Hemingway and Ruthless Simplicity

He was once bet that he couldn't write a short story in 6 words.

He did:

For sale: Baby shoes, never worn

To me, this tells the tale of a wife or couple who were expecting a baby, bought baby stuff, and then tragically lost the baby.

This is powerful stuff - it trusts the reader to use his imagination. It co-creates the story with the reader.

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Jake Witmer's Blogs

My friend, Jake Witmer, has started two blogs:

Jake Witmer's Blog

Free Alaska

For those of you who don't know him, Jake is a dedicated Libertarian, and his educated, logical, and intelligent arguments and thoughts can really provoke you.

Unlike most people, who take a passive view of politics, Jake immersed himself in politics through the Alaskan Libertarian Party.

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Free International Calls

I came across an article on awebsite that offers free international calling.  It turns out that it is one of many - all based in rural Iowa.

It sounds too good to be true - until you learn that they are simply involved in arbritrage, and taking advantage of FCC rules.

Normally, a telephone company gets less than 1 cent per incoming long distance call.  But, rural phone companies, especially in Iowa, are subsidized and can get up to 10 cents per minute.

Since wholesale international minutes to countries like the U.K. cost less than 2 cents/minute, an arbritrage opportunity presented itself. 

So, when you call this site's number in Iowa, your phone company has to pay them X amount per minute (even if you are on an unlimited long distance plan) and they have to pay Y amount per minute to connect you internationally.

So, you are getting free phone service because all phone customers (via the Universal Service Plan) are making calls to rural Iowa more expensive than international calling.

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Increase Hourly Rate to Get Rich

I came across this post on increasing your hourly rate to get rich.

It is a good article because it illustrates 2 key facts:

1. How investing time in activities that don't pay immediately - such as learning how to invest or spending time after work to get a professional certificate - can end up paying handsomely in the future.  Then, by dividing the extra money by the hours of study, you have a high hourly rate.

2. How some activities, such as writing a book, can bring in a residual income years later, thus increasing the activity's hourly rate.

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Looking at Trading with Fresh Eyes

Fact: 99% of all trading systems use indicators and/or advocate trend-following. 99% of traders lose money or under perform the markets.

Warren Buffett is the greatest investor in the world. He became the second richest man in the world by compounding his return by 20% per year over decades. His #1 rule for investing is: Don’t lose money.

Buffett is known for his intelligence – but you never hear of him exercising it through “Tradestation gymnastics”. He doesn’t sit in front of fancy, high-powered technical analysis software, inventing new gyrations and combinations for moving averages, stochastics, ADX, etc.

Instead, Buffett simply buys assets cheaply. He exercises his intellect by playing competitive bridge games with Bill Gates.

Of course, using fundamental analysis like Warren Buffett is a full-time job, and it requires financial knowledge. Buffett and most hedge fund managers have advanced business degrees.

So, what can you do?

You have to develop a simple, robust trading system that has a new angle, instead of just relying on the same old indicators applied in the same old fashion.

You then must have the discipline and patience to stick with your system, at the risk of being bored.

You should develop / test your system until you can have faith and can count on it, like an old hunting dog.

But, then you need to be able to resist the siren-song of the next “sexy” indicator or system.

Here are some ideas to get you thinking:


1. "How May I Serve?" The Market

2. New Thoughts on Highs and Lows

3. Combining Highs/Lows and Moving Averages

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New Thoughts on Highs and Lows

One of the oldest technical trading systems was Donchian's 4 Week Rule.

It was a 1950's trend following system of basically buying 4 week highs and selling 4 week lows.  It took advantage of the fact that trends start with new long-term high's and low's.

Today's markets suffer from more volatility than in the past, and trend following systems are subject to whipsaws and large drawdowns.  As a result, trend-following is one of the most advocated trading styles, but most traders can't handle it psychologically.

My stock trading system is not trend-following in its basic format (though it could be modified and used with stops - but that is for a future post ;-) ).

However, I traded futures for many years with a trend-following system.

If I had to go back to trend-following, I would make use of new high's and low's.  However, I would also try and incorporate the fact that true trends continue to make new long term highs and lows, in quick sucession.

So, for example, if a new 4 week high is made, and a trend is under way, the 4 week high should be exceeded fairly quickly.  Then, it should keep on being exceeded.

Here is a way that you could play it:

Buy(Sell) N-day highs(lows), and stop out if a new N-day high(low) does not occur in, for example, a week.

Now, this isn't a complete trading system and its not tested.  Its just a different idea you may want to play around with.

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Combining Highs/lows and Moving Averages for Trading

Moving averages are a very old and simple tool for trading trends.  However, they are also very vulnerable to whipsaws.

They are also subject to optimization.  If you change the number of days, then your results change.  In a strong trend a 10 day moving average might be best but, in a choppy market, you may want a 50-day.

An idea might be to use an N day moving average, but only recalculate it when an P day high/low occurs.

For example, use a 20-day moving average, but its values will only change when a 50 day high/low occurs. 

The idea is that, in a choppy market, you may only recalculate the value every 50 days so, during the choppiness, the price won't cross it.

In a strong-trend, the 50 day high/low will occur more often, so the average will change and give a better, more responsive signal.

Again, this is just an idea - its not tested, and these particular parameters might not be good.  But, hopefully this gets you to think differently about moving averages.

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"How May I Serve?" The Market

Economic Speculation is the economic principle that enables my simple trading system to work.  It can completely change your outlook to the market and other traders.

Instead of seeing other market participants as competitors, you must begin to see them as your customers.  You must ask, like any other successful business, “How may I serve?”

The key to serving is through a new definition of speculator.  Most people think of a speculator as a risky trader who bets big.  But there is a different definition of a speculator in economics:

The economic role of the speculator is to provide liquidity to a market, in order to balance supply/demand.

 So, you are going to achieve trading success by satisfying a solid economic need in the marketplace.

 When everyone wants to sell, you will serve them by buying, and adding to your inventory.  When everyone wants to buy, you will serve them by selling to them from your inventory.

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Stock Market Products Guaranteed To Go Up?

Fobes Magazine had an article on financial products that are designed to let you capitalize on a rising stock market, but still gain some return if the market goes down.

These products are called "structured Retail products". They started being marketed aggressively after the 1990's bull market.

An example product is Bank of America's Minimum Return Eagle (Equity appreciation growth linked security). It is a 5-year note that pays the greater of two amounts: either a 0.98% compound return, or the "return" on the S&P 500.

In this case, the catch (and there is always a catch)is the way the "return" is calculated. The stock return is compounded quarterly, and capped at 7%.

So, for example, if the stock market is up 10% one quarter and down 5% the next (for a net 4.5 % gain), the eagle would get +7% and -5% (for only a 1.65% net gain).

Another catch is that these products could be replicated with less cost through the use of options.

Also, these products would make sense for those who need to invest for a short time horizon, who think the market will likely increase modestly in the near future.

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Simple Solutions for Dyslexia

Today I found this post which shows some simple ways to help dyslexic students in the classroom.

Mostly, it advocates a multi-sensory approach to teaching. I was struck by the idea of using clay, and involving students' tactile functions (touch). I think touch is definitely an underused sense in education.

The amazing thing is that all these recommendations are simple, and would not cost a lot of money to implement. The only thing stopping classrooms from implementing them would be a closed mind of the teacher, because they don't want to change the way they teach.

This article again shows the power of simplicity. If more parents and educational advocates pushed for small, simple wins in the classroom, rather than big budget or program changes, we can really improve our schools.

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5 Business Writing Tips From Hemingway

Copyblogger, whose blog teaches about copywriting and marketing, wrote a good piece on Writing Tips from Ernest Hemingway.

They are:

1. Use short sentences.

2. Use short paragraphs.

3. Use vigorous English - make your writing forceful.

4. Use positive words instead of negative ones - i.e. software is "stable" rather than "bug-free".

5. Write one page of masterpiece vs. 91 pages of garbage.

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