Q&A on trading

Rusty, a good friend from my college days (and a bit beyond), has been asking some interesting questions in one of my posts below on trading. Here’s his latest comment:

Hi Jay –
The Vanguard funds have worked out well for me. Besides capturing the market return, they’ve had the other benefits of requiring absolutely none of my time, and I sleep a little better at night.
Regarding efficient markets, I think it depends on what you’re investing in. Are you looking at very small companies with a relatively small number of transactions? I might be convinced. If you’re trading GE and Microsoft, or more generally stocks in the S&P 500, I’m less inclined to agree. With millions of shares traded per day, that’s an efficient market. The people trading GE (as a whole) know a lot more about GE than I do.
If you actually generate the returns you’re expecting trading stocks in the S&P 500, that is an amazing feat.
Two other comments, if you will. I think it’s one thing to be able to say, “We’re in a tech bubble” or “These tulips cost way too much.” But it’s really hard to invest against a bubble. Greenspan was warning of irrational exuberance a couple of years before the bubble popped. Shorting too early would have cost quite a lot, not to mention passing up the rest of the ride up.
Besides that, I can’t think of how you’d try to exploit popularity in the 1-5 day time frame. That’s mindblowing to me, and I’d love to hear more about that. Are you researching these companies, or is your selection based on some kind of technical analysis or trend detection? I’m intensely curious.
Finally, the big question for me. Why aren’t others discovering this, and competing away the returns? Why isn’t some mutual fund company advertising a fund that returned 70% on average over the past 6 years?
Greatly enjoying this,
Rusty

I started writing a response in the comments, but thought I’d put in a post so others can join in if so inclined.

Okay, one point of clarification. When I discuss my system, I am not referring to Tarzan. Tarzan was/is an experiment, but I do not trade it currently, though there are a couple very good ideas cooked into it (I think). If you read the original post on Tarzan, you will see a reference to my early attempts at Collective2 which performed great but were ill received. That system was the alpha of my current trading system, the one I talk about when referring to my own trading.

A point of agreement. I think it is of the utmost importance to sleep well at night and have that as one of the bedrock requirements of my system design. For me, that entails being fully in cash every night, even though that tends to degrade the performance a bit in the long run. I’m just very prone to frustration at being burned by the overnight news cycle, even though it helps overall. So I simply don’t mess with it, and have actually tried to make it an advantage.

Another clarification. It seems that some of my comments are being taken to refer to macroeconomic conditions. Another of my goals, however, is to build a system that is as uncorrelated to the broader market as possible. So, for instance, in the past few days, when the market was moving up, I was almost entirely short, and did okay… which is not to say that happens every time.

Which brings me back to that post I need to write on my basic approach. Suffice to say I find it MUCH easier to gain an exploitable edge in the 1 day time frame than any other time frame I’ve evaluated. And no, I don’t actually know the names of the companies I’m buying or shorting day by day.

The last question is pertinent (though once again, those results are against a system I don’t actually trade)… I’ll probably need to address it at some point as well. But I think the answer is roughly this: 1) fast-trading systems degrade with the amount of capital invested, so my technique would probably be terrible for a mutual fund; and 2) it took me a couple thousand hours to get here, so though others may be able to get there much more quickly, it is probably a reasonable barrier to entry for the average personal investor/trader.

Sing With Me, If You Will…

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“The splotchy blue wall is gone…

Heigh-ho, Heigh-ho, Hah!

Let us sing a happy song…

Heigh-ho, Heigh-ho, Hah!”

Many thanks to Abigail who watched over Josiah this afternoon on her day off so I could prime over this stunning (a little too stunning, if you ask me!) bit of color in Josey’s room.

Now to paint the nursery a more pleasing (read “lighter”) shade of blue….

Saving Time at Suppertime

As we continue on without our still-awaited-for dishwasher, I have been spending a bit more time than usual washing things by hand. Consequently, I am doing my best to make mealtime prep easier without succumbing to the very attractive alternative of eating out. I really can’t afford it this month, given I put a hefty chunk of my budget toward the dishwasher, and also having purchased a most wonderful chair and ottoman at a consignment store, pictures of which I hope to show you soon.

So, we have continued to eat meals at home. And, we have begun using some paper/plasticware for simplicity’s sake. Most of all, I have really put thought into making meal components stretch over several meals, so I don’t spend all my waking hours in the kitchen! Making main ingredients work for more than one recipe is an easy concept that I should have employed more often, even with a dishwasher. I’m learning that one can make two very different meals without doing a lot of extra cooking the second time. And enjoying two separate dishes is really nicer than just eating the same meal twice as often in the same week.

So, when I brown ground beef and onions, I use part of it to create a sloppy joe supper, and serve the rest a couple nights later spiced with taco seasonings, and coupled with appropriate toppings in crunchy corn tortillas.

The roast chicken we enjoyed on Sunday with rice on the side becomes “Tricia’s Chipotle Bowls”: rice topped with that delicious flavorful chicken, beans, tomatoes, cheese, salsa, and guac.

Monday night’s extra side salad I prepared (undressed) becomes the base for Tuesday’s lunch: add dry tuna, black beans and some crushed pepper crackers, top with a viniagrette.

Tuesday night I made eggs and bacon, purposefully cooking some extra bacon which I next day chopped and added to softened cream cheese along with scallions, peppers, and broccoli, to spread inside tortillas for a quick, no-cook supper before we headed out to Wednesday night church stuff. (By the way, Jay and I LOVED these tortilla wraps, but the kids were not huge fans.)

My next idea involves using this recipe from Ann (which I really excited to try, substituting my rice noodles we purchased at a local Asian grocery store during a recent family field trip, in place of the pasta it calls for) to create supper, and then using the leftover chicken for a dinner salad the next night.

So….how about a little reader participation? Do you have any ways to make your meal ingredients go further, and thereby lessen your work in the kitchen, but still enjoy a variety of homecooked meals? Please share! I know there are plenty of people out there better at this than I am, and given we have a few more weeks to go without our washer, well, I can use any tips you have!

Ron Paul

If you haven’t ever checked out Ron Paul as a candidate for POTUS, I suggest you do so now.

A Very Good Thing

(Warning: this is one of those long, rambling posts I am most proficient at creating. My apologies to my patient readers. Please feel free to skip it altogether if it’s just too much for you!)

Almost three years ago, I was excited to learn about a small preschool co-op in our area that is run entirely by mothers. It wasn’t something I could take advantage of just then, but it sounded fantastic to me and I tucked the idea of it back in my mind for future reference.

At the time, we had just made the decision to keep Nicolas out of preschool to further our goal of affording Covenant’s tuition for our older kids, and I knew we wouldn’t sending him back. This was hard in a couple ways: for one thing, Nicolas LOVED school. He is our most social child and really thrived on the experience of his sweet little preschool class. For another thing, I loved his school. The teachers were compassionate; they taught their little students well, sharing the love of Christ with them in word and action, and it was just really a great little place for him at that time in his life. The selfish side of me also loved the little “break” it afforded me in the middle of the week: to accomplish errands with one less child in tow, get to the doctor’s without finding a sitter, or drive a school field trip for one of our older children without finding someone to watch Nicolas.

But there was no question that based on decisions we’d made about private school, preschool would have to go, and so we said goodbye to our beloved little Church school with wistful hearts. Last year Nicolas was home with me, and we did some small school type activities together, which he enjoyed dearly. But he would ask me on a fairly regular basis, when he would get to go to school again, and obviously yearned to do so.

This year, even though Nicolas could technically (just barely) qualify for Covenant’s Kindergarten class, we chose to hold him back for another year before enrolling him. His birthday is less than one month before the cutoff date for his age group, which meant he’d be the youngest in his class. He is a tiny little guy compared to his peers (all the four year old girls in our neighborhood have now passed him in height), he’s a little slower on the gross motor skills, plus he still gets extremely tired by 1pm, to the point of actually taking a nap some days. I could go on and on with all the reasons we as his parents felt it wise to keep him home, but Jay and I felt so comfortable and of one mind in the decision to wait before enrolling him in school. The only downside in our minds being that again, our little guy might have some emotions to work through as he continued to wait his turn for “big school”.

And then God provided Chapel School. I put my name on the waiting list for this co-op over two years ago. It’s not an exclusive club by any means, but it is limited in size by the ability of moms to run their own little school, and the fact that lots of families are hoping for a chance to join in. When I put my name on the list, I was hoping that a spot might open up for Nicolas someday, but not right then. I was about to have a new baby, and knew a house move was likely in our future as well.

A couple years went by, and then early this summer I received the call I had been waiting for, telling me they had an opening for Nicolas. It’s what I had thought I wanted, and yet when they asked us if we were interested, I hesitated to say yes right away. I worried about the fact that his ability to participate in this “school” hinged on my own involvement, which meant more work for me, and less time in my already full schedule. My saying yes to Chapel School meant I wouldn’t be dropping my little boy off for a few hours while I ran errands or accomplished tasks. Quite the opposite: in this situation, I would not only stay with him for the entire morning he attended school, I would actually teach a class for one out of every four meetings, and at the time, such a thing sounded a little daunting. And truthfully, I sort of wished we could just scrape together enough money to send Nicolas off to preschool for a couple of days a week. I really did. Which isn’t a terrible thing at all…but it wasn’t an option, and still wanting it left me in a state of discontentment, even if it wasn’t a constant pestering thought. I prayed about it, and mulled over my options for the next few days. And without feeling 100% confident in my decision, I told the organizers of the co-op, yes, to please put us on the roster for 2007.

Well, last week, after a couple months’ countdown by Nicolas, who has been eagerly awaiting the start of school all summer, we had our first day of Chapel School. I’ve had several organizational meetings before this which facilitated my meeting many of the other moms who are involved. We attend school and church with several others, so there were quite a few familiar faces by the first day. Nicolas knew very few of the other children, but he jumped right in, and had himself a blast. After watching him enjoy his first day so much, there is no question in my mind that I made the right decision in saying yes to this commitment. This year he will have himself a bit of a preschool experience: at his school, he will enjoy learning phonics, math, and language and participate in art, cooking, Bible and music. All in a loving, grace-filled environment with other children and moms who are blessed to have the chance to experience this together. Even Josiah, who is in the nursery because he is under the age of three, will enjoy enrichment time for some of the morning. He, along with the rest of the older nursery crowd will have a time for singing, stories, recess, and games. This was an unexpected, extra blessing for him to enjoy.

But it hit me this past week, that the most unexpected blessing was for me. I was recounting the events of our first morning to Jay, eager to share with him all that had gone on, impressed with how much this group of Moms manages to accomplish in two and a half hours’ time with thirty bouncy and active children ages 3-6. The atmosphere at Chapel School was wonderful. But not just for the kids. All of us moms, as we work together to help teach our children, are serving as helpers and sources of encouragement to each other. Supporting one another in a hugely practical way as we strive toward a common goal of training up our children. How wonderful to have another source of help, a group of moms doing the same things I am doing, facing the same struggles and triumphs, and attempting to nurture these little people in the things of the Lord.

Despite our enjoyment of this new experience, it came as a complete shock to me the realization that even if tomorrow we all of a sudden had the ability to enroll Nicolas in a regular preschool, that I no longer had any desire to do so. Funny and wonderful how this has changed. It’s not that I’m not busier – I am. Life is fuller than I have ever felt it was, and I have yet to catch up with my laundry, needy house, and a mountain of other tasks that still are asking for attention. But I have gained a sense of peace about this precious time with Nicolas. Instead of feeling like I am lacking somehow because I won’t send him to a traditional preschool, I know I will dearly treasure this fleeting time with my sunny boy before he’s in “big school”. I am so grateful for the chance to participate in this co-op, both to be a part of teaching sweet Nicolas along with several of his peers, and to form some new friendships with other moms of preschoolers. I am glad that my two little boys will have this opportunity for growth and learning among friends this year. Most of all, I am utterly thankful for the very real blessing of contentment (in at least this part of my life) with our current situation. That is a very good thing, and one for which I humbly give thanks.

It’s Dishpan Hands for Me!!

Well, it looks like we made a very sound decision in purchasing the new dishwasher. Only catch is, it won’t arrive in time to save me from a terrible case of dishpan hands. Because it looks like ours has officially decided to stop working. Last evening the children on dish duty gasped in horror and called, “Mommy! There’s brown yucky water coming out of the front of the dishwasher.” Upon inspection, it was confirmed that the washer appears to be leaking its rusty innards out all over everything. Ew, and gross!!

I rolled my eyes at Jay and remarked that I guessed we’d be doing dishes by hand until early to mid October when our long-awaited new model will be in. He answered, rightfully so, that I was already pretty much washing them entirely by hand anyway, given the “washer’s” cleaning abilities had been mostly gone for some time now. And he’s right. We’ll probably save a nice chunk on our water bill these next few weeks if I am just washing things by hand, instead of first hand-washing it all, then running the dishes through the non-washing KitchenAid for a long, expensive rinse. Or we could just go to entirely disposable dishes for a time. But we probably won’t.

Truthfully, I know just how spoiled I must be to moan about going without this appliance for a few weeks, given that many people in the world today have never enjoyed the luxury of a dishwasher. I am hopeful that in the next few weeks as I am without one, that I may learn to really appreciate this help in life that I have usually taken pretty much for granted. Sometimes it helps to go without something for a time to realize just how thankful we should be for it when it is around.

I Have Like the Coolest Husband Ever…

at this very moment, he is sitting in “Knight School” Teacher meetings (that’s a play on words using our school mascot for “Back to School Night”) for each of our school-aged children. And what is he doing while he’s there? Not playing video games on his hand held technical device, though to some in the room it might well look that way! No…he is sending me up to the minute short notes via his Blackberry on what is being said, and conveying information from the teachers that I will find pertinent, including details on classroom conduct, procedures and rules for chapel, and LOTS of curriculum content. He knows how much this means to me since I feel a high need for details on everything that goes on with our children and their school. Wow. I think I am falling in love with him all over again!

How does your car do?

Consumer Reports crash test videos

Both of our cars were rated “Good”. I thought the side impact on the Honda Odyssey was very impressive. It is amazing to see how fast those curtain airbags deploy, protecting the passengers from structural elements as well as flying glass.

Giving Momma “The Fits”

I use this expression all the time in jest with my children when they are getting a bit out of control, joking with them that if they don’t settle down, they are surely going to “give their momma the fits”! but tonight I think Josiah actually did just this. Mind you, I don’t even know what “the fits” are, but they sound ominous, don’t you think?

Tonight, within the space of maybe 15 minutes Josiah caused two major upsets in the house, just as we were trying to get everyone peacefully into bed for the night. Now they are all tucked in and quiet, but my nerves feel a bit jittery.

For starters, our toddler, feeling the need for a drink of juice, opened the refrigerator, and attempted to get to the very large, very heavy tupperware container in which we mix and store our orange juice (we’ve switched to the frozen variety since the fresh has skyrocketed in price). Of course, the pitcher was much too heavy for Josiah and as he lifted it from the shelf, down it came, splashing juice everywhere both inside and outside the fridge. What a mess. While Daddy toted the offender away to have a “chat” with him, I cleaned up the aftermath.

Just a few minutes later, we were in the boys’ room getting them settled in bed. We opted to keep Josiah with us, since having him out of sight is a dangerous proposition these days. I had barely turned my back for a minute when I all of a sudden heard a soft whirring sound. And there was Josiah in trouble again: he’d managed to turn on an oscillating fan (which shouldn’t even be in the boys’ bedroom, let alone on a surface Josiah could actually reach on his own – Jonathan reports their babysitter moved it to their desktop last night b/c they were feeling warmish, but I hadn’t realized this yet, bad Mommy) and then get his chubby little fingers inside the wire cage which surrounds the rotating blades. Now that was a very scary sight. Using absolutely no restraint whatsoever, I screamed loudly, mostly out of sheer horror, which surely startled Josiah enough, but then followed it up with a couple of hand swats and some very serious scolding. Hopefully he will feel no desire to explore a fan again anytime soon.

As I sat there and held him afterward, so thankful he’d not been hurt, but still feeling very shaken, he looked into my eyes with his big brown ones, cradled my head in his pudgy hands, and asked quite seriously, “Mum….ad???” (which translated means, “Mom, sad?”). So even if he’s highly mischievous and into everything, we can at least say he’s also a deeply sensitive wee lad. Needless to say, I love this little guy oh so much, but I pray for the ability to safely parent him into adulthood. He doesn’t always make it easy!