended), lower your acceptable loss to 3% and profit taking to 15%.

Other sell signs (some confusing and contradictory – maybe why the aforementioned 20% rule exists):

  • largest daily gain or loss occurring after many days of solid gains
  • heavy volume with no price change or loss
  • rapid price run-up for 7-8 days out of 10
  • 4-5 down days for every 2-3 up days (whereas it had been the reverse)
  • new high on lower volume
  • close at day’s low for several days
  • 8% decline from peak
  • major publicity with good news
  • overabundance of optimism
  • deceleration in quarterly earnings increases for two quarters in a row

Don’t buy stocks <$15. O’Neil recommends holding no more than 5 stocks, since timing is important and monitoring multiple holdings may cause you to miss something important. Don’ be afraid to use margin once you are comfortable with the system and are seeing success.

Biggest mistakes: stubbornly holding on to losses for too long, buying on the way down, and not sticking to rules!

Research winning companies/industries to find opportunities in supplier companies – eg. Monogram, maker of chemical toilets for Boeing during airline boom.

There’s a lot of technical analysis charting discussed in the book, primarily focused on the perfect buy point.  I didn’t spend too much time squinting at the charts – seems like there are plenty of points on the charts which meet the cup-and-handle or stable base criteria but did NOT turn out to be a perfect buy point.  Anyway, cup-and-handle with large volume increase on the handle seems to be the recommended buy point.  Basically looking for a point where price and volume steadily drops for a time, then slowly picks back up until a large volume, large increase day.  (Only buy solid CAN SLIM companies – not just anything which meets the technical pattern!)

I plan to test out a few things from this book on Quantopian, particularly the market direction signals.  Even if you could just time the market and jump into and out of index funds at the appropriate time you would end up miles ahead.

“First Man” by James R. Hansen

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Listened to the audio book.  My impression of Neil is that he was a fine engineer – slightly socially distant and awkward as all good engineers are – and a hard worker intent on completing the job at hand, but very uncomfortable with his unasked-for celebrity status after being the first man to walk on the moon.

In his pre-astronaut days, Neil took pilot lessons of his own initiative at a very early age.  He became one of the youngest fighter pilots in Korea.  Then he took a job with NASA testing the X-15 at Edwards AFB.  When he applied to be in the second group of astronauts, it was almost like the eligibility requirements had been written just for him.  Tragically, just before applying to be an astronaut his 2-year old daughter Karen died.

His first space mission, Gemini 8, was more important than typically remembered, overshadowed as it was by later Apollo 11.  Gemini 8 was the first time two spacecraft docked in orbit.

As for Apollo 11, the lunar landing itself was the real pinnacle of achievement for Neil, not stepping foot on the moon.  The more I learn about Apollo, the more in awe I am at this great engineering achievement.  I wish there was something comparable going on today.

I never knew that Buzz took no pictures of Neil on moon’s surface.  Apparently he just didn’t think about it at the time.  Neil took plenty of Buzz when he was behind the camera.  There’s some who think there might have been some lingering jealously on Buzz’s part, since early on it was thought he might be the first man, but despite (or maybe because of?) some lobbying on his part, the honor was given to mission commander Armstrong (who never sought it).

After the mission, life was never quite the same.  Armstrong easily could have given in to being a “professional celebrity” full-time (and he did do many things to help worthy causes with his notoriety) but he just wanted to keep on being an engineer.  That never really was possible; the myth and legend surrounding him was just too great.  He never sought the limelight and was uncomfortable with constant attention.  Ironically, this relutance may have driven up his public fame “scarcity” and thus drove even more extreme behavior from fans.

Many people tried to “cash in” on even loose associations with Armstrong.  Lots of people from his hometown told blatantly false stories – one in particular stuck in my mind: a local amateur astronomer told the media about how Neil came on a Scouting activity to look through his telescopes and then frequently came to observe the moon and wonder if man would ever go there.  Sounds great, but … not true.

I didn’t know that Neil’s wife Janet left him in the 1990’s.  Apparently, she thought life would calm down after their children grew up and left home, but Neil just kept on going with his many corporate board activities, leaving little time for her.  Also living on a working farm probably didn’t help matters.  Why in the world did they move to a working farm?  That seemed a bit much for him being gone all the time, thus leaving a lot of work on Janet’s plate.  …. doing a little psychoanalyzing here: maybe he was thinking he could get away from the publicity and all by “retiring” to a more pastoral way of life.

“The Wright Brothers” by David McCullough

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I liked McCullough’s account of the Wright brothers a lot, but fact-wise did not get too much out of it since all of this ground had been covered in my previously-read To Conquer The Air.

One new facet that struck me on this reading of the story is how determined Wilbur was to not fly until everything was ready, no matter what/who was pressuring them.  Multiple times in France and later famously at Ft. Myers near Washington, DC, many thousands of onlookers, dignitaries, and even royalty gathered hoping to see a flight, only to wait all day and be disappointed when Wilbur judged the weather or the airplane not quite right yet.  The mechanics assigned to help Wilbur with the Flyer in Le Mans were amazed how he insisted on inspecting and doing much of the work himself.  Very high standards in this regard led to a remarkable safety record for the Wrights.  The one major accident, where Orville crashed and Lt. Selfridge was killed, took place while Wilbur was away in France…I wonder if Orville let the crowds pressure him more than Wilbur did, and thus he failed to notice a crack or weakening of the propeller which eventually broke in mid-air.

Once again, I am amazed how nobody believed that they were really flying despite numerous eyewitnesses at Huffman Prairie.  I guess it gave all the more wonder and glory when they finally showed the world nearly simultaneously at Le Mans in France (Wilbur) and Ft. Myers in the US (Orville).

I think it would be fun to do a Wright Brothers-focused tour someday – Dayton, Kitty Hawk, Ft. Myers, maybe New York; then Le Mans and Pau in France followed perhaps by Rome and Berlin.

Wilbur’s early death at age 45 in 1912 from typhoid fever is sad … but at the same time, it seemed like his work was complete – the world knew flight was possible and the new age of aviation had begun – and thus the main actor freely exited stage left with characteristic humility.

Best Books of 2016

As is tradition around these parts, here’s a wrap up of the year’s reading/listening history (about 1/3 of my “reading” these days is via audio books in the car):

2009 2010 2011 2012 2013 2014 2015 2016
Biography 1 3 2 3 2
Fantasy 1 3 5 2 2 2 2
Fiction 3 5 3 4 2 3 1 5
Historical fiction 3
Non-fiction 5 7 4 6 4 18 10 12
Sci-fi 7 3 6 7 1 6 8 5
YA 1 5 1 1 2 1
Grand Total 18 26 21 23 11 29 25 24

And here are my awards for the best things I read/listened to this year.

Best Fiction: Seveneves – very unique apocalypse scenario, extrapolated out very far in very detailed fashion.  The politics pre- and post- “white sky” seemed all too-real.

Best Nonfiction: Thinking, Fast and Slow – reveals some “secrets” of psychology that may be vulnerable to “hacking” (in ourselves or others; in good and bad ways).

Runner-up awards to Apollo and Empire of the Summer Moon for some really interesting history.

 

“A Christmas Carol” by Charles Dickens

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Despite “A Muppet Christmas Carol” being my favorite holiday movie, I have never actually read the book, until now.  The classic story is pretty familiar of course, thanks to the Muppets and other adaptations.

A few new things I noticed in the book:

  • In Christmas Past, when Scrooge is a boy left alone at school over the Christmas holiday (because of a strict father?  Because the next Christmas his sister Fan takes him home saying “father is much kinder now”), his only companions are his books.  He is (metaphorically) visited by some of his favorites, including Ali Baba and Robinson Crusoe.
  • There’s a passage in Christmas Present where the spirit expresses disgust with those who would deprive the poor “of their means of dining every seventh day”.  Huh?  Doing a bit of googling, it seems that there was a political tussle going on in England in 1843 when the book was published, where lawmakers were trying to close a loophole in the law that forbade bakers baking bread on the sabbath.  Instead, the bakers had been lending out their ovens for the use of the poor to cook their meals.  Ovens were not a commonplace item in every home, particularly not in the homes of the poor.  Dickens is making commentary on the cold-hearted self-righteousness of rich politicians and the like who are trying to get the poor to abide by their own conception of the law of the sabbath, even when that means they cannot eat a proper meal.
  • In Christmas Future, Tiny Tim’s death has happened very recently indeed.  In the movie versions, when Bob comes home from the churchyard and comments how nice and green the location looks, I always assumed that Tim was already dead and buried.  Apparently, the first part is correct but not the second.  A little while after Bob comes in and makes that comment, he goes upstairs to spend a little time and kiss the cheek of dead Tiny Tim, laid out on a bed. Eww.

“One Up on Wall Street” by Peter Lynch

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Peter Lynch is famous for heading up the Fidelity Magellan fund during the eighties, when he averaged +29% annual returns.  Just lucky?  Maybe!  But in this book he shares his secrets of stock picking anyway.  He is a fundamentalist, long stock only investor – serious about buying pieces of good companies at deal prices, betting that the market will eventually realize what gems the companies really are.  The specific examples in the book are quite dated, but the principles hopefully are sound.

  • First, a knock against index funds.  Lynch says that the index funds’ gains are usually propped up by a small number of stocks in the index. I wonder if this is still true?  He says to look at the advance/decline numbers (number of stocks rising vs those falling) and you can see this.
  • “To me, an investment is simply a gamble in which you’ve managed to tilt the odds in your favor.”  Lynch puts his success ratio at around 60%, but some of these were “tenbaggers” (increased 10x in stock price) or better.  The trick is to realize companies which are in a good position before the market at large realizes it too.  Because when it does, that is when stocks shoot up.  He even goes as far as to recommend dull-sounding companies in dull industries, which have little or no institutional ownership or analyst coverage.
  • Be aware of companies growing – new products or entering new markets.  Put these companies on radar screen, then check fundamentals next.
  • Search for companies or industries with large earnings growth as % of market
  • Slow growers, medium growth, fast growth, cyclical (vulnerable in recession), turnaround, asset plays (holds assets land etc which aren’t yet reflected in share price).  Important for knowing how much profit to take.  Slow – moves @ GDP growth, medium – 25%/yr, fast – sky’s the limit.
  •  Simplicity is a virtue: “When somebody says, ‘Any idiot could run this joint,’ that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.”
  • Insider buying is a strong indicator that things are looking up.  Many reasons for selling but only one for buying – believe stock is going up
  • Prefer companies that buyback stock rather than make dubious acquisitions.  (“diworseification”)
  • Don’t buy anything without earnings.
  • Don’t buy company too dependent on a single customer
  • Use p/e to classify companies – higher p/e than average indicates sentiment of faster earnings growth
  • Increase Earnings – reduce costs, raise prices, expand to new markets, sell more in old markets, revitalize or sell losing operation
  • Balance sheet: (cash + marketable securities – long term debt) / total shares outstanding =  available cash per share.  If available cash per share is close to the share price, then the stock is probably a great deal.  (Don’t count other “assets” since their stated book value is probably much higher than they could ever be sold off for). Also check balance sheet for: decreasing debt, decreasing # of shares, increasing cash.  P/e should be roughly equal to earnings growth rate.  If lower p/e than % earnings growth, good.  Also compare long term debt to total stockholder equity.  Want equity >> debt to ensure low bankruptcy risk.
  • Three phases: startup, expansion, saturation.  Want to get stocks out of risky startup phase but still in expansion.
  • Make yourself write short paragraph on each buy decision – what is the compelling story that is making you buy this company?
  • Don’t sell when stock goes up or down some set percentage; sell if you think the company’s “story” has changed.  Simple sell test – “Would I buy this stock again right now?” (per all the rules) If not, sell.
  • Some typical “story-changers” that indicate it is time to sell: no insider buying during past year, slowing earnings growth rate, p/e much higher (50%) than industry average
  • “It can’t possibly go lower!”. Oh yes it can.  Beware stocks in free fall.
  • Don’t mess with options or futures.  Ought to be outlawed.  Very expensive since they expire; you don’t own the companies.

“Sleeping Giants” by Slyvain Neuvel

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A number of giant robot pieces of extremely advanced, extraterrestrial design are discovered and assembled in secret.  It’s a superweapon ala Mechwarrior, cool!  Needs two pilots inside, one for the arms and one for the legs.  A linguist is also on the team, since they need to decipher the console controls.  Oh no!  Love triangle between girl pilot, boy pilot and boy linguist!!

Kind of interesting story at the beginning, but didn’t really go anywhere.  The style is unique – told entirely via “interview records” from some secretive, supra-national, illuminati-esque narrator who is the one calling (most of) the shots.

“How to Fail at Almost Everything and Still Win Big” by Scott Adams

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Scott Adams, the creator of Dilbert and a vigorous blogger, shares some of the secrets to his success – and they are actually ones you can use.  I think a lot of times when we look at how successful people achieved great things, it is hard to say whether their actions really did cause their success, or if they were just lucky.  A bit of survivorship bias, since we don’t examine the much greater multitude of people who tried and failed nearly as much.

Adams’ success tips are shared around the story of his overcoming spasmodic dysphonia – his brain basically “forgot” how to control his vocal chords.  Quite a rare condition.

Here’s the main points I got from the book:

  • “Goals are for losers.  Systems are for winners.”  When we make goals (eg. lose 20 lbs), we are in a constant state of failure, which is demoralizing, until we (maybe) achieve the goal.  Then we are left rudderless and often revert back to our prior state.  Instead, we should develop systems (eg. exercise everyday and never eat fast food).
    • Furthermore, everyone has only a limited willpower pool so we must set up our systems such that we aren’t forcing ourselves to “go along” – need to make healthy and good choices fun and rewarding in their own right.
      • I like the idea of using our own laziness in our favor.  I might copy his example of keeping a bunch of healthy snacks on hand, prepped and ready (carrot sticks and celery in water, berries, apples, bananas, peanuts) so I go for them rather than other unhealthy snacks.
    • Another system – always be looking for your next, better job.
  • Make choices that maximize your personal energy.  Especially good diet and exercise.  Get your health right, acquire key skills, obtain a flexible schedule = happiness.
  • Learn from failures.  Before going into a new venture, make sure it would at least provide new learning or connections, even if it fails completely.
  • Look for patterns of success and try them out on yourself.
  • Every new skill you learn doubles your chance of overall success.  Good + good in two complementary skills >> excellent in just one.
    • Public speaking
    • Business writing
    • Psychology of persuasion
    • Social skills
      • I like the idea of the “conversation stack” Adams shared from the Dale Carnegie school.  To make small talk with strangers, start with these questions and keep going until you hit something mutually interesting to talk about.
        • “What’s your name?”
        • “Are you from around here?”
        • “Do you have a family?”
        • “What do you do for a living?”
        • “Do you travel much?”
        • “Do you have any hobbies?”
      • Another nice conversation hack: “Is there anything you can do for me?”
    • Voice technique
    • Basic accounting
  • Sometimes you just need to be lucky.  But you should always set yourself up to take advantage of opportunities when they come.

“41: A Portrait of My Father” by George W. Bush

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In the intro, George W. writes that he heard David Mccollough lament that John Quincy Adams never wrote a bio of his father.  So George W. sets out to rectify that here.  It’s a pretty personal account of George H.W.’s life.  Kind of funny how W. brings up parallels to his own presidency time and again – very different from a typical bio where the author keeps out of it.

George H. W. Bush is a great example of leadership and decency that I wish we had more of in our country today.

A few stories from the book stick in my mind.  As a torpedo bomber pilot in the Navy, Bush was on a mission to attack Chichi Jima when his plane was hit by flak.  He managed to bailout, but got injured in the process.  Luckily some other plane dropped a raft and he madly paddled away from the nearby island.  Some Japanese ships tried to get at him, but they backed off after being strafed by other Navy planes.  Finally, a US submarine rescued Bush.  Some of the Japanese later said how they marveled at all those resources being directed to save a single pilot.

Second is the tragedy of losing daughter Robin at age 3 to leukemia.  I can’t imagine how this must make a parent feel.

Finally, there is the pain of loss in 1992.  George seems to have a bit of a grudge against Ross Perot even now – the split vote was probably the reason for Bush’s loss.