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My October Surprise


Welcome home!


Editor's Note: With this column, Minyanville is proud to welcome back Kevin ("Pepe") Depew as Managing Editor and contributing columnist. Long time Minyans will recognize Kevin's work as a former contributor during part of his tenure at Dorsey Wright & Associates. Kevin brings an interesting mix of technical analysis, focusing on point & figure charting, along with a macro view rooted in the psychological dynamic. We are excited to have him back in the fold and look forward to building the vision with his help and talent. Take a moment and make sure to welcome Pepe back!

October 15, 2003. Nineteen months and 16 days. That's how long it's been since I last penned my thoughts for Minyanville. I know because I've counted every single day that has passed between then and now. It's felt like an eternity. Coming home always does.

Fast forward from October 15, 2003 to June 1, 2005: the S&P500 Equal-Weight Index is nearly 23 percent higher. The VIX is nearly 25 percent lower. And although I'm constantly hearing how practically everyone on Wall Street is partying with Boo, snubbing Hoofy, and preparing for the impending doom that will kick off the second Great Depression, my journalistic instinct, the part of me that values what I see over what I hear, tells me that while Boo may be enjoying the headline comforts of barroom hospitality, Hoofy ain't exactly friendless out here.

Wasn't it just a month ago that the S&P 500 Equal Weight Index was down a little less than 6% year-to-date and more than a few folks were screaming for the Federal Reserve to just do something? I guess it's like one of those visual perception puzzles, physiological or cognitive, take your pick; the image depends on how you turn your head, the angle you tilt the puzzle.

But until it's either counted, quantified, or tested, that's just instinct. Maybe my sources are wrong. Maybe Hoofy goes home at night and beats his horns against a nightmarish wall of worry. Maybe Boo stays out too late on week nights, pounds the snooze bar furiously each morning, and begins each day mired in a fog of confusion. (Incidentally, those are the first things I'll ask each of them about next week as I entrench myself in Minyanville Headquarters and spend some serious quality time with all of the critters... yes, that means you too Daisy.)

So here we are again. Were all looking at the same puzzle. From where I sit, I only have a handful of tools I trust to discern the image. My primary set of tools is grounded in the disciplined Point & Figure work I learned as an analyst at Dorsey, Wright & Associates, the world's foremost authority in Point & Figure analysis. The second most important set of tools are those I'm in the very early stages of learning to use with the help of Scott Reamer; the complexity analysis we are fortunate enough to read about here in Minyanville. Virtually everything else about speculation and the manner in which markets work I learned at the racetrack.

If it can be conceived on Wall Street, it was first practiced, albeit in a much simpler form, in the world that snakes its way from the racetrack's backside to the paddock and saddling ring, winds its way into the grandstand and clubhouse toward the mutuel windows, and then magically resolves itself just a short while later on the infield tote board; both the good - evaluating risk, understanding hedging techniques, discerning the difference between value and price, and the bad - false touts, easy-profit prophets, insider trading scandals, and pump and dump schemes.

You can't bet on horses without gambling, and in the end the vig and the risk will eat you alive. To paraphrase Damon Runyon, all gamblers eventually die broke. But you can speculate on financial instruments and control risk. Controlling risk is what separates the gamblers doomed to destitution from the speculators who will live to fight another day. The distinction is important. So let's enjoy the journey, as Todd likes to remind us, and in the process learn from one another what it means to control risk, what it means to speculate in a disciplined manner. Without those, everything else is just gambling.

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No positions in stocks mentioned.

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