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Discipline

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I'll show you some discipline

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It is better to conquer yourself than to win a thousand battles. Then the victory is yours. It cannot be taken from you, not by angels or by demons, heaven or hell.

(Buddha)




Discipline. You wanna know about discipline? Discipline is pulling your car over when those blue lights are flashing in your rear view mirror. No wait, that's not discipline, that's the law. Let me start over.

Discipline. You wanna know about discipline? Discipline is eating seven Shun Lee spring rolls in less than two minutes when Toddo steps out of the room. Wait; never mind. Turns out my desktop DSM-IV indicates that's actually compulsion, not discipline. Ah, here it is; discipline is having the will, the strength of mind, to conquer conviction.

Since 2003 discipline has been critical in navigating the markets. In March 2003 the indicators I follow through Dorsey Wright turned positive about a week before the war in Iraq began - the war we all knew was inevitable, the war that conventional wisdom held would send the market spiraling lower. It took discipline to put aside conventional wisdom and begin buying stocks again; especially after two full years of impulsive bear market declines.

Right now every indicator I use is flashing green. The context has shifted. The rules have changed. Discipline is accepting that fact even as the big picture issues remain intact and ahead of us. Unfortunately, those of us living in the moment do not have the luxury of simply waiting for our big picture views to unfold. Risk is a two-sided coin. And we have a duty to respect both sides of that coin.

When I scan through the equity universe I see the fresh breakouts in energy, the higher lows since October 2002 in tech (as well as the lower highs since November 2003), and the overbought short-term conditions. I also see members of the Federal Reserve taking every public opportunity to treat the English language like Jackson Pollock opening a can of paint. The Fed chairman's testimony yesterday was like a verbal Rorschach test:

"What do you hear?"

"I hear a train eating a bag of potato chips under a bridge."

So that's why discipline is critical. When the signals are mixed, confusion abounds, and the path of least resistance is to give up, only discipline can give us an edge. On the other hand, it is Friday.

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No positions in stocks mentioned.

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