Bubbles to Business

Even though Floyd and family are basking in a quiet island paradise this week and you will NOT be receiving daily alerts with his commentary, I could not help but to allow my weekly rambles. So, first, on bubbles:


The New Life Cycles of a Company

Dr. Adizes is one of the world's leading experts on organizational performance and change. TEGLLC, the parent company that owns OEX and BCO Options is a full service consulting company that has used his seven- step cycle of how an organization performs in various stages in all of our business development and restructuring programs.

With "bubbles" to business becoming more frequent, note that they follow the same predictable cycle. With a "bubble" (Internet, social networking, etc.), however, and there are four (4) stages:

1. Conceptual Stage- In a bubble companies are formed and consumers show high interest in the product or service.
Recent examples of “bubble euphoria” are Facebook, Pandora, Linked In, and the variety of social networking platforms.
In the latter portion of the conceptual stage users begin to truly accept the new technology. They incorporate the technology into their daily life and become avid users as well as often becoming "evangelists" for the technology.

2. Hypergrowth Stage-By now consumers are fully on board and investors begin to take notice. Here is where IPO's are hatched, and the money raised is then plowed into new growth initiatives. Here's where investors can make the most money, and also the period where skeptics are the most vocal.

3. Maturation Stage-This is when companies begin to see market saturation and growth levels out. Profit growth does not contract, but growth levels turn to more normal rates of return. Companies are actually more stable at this stage, but it's more dangerous in investing as stocks are trading with high multiples while growth is much slower than it has been in the past.
This is the bubble. Investors typically pay premium prices for non-premium stocks.

4. Contraction/Completion Stage-During this final stage pure cutthroat capitalism comes into play. Prices are driven lower, and profit margins are crimped. Now investors begin to realize that they are paying a premium price for a not-so-premium company. This is the period where we see earnings expectations drop and price multiples decline, and where we see more investors "fight" that this is occurring and lose all of their gains.


One Question: The stock you own in the bubble: What stage is it at?

Traders were able to sell their January 2013 AAPL Call for between 40% and 80%.
When we first bought this long-term call AAPL dropped 23.4%. Many traders doubled their position, and our recommendation. If they held thru July 20th their returns were between 40 and 80%.

For any of you that own a Microsoft based product as compared to Apple I would love to know what it does that an Apple cannot do? I wonder when companies receive 91% positive consumer rankings, as Apple does, while Microsoft receives a 31% rating, why someone would not change?
It is much like question of “what is in the Constitution”? How many of us have actually read it? This clearly relates to illogic, the Floydian defined condition where despite facts nothing changes. People misinterpret the obvious, believe it is real, and defend a position.
Pee partiers come to mind.

We need not fear that China will pull up its’ stakes in our debt. They are our largest single creditor, are fearful of what we do but have little choice but to buy, continue to buy, hold, and grumble. This is the ultimate “too big to fail” global relationship.

Illogical Logic

Commentary: We are a company taken over by MBA's. It is the baby boomers, hot to trot with the big business degrees, that have categorically taken a supply and demand/cause and effect based economy world wide and have systematically taken industry and manufacture not first in the line.

The more I read of Madoff the more I see that MBA logic purveyed a sense of illogical logic, a Floyian term for where something that makes no sense is explained by the water in a glass jar and that there will always be.

Madoff traded fake large blocks of OEX Options for profits. There were no such options being sold in this volume and no one checked. He said "somone has to pay for being stupid" and sinner that he is I smile.

The facts weren't checked. And if they had been, or if they were being, it was through illogical logical.

We have been living on what is not real, thusly buying what we have created that is falsely real, and the very jobs we scream for we have taken away from ourselves.

Do I Not Love Myself?

We all know about yet another week of massive whipsaw, all within our Dow Projections, and profitable for us on all trades we made in the OEX.

We all know Floyd has been laying low on new stocks or options for Blue Chip Options, preferring to buy more of certain issues on the down stroke. A great example in our Jan2013 AAPL call when dropped 24% after our first buy. I bought twice as many, lowered my cost, and just sold the position for a 40% sale.

Most traders never follow I buy LEAPS not just to hold them, but also to buy them on the down stroke, if I see the are ripe again for an upstroke.

Often we speak of Richard D. Wyckoff, the famed trader that my Dad, with Wyckoff Associates, Inc. was the sole licensee of. I grew up studying Wyckoff, and continue to highly recommend Charting the Stock Market: The Wyckoff Way.

Jack Huston, President of Stocks and Commodities Magazine but the actual writers edited this book were two young men that worked for my Dad when I was growing up. They know their stuff. The following website is from another Wyckoff student and worth your reading

http://www.readtheticker.com/Pages/Blog1.aspx?65tf=267_wyckoff-20-for-the-21-first-century-2011-07

Then, for those of you that follow and study the internet portion of technology - a great article on what some of these companies are and will

http://online.barrons.com/article/SB50001424053111903404604576405802487034120.html

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A subscriber this week wrote me a lengthy email crying out for help, which I’ll simply paraphrase.

“-Do I not love myself? I fail at this trading no matter how hard I try. Am I setting myself up for failure, or how can I stop myself”

I gave this Advanced Mentoring subscriber my point of view and he sent it to a friend, a clinical psychologist who specializes in sports medicine, and our subscriber sent both his commentary, and mine, and here is how his Dr. responded:

“Well written emails to Floyd that clearly capture your dilemma. I read a great chapter recently in a sport psych book titled “Try Easier”. The thought behind it is that when we try too hard (as you reference with regard to baseball… and perhaps the market too?), our performance actually suffers. The suggestion is to back off a little bit (go at 90% intensity instead of 100%) and you actually perform better. Physiologically when we try harder it’s like stepping on the gas and brake at the same time… our muscles work against each other.

One thing that needs to change is/are your expectations of yourself. Perfectionism, in all its forms, is nothing but a set-up for disappointment. Unless you have complete control over all aspects of the situation, it’s difficult to expect everything to go your way or as planned. In sport and trading, so much of it is beyond your control. All you can do is decide when to get in and when to get out, what happens in between is uncontrollable, therefore not worth focusing on or trying to control. You will drive yourself nuts trying to control the uncontrollable.

Question… to what degree are you influenced by being perceived by others as a “successful trader”. Do you want to be able to tell people that you scored big and out-smarted the market. Somehow, this matters?? Truth is, nobody cares one way or the other. I believe people would be just as impressed hearing you made $100/day for 10 consecutive days rather than scoring a $1000 trade on 1 day.

The difference between you and I is that you have a lot more riding on the market than I do. The other way to say that is I am less dependent on making $$$ in the market and see whatever I make as gravy… I don’t NEED to make money there, I would like to, but don’t need to. For you I think it might be different. There is a pressure there to make some money… not sure if it’s self-imposed or what, but it’s like you have to win big or it’s all for naught. The joy can come from executing you plan precisely, not whether it nets you 2K or 5K. The gains will add up…if you let them!!!”

This psychologist has it spot on, and each of you should print this and frame it.

The primary failures I see in traders that I work with is that “they expect too much money” and are waiting for “more”, only to see it all erode.

Our success has come from:

1. Trade by rules

2. Never make too much money. Be happy with small 20 and 30% earnings most of the time. There is no place else in the world you can earn 20 or 30% on money invested, sometimes several times a day, with your only overhead being cash.

3. Not listening to talking heads, news, or predictions. Studying only the FACTS.

Here’s an example: last night (7/7/11) ABC interviewed Maria Bartirimoro.

http://en.wikipedia.org/wiki/Maria_Bartiromo (Really read about her background)

Cute, able to articulate well, and after the question “is it likely that we will repeat a second full recession because of the high unemployment figures, and struggling economy. Maria, probably making a million a year for her opinion, very articulately points out from a chartists perspective that “yes, it is indeed possible”….she then gives a few reasons….and looks very serious as she says “Americans must be prudent at this stage”.

Please excuse me while I climb up the soapbox and respond:

What the fuck? Any child could tell us the market could go up or down and that things look bad so they could get worse. And another child, taught only to see that we have returned the stock market from lows never seen before 4 year ago to near 13,000.

I sit there seething because I can see Joe and Jill at home listening to that smart financial lady telling them that everything could be worse.

Pure unadulterated histrionics. Perhaps Maria even suffers from:

What is histrionic personality disorder?

Histrionic personality disorder is one of a group of conditions called dramatic personality disorders. People with these disorders have intense, unstable emotions and distorted self-images. For people with histrionic personality disorder, their self-esteem depends on the approval of others and does not arise from a true feeling of self-worth. They have an overwhelming desire to be noticed, and often behave dramatically or inappropriately to get attention. The word histrionic means “dramatic or theatrical.”

This disorder is more common in women than in men and usually is evident by early adulthood.[1]

My point is that we believe what we read or are told, and it soon becomes true.

Mass mesmerism: mes·mer·ize   

[mez-muh-rahyz, mes-] Show IPA

–verb (used with object), -ized, -iz·ing.

1.

to hypnotize.

2.

to spellbind; fascinate.

3.

to compel by fascination[2]

Study real facts. Maria is cute, but she does not even have the educational background, so noted, to be making these statements.

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[1] Wikipedia-Cleveland Clinic

[2] Dictionary.com

Two Weeks Ago, the World Was Ending

Two weeks ago the world was ending. We had dropped below 12,746, the Fib retracement line, and all the indicators (that we chose to read to Michelle Bachmann style) pointed us to massive downsides on Greek debt, the end of the Euro, ad nauseum.

We at OEX and BCO were buying calls on the OEX and adding to our longer term Blue Chip calls, and ignoring the doomsayers. To be fair to those that promote conspiracy and see “the inevitable occurring” because we have sinned (what most doomsayers choose to be, we published an excellent article by Porter Stanberry, owner and purveyor of many different financial newsletters, and very well regarded.

This leads to an Advanced Mentoring student, my friend MP, who suffers from the pain that “all this sinning” must lead us to the end of the world, and all that he has studied proves we are on the long lost track.

An excellent example of illogical logic, the basis of much thinking:

*Fact: no paper currency has ever held up in the world. All have fallen and collapsed. This is absolutely true.

*Alternative fact, often forgotten: Nothing else (precious metal, diamonds, or beads) has held up either. Every form of value we have created has been destroyed at one time of another.

So, here’s MP on Friday:

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“Also.How much stock do you put into that Porter Stansberry article? The doom and gloom guy? Talking about the Euro not being here in 6 months and that we are gonna have a worse crash than we did in 2008?

And lastly...you keep mentioning silver being manipulate in the "short term" b/c of solar panels.

What do you mean "short term?" 1-2 years? Eventually when and if these currencies collapse...there is no way "they" are gonna keep silver down...people will buy it and take physical delivery of it...

The markets won't be able to stop it.that's just what I think”

And from Floyd in return:

You create conspiracy and conjecture. You are assuming many things

1. Nothing had changed when the market dropped a 1000 points, so why would you think it would change when the market went up?

2. We own a MOAR basket that owns Italy and Spain. These were the worst performing ETF’s of 2010 and we bought them with the two top performers. The world will not let Italy and Spain disintegrate. Here’s why: If you have been to Newark or Trenton, NJ you might agree that they are sad blights of landscape on our society. Italy is my favorite country in the world; filled with great fashion, true history, great food and people. Something will change

3. Nothing is legit. The drop wasn't legit; it's just the cycle of the market. We seem to believe the negative in the U.S right now, but not the positive

4. The experts have no idea what is going to occur in one month. The IMF guy that was in trouble for the sex thing; I’ll bet he's the next President of France and the woman put in IMF is to support him. The experts don't say this. It’s got a high likelihood

Read experts, not papers, not TV. Intellectual thinking helps one through the “fuzz of inarticulate journalism”. And the journalists are NOT at fault. They report what they see, and Murdoch tells them what they can print or announce. This you should be worried about.