Visually Compelling TA

Garry Kasparov discusses The Inner Game in chapter twelve of How Life Imitates Chess. The author asserts there are few things a brutal as chess noting that during a game there is nowhere to hide and you have no teammates. Winning chess requires a constant and strong psychology. One has the difficult challenge to learn from a tough loss and still come out the next day believing they are the best. It takes a strong mind to balance these somewhat contradictory story lines, especially after a particularly crushing defeat.

Speaking of crushing defeat, my SLO2 approach centered on three industry groups: airline, internet, and consumer. During the early period of the contest I lost considerable NAV on the airlines' decline due to rising oil prices. With a NAV in the sevens, I threw in the towel on airlines in mid-April and focused on some internet/consumer companies ahead of their earnings announcements. Doing so allowed me to recover achieving a "respectable" NAV in the mid-nines by early June. But to reach a competitive end point in the contest with less than one month to go, I needed to seek explosive growth. Such growth requires buying equities capable of sizable daily moves. On June 18th, after the conclusion of the 2008 Merrill Lynch Global Transportation Conference which included presentations from many of the airlines, their stocks popped more than ten percent in a single day of trading. Sensing a change in character, I not only repurchased my earlier airline positions but put 90% of my SLO portfolio into them. (By the way this is not good practice as one must be better diversified with real money.) Despite this pivotal indicator in airline character, their prices eroded further and my NAV reached even lower lows such that in the final SLO2 ranking I was fifth from the bottom. (Further evidence you need diversification with your real money.)

But all is not bitter in this story. The sought-after explosive growth did materialize upon the contest's close and my NAV was above ten with two weeks and at Friday's close was 12.34 as shown in the figure below. Kasparov says you must rely on your inner observer to look at your results dispassionately. The bittersweet conclusion is my observations were on target though ill-timed. And the sweet part of this story is that my participation in this contest heightened my awareness of this industry group's price movements and led me to buy airlines in my real-life portfolio and in one of my long-running Marketocracy portfolios (albeit within the bounds of proper diversification).

Comments: View Comments |  Sunday August 10, 2008