Saturday, October 29, 2005

Where are all the Jewish Momentum Investors?!?

Many would find financial research a curious pursuit. And while most curious financial researchers have their own peculiar or arcane interests, one area of modern finance continues to intrigue and mystify me: "Why are there so few Jewish momentum investors?" Now before the ADL or JDL launches protest a to Blogger's management taking issue with this post before giving it a fair read, let me first clarify several points at the risk of spoiling my punchline. Firstly, by way of full disclosure, I have strong affiliations with the Tribe itself (of Abraham that is) - and little to no affiliation with the Church of Serial Correlation, the Cult of Momentum, or The Turtle Traders). Secondly, despite the fact that I am an unashamed peacenik, frequent critic of Likud, and an admirer of famous Israeli's such as Amos Oz, Y. Rabin, D. Barenboim and Y. Beilin, I AM an admirer of both the Jewish faith, and many of the things Israel has accomplished. This does NOT - I repeat does NOT - in any way whatsoever make me anti-semitic. Thirdly, and contrary to your suspicions, the accompanying image, as a native from Calgary might tell you, strangely enough has nothing to do with the Star of David, or Momentum. It is in fact a sheriff's badge presumably labelled to express disaffection over the "mess" and chaos their annual rodeo-related Stampede creates. But it does a nice job of visually marrying my seemingly unrelated subjects.

Having dispensed with formalities and belied critics who might impugn my creditibility based upon THEIR politics, I will return to subject: the dearth of Jewish momentum traders. This puzzle initially gestated from meditations regarding the relative contribution of nature vs. nurture upon one's political beliefs. Proposing too much nature, it seems, is a contentious thought to some folk as I've discovered, for after espousing it, I've had people look upon me as puzzled and suspicious as if I were Kim Jong-Il doing a Liza Minelli impersonation, even though it's a quite innocuous observation. It goes like this. Based upon keen but anecdotal observation, populations seem to have roughly similar distributions of political archetypes between what one might broadly categorize as "progressive" or "conservative", irrespective of ethnicity, religion, or nationality of the entire population. Whether it's exemplied by Republican or Democrat, Labour or Conservative, Social Democrat or Christian Democrat there seems to be a rough equivalency in the percentages of these divisions in society. This seems to hold even if the specific ideological anchors have different coordinates in the political spectrum in different places. As other personality traits such as optimism and empathy have been shown to be strongly influenced by genetic predisposition, my probably unoriginal hypothesis by way of extension was quite simply: Why not politics? Perhaps everyone is born with a certain greater or lesser predispositon towards progressivity or conservatism, which themselves are possibly based a general affinity towards being receptive of, and embracing change (in the case of the progressive), or being cautious and suspicious of said change (as befits the conservative). The resulting conclusion: people underestimate the role of such genetic predisposition in political belief structures, in general, and in their own idelogical make-up in particular. While I am not an anthropologist nor a sociologist there are many examples of similar less-than-physical pre-disposed traits in relatively consistent proportions across varied populations (e.g. homosexuality). And while learned people who have studied this are not necessarily in agreement as to which competing theory best explains WHY the phenomena exists, there is little disgreement over the existence of the objective phenomena itself. This is NOT meant to disavow or diminish the influence of nurture, or to discount free will of the spirit which both have a role. But it is interesting, if not uncomfortable, to speculate that we may not be as free as we would like to believe.

Teleport now to the floor of the CBOT or the CBOE where mixed amongst the overly tall brokers are traders and speculators of many persuasions. Scalpers, market-makers, front-runners, discretionary liquidity providers, strategic traders, trend traders, and counter-trend traders, some disciplined, some emotional some visceral or instinctive. But here too there seems to be a similar archetypical personality divisions: that of the "trend-trader" or "counter-trend trader". One can also think of it as momentum-oriented or reversion oriented (or short-premium option traders vs long-premium option traders for our derivative friends). Might not genetic predisposition have a similar role in whether one felt more comfortable "riding a trend" or "or trying to anticipate a reversal"? Or in "buying a breakout" or "fading a pop"?? Or "Buying growth" or "buying value"? After all, these dichotomies are essentially attributable to the inherent optimism vs pessimism, or safety vs. adventuresomeness which we already have good reasons to believe are strongly influenced by nature.

Whether one agrees or not at this point, I hope you'll see a consistency and logic to this thread so far, that, if not probable, is at least plausible. Now comes the puzzle: if the general population consists of some relatively consistent distribution of, for simplicity's sake, "momentum-traders" and "reversion traders", why does there seem to be such an asymmetrical distribution specifically amongst the Jews? It's certainly not for lack of prowess at making money. Trading is in our blood and has been since our days refueling camels at the Judean cross-roads of civilisation. As a tribe, we account for some of the greatest value investors, but we seemingly can't ride a trend. Even Sol Waksal for example, whose company has the ultimate momentum theme - a cure for cancer, felt compelled to trade his position lest it's value be [temporarily] knocked by some petty little FDA concerns about experimental design. Few would argue that we are over-represented in the world of arbitrage, but under-represented amongst the great CTA's. Or that we have a keen eye for spotting and picking up the four-cent nickels, but have more difficulty sticking around to turn $1 dollar in $10. I could be way off base, but I think there is a pattern here. Is it something peculiar to "us" or is there something about momentum? Maybe it's just the "feel of it"? Or maybe it's the risk vs. reward proposition that is intuitively (or objectively) unappetizing? Or perhaps momentum requires something more of the mind or spirit, something that we simply cannot give?

It would be useful at this stage to better define "momentum". Though I am no expert on the subject, it may be helpful to separate it into different categories. One is "naive momentum" which is quite simply using past returns to predict the future direction of returns. "What's gone up will keep going up". What is outperforminmg will (hopefully) keep outperforming. For academics analyzing the stock market's cross-section of returns, this phenomena is typically viewed as relative in nature, or normalized performance ranks. Through this lens, persistence in relative return has been found to exist for as yet undiscovered and undiscernible reasons, confounding theorists - especially those espousing market efficiency. But the real Momentum-Men (and they ARE men as not a single famous woman springs to mind), are the practitioners that call themselves "trendfollowers" and would perceive themselves as more sophisticated and discriminating than the naive crowd. Here, simple moving averages give way to complex pattern matching techniques and endlessly catalogued contingency tables - all integrated systematically to find the holy financial grail which will allow them to distill the real trend that has the higher probability of persisting and thus being the motherlode that will take an ounce of gold that broke out from $454 to the stratospheric price of $5,000/oz (or beyhond!). This is a periodically prerequisite necessary to pay for for all the shakeouts, false starts, and ubiquitious reversals that are the by-product of the financial equivalent of chaos. That a number of practitioners have been reasonably (if not fabulously) successful employing these methods would seem to indicate that one dismisses them at their peril. Yet, others employing quite similar methods have crashed and burned spectacularly. But there is no shame in making (and losing) a fortune, for aside from being an adventure, it generates notoriety. And with such fame (infamy might be more accurate), one can always write a book, or post his musings on a website, or teach others to trade using trend-following techniques (but hopefully a more complete set than they used - one that incorporates counter-measures against periodically going nuclear). But perhaps the most amusing description of something with momentum was by Leif Ericson (on Peter Greenfinch's website) which he posited "was the battle between those with more money than intelligence against those with more intelligence than money.

Indeed, momentum has its uses, and has made some people (particularly brokers and exchanges, as well as some investors and traders) fabulous amounts of money. But it's not for the faint-hearted, and not without large and attendant risks. But that still doesn't answer why Jews are under- or unrepresented here. What's preventing them from joining the search for the leprechaun with real potfulls of gold at the end of the rainbow for the lucky few?

For a start, it seems that being long momentum requires faith. Similar in nature to the good old-fashioned bible-thumping fire-breathing kind. But faith in what? It's difficult to say just what that something is, and theoreticians remain perplexed. One might say it's essentially faith that the future bias of returns will continue to resemble the past. But is this wise or even acurate? It's not a bad bet with respect to things like whether the sun will tomorrow, whether the leaves will turn color this autumn, or whether the government will suddenly feel geneorous and abolish tax. And it's not unreasonable have some more-then-ambivalent confidence in a directonal movement when something is converging towards some probable equilibria. But the odds and thus confidence intuitively diminsh as one moves farther from equilibria (assuming one has a reasonably accurate estimate of probable equilibria). Consequently, risk increases. By contrast, it is "doubt" which comes easy to us Jews. Faith comes much harder. We desire proof. We NEED proof. A Covenant, for example, would work well. As would a burning bush, or some directives or commandments carved in stone. Recall, God had to crack the whip many times before people were convinced. And it took lots of smiting. And even then, there was backsliding. Moses was skeptical at first and took multiple minor demonstrations of transmutation to convince him. And I would guess that when he took his demands to the Pharoah, he probably had his doubts. At least until Pharoah's kingdom was over-run by toads. That was his nature - to doubt.

Maybe we eschew Momentum because we're just contrarians? While it's true that we are always up for a good debate, it is unfair to say that we are contrarians for the sake of it or just for kicks. Having said that, one must remember that we are wary of crowds as historically, when we Jews have seen the crowd coming, it was time to leave. And fast. Over the generations it's become burnished in our minds. But suspicion of the herd is not pathological. When there is sale on, we are the first to queue up and often lead the stampede. No obvious contrarianism there. And one must not forget that the God of the old testament is severe. He can (and often did) take away what he'd bestowed, not to mention the ever-present threat of smiting. Momentum needs time, and these things in combination have always made time an issue for us which, while it makes us good bankers, does put some behavioural boundaries upon our holding period. The old saw "One in the hand is worth more than two in the bush", would take on special meaning if one not might be around to collect.

Jews are studious, value education, and usually pretty rigorous. The faith required of a momentum investor resembles closing one's eyes when taking risk. We are used to and not shy of taking risks, but they are typially calculated risks. Like the risk of taking that "Home Office Deduction" against our income tax. We can do the math. But we disapprove of pure gambles. When was the last time you a saw one of our tribe win a large Pick-6 jackpot?!? Or when was the last time your Jewish friend invited you to go the racetrack, or wager on the greyhounds? We intuitively know lotteries are poor odds. That's why when we went to Vegas, we would rather "be the house" and "be paid" than "pay the house" and be played. When we do go to casinos as a customer its for the free drinks, and not for thrill of trying our luck against the odds. We prefer investment to speculation. At least with an investment, one can estimate probabilities and calculate expected returns. And hedge. Only then do we pray. And when we pray, we pray to God not for "good luck" but rather that the hedge holds.

Without being disparaging, momentum is useful as a discipline for people who have no other. And some form of discipline is better than none. We've an inherent intellectual flexibility which in investment terms is important in order to integrate new information and fight against hard-to-overcome cognitive biases. Maybe that's because we've always been moving and have had to learn the ways of new people and places. Unlike the way many conservative strict-constructionists in America prefer an ossified constituition, or the way fundamentalists of all religious persuasions strictly interpret their religious texts, Jews are constantly re-examing and re-interpreting the meaning of their scripture (amongst other things). Trend-following is a disciplined system that proxies for intelligence-derived flexibility. It dictates change in response to something, even if that something is facile, and often ill-logical, and frequently uneconomic. Our nature results in a demanding need to know "why" and to reach our conclusions by way of intellect, rather than faith. This creates decision flexibility (to react to, or incorporate change) which inhibits belief anchoring without sacrificing understanding.

Or perhaps we're just not optimistic enough to "close our eyes and buy"? It seems that most momentum traders are optimists by nature. Optimistic in their belief market solutions are always better. In conservative republicanism. In low taxes. I would not deny the suggestion that as a people we are not renown for our positivism. Not in art, literature, nor psychiatry. But in finance, optimism is independant of, and should not be confused with, monentum. Sometimes there is good reason to be optimistic about the direction of price movement, and sometimes not. And while I would agree that optimism serves many useful functions in the human struggle for survival, it's been shown by researchers that pessimists perception of objective reality is in fact closer to objective reality. Optimism is an important tool in sports, healing the mind and spirit or achieving personal goals, but it cannot and will not move market prices. Full stop. Objective reality (or at least reasonably accurate perception of reality), on the other hand, is extremely useful and of paramount importance when assessing probabilties, making expected return calculations, or discerning the sign and location of the fat tail..

What is the final take-away? Though untested, and unproven, the asymmetry seems to result from an unusually strong combination of natural predisposition towards progressivity inherent in our genes coupled with a multitude of social nurture factors eminating from a unique history, religion and culture, all which reinforce our predilection for value and the counter-trend. This is not to discount the potential contributions momentum can make. But that doesn't mean we have to like it, or for that matter, pursue it, which nin aggregate, wee apparently don't. After all, no one really "likes" insurance, but we still buy it....

Wednesday, October 26, 2005

The Joys of Serial Splitting

With increasing amounts of academic brain power and graduate student slave-labour turning their efforts towards finding systematic explanations for momentum in the cross-section of returns, decreasing amounts have been focused upon the venerable and puzzling anomaly that still flourishes, particularly in Japan: stock splits. While recent research has purportedly debunked some parts of the anomaly (e.g. "stealth" signalling of future propsects, longer-term post-split outperformance), a surreal interlude remains between the announcement date and the date when the new line of shares are delivered whence it still appears abnormal returns exist. Surely this must be of some benefit to someone if not to stockholders even if it is fleeting & temporary. But as Bob Dylan eloquently asked: "...why and what the reason for?"

Stock splits have a cherished history in Japan, the vestiges which, despite the recent (last 10 years) subdued appetite of the public for equities as an asset class, is imprinted upon the memories - and thus the reactions - of the now-electronic herd. In the heady days of the "great bull", they were often referred to as "Bonus Issues". Other companies awarded their shareholders "Stock Dividends". Still others lavished their owners with "Gratis Shares" - the nomenclature all implying that management was gloriously magnanimous, and that shareholders were somehow miraculously better off (if nmot wealthier) than they were before the ex-date. This assumption, of course, should not be dignified with a rebuttal other than to suggest that in many cases, one would be forgiven for suspecting that management had other, less-than-salubrious motives in mind. For the alternative explanation, that they were/are simply as ignorant as their shareholders, is I daresay, a grim and petrifying thought given that the recent inflows into Japan over the past decade have left "us" (i.e. Gaijin collectively) as significant "partners", having seen value where "they" (Japanese investors collectively) have not. This may not be symptomatic of their [undeserved?] low opinion of themselves and their companies, as much as it might reflect that over the "lost decade" they've busily kept investing in plants & equipment that make things and exporting them, while we've been busily doing what we do best which is making money. Unfortunately we've not been "making" it in "old-fashioned way" preferred by SmithBarney spokes-thespian John Gielgud, but just simply "producing" it, or more specifically, printing it, in optimized methodical assembly-line fashion descended from Ford, Taylor and the Model-T'.

Going back to the subject, there is nothing inherently "wrong" with a stock split. And accusations of misunderstanding or deceptive practice would certainly exclude those successful firms who've grown over the years and, as a result, have seen their share prices appreciate and who now desire to "keep their shares affordable, or "broaden their investor base" or both. In themselves these are entirely defenesible justifications since a board-lot (the minimum trading unit often 1,000) of shares in Japan is inflexible and may make small purchases untenable. Scrutiny, however, should be focused upon "Splitters" and even more so upon "Serial Splitter", whose share-prices have pole-vaulted dramatically above earnings, but whose absolute levels are not themselves impediments to the more noble objectives such as broader ownership. Here, one might not be off of the mark if one suspected that these managers might be trying to obscure the price/value relationship by splitting their shares frequently (and possibly) to excess. In other words, trying to pull the wool over their eyes. How does this work? Shocking as as it may sound to the professional tape watcher or daytrader, many ordinary investors DO actually have lives outside the stock market (and professional sports). They go to the movies. Tend their gardens. Crochet. Trainspot. Whatever. They may be watching a stock at YEN1000 which undergoes a 3-for-2 split that could very easily elude observation (especially by the trainspotter). Now, at YEN666 (spooky, huh!) it appears "cheaper" and more enticing than it was. Sad, but true.

The question that I have been ruminating upon of late is: If a little splitting is good, can too much a of good thing be bad? Why display restraint at all? Why not split a lot? Or why not split more often? Or better yet, why not both? It didn't take long to locate such an example because precisely the same thought must have occurred to the father & son loan-sharking team (I'm sorry, the PC term is Unsecured Credit Provider) team headquartered in Shinju-ku that control NISSIN CO. LTD. (TSE Code #8571). The table below summarizes their prolific exercise in share miniaturisation. With a listing in 1994 at a higher than average price, the first split in 1996 might be excused. But why not do a 2-for-1 at that time rather than a second one a few months later? It is possible that the Sakioka-the-Younger studied finance at University (after all, Dad IS a money-lender) where he learned of the anomalous reception that stock splits receive and set out a pre-meditated plan to elongate the halo effect. I am sure a publisher is chasing the rights to his "kiss & tell" as I write this.

Ex-Date Split NumShares
Ratio (Base100)
Mar 1996.........13-for-10 ............ 130
Sep 1996 .......... 6-for-5 ............. 156
Mar 2001 .......... 3-for-1 ............. 468
Mar 2002 .......... 2-for-1 ............. 936
Mar 2003 .......... 2-for-1 .......... 1,872
Mar 2004 .......... 2-for-1 .......... 3,744
Sep 2004 .......... 2-for-1 .......... 7,488
Mar 2005 .......... 6-for-5 .......... 8,985
Sep 2005 .......... 2-for-1 ........ 17,971

A breather was taken during the depths of the bear, before sharpening their guillotine for a more ambitious 3-for-1 in 2001. One might speculate that an increasing environmental concern and consequential desire to to save paper caused them to restrain themselves to a split a year in 2002, and 2003, but the exercise in financial confetti-ization accelerated with more precision knife-work slicing them four more times in the past two years! It was rumoured this has left shareholders at the last AGM exclaiming screaming "Four more splits! Four more splits!" reminiscent of the demagoguery of the Republican platform at the 2004 RNC.

If only share splits created shareholder value, then the Sakioka's would be legendary! This is NOT to denigrate their money-lending prowess (which is not a badge of honor in Japan since it is a less-than honorable profession), for no one can deny that they have grown their business nearly five-fold over the course of a decade where most enterprise have been fortunate to escape nominal sales DESTRUCTION. And shareholders have been rewarded with hefty increases in EPS DESPITE the massive and unprecedented growth in the number of shares ourstanding - now surpassing 1.3 billion on an Oct 1 price of ~YEN150. With a Bloomberg, and an MBA, it is undoubtedly easy to keep track of what should be mere book-keeping entries, but one should be sympathetic to the plight of the average investor who has been blind-folded and spun-around in a disorienting way by the continual julienning of the shares into ever-smaller morsels. But my question is "Why" have these financial Chefs embarked upon this relentless savaging of their share certs. when it is by no means an endeavor free from risk?

For example, low price stocks exhibit higher specific variance. And many institutional investors (and some indices) have minimum share price thresholds - both which could prove costly under darker circumstances. On the other hand, share turnover and volume HAS increased rather dramatically. Perhaps the Sakioka's figured out that there is undiscovered value in the "free" advertising that comes with being on the most actively traded list every day? If this proves to be true, Nissin could be on the vanguard of an important trend as they bizarrely duke it out with every other TSE-listed firm in what would be the world's first national fight for the LOWEST share price. It could also be that in a sector (Consumer Finance) that boosts very high average share prices, they are hoping that at least some investors will opt for the illusion of the "bargain" or low-priced stock. Not lowly-rated. Not temporarily lowly-rated. Not formerly high, but now [temporarily low], but just low-priced. Cognitive errors know few boundaries in bizarre world of Japanese finance and Fidelity and Goldman Sachs are two of Nissin' largest non-Sakioka shareholders. (Legal disclaimer: The placement of these apparent non-sequitirs in the same sentence is entirely by accident -Ed.). Or they may simply be very bullish on the future and hope to "grow into" their now-immense number of shares out. The jury remains out. But having intimately witnessed (and played a role) in the ups and downs of share prices in Japan over the past two decades, and knowing that there few free-lunches to be had without Faustian bargains, I must admit to being somewhat underwhelmed and suspicious of management's intentions in addition to being skeptical that they will be able to continue to bestow such "freebies" upon their investors before soon having their shares quoted in single digits. Did I hear someone mention "reverse-split"?

Monday, October 24, 2005

Momentum Returns To Japan

Price momentum has long been absent as a factor systematically contributing to favorable investment return in the Japanese stock market. So much so that anyone who's had the misfortune of being a momentum investor over any 5-year contiguous interval during the past fifteen years has, in all probability, undergone an ego-cleansing change in profession or has reinvented themselveves as a US stock trader, or a commodity investor. Or anything, pray tell, that trends - preferably for very very long periods of time. Only a prescient few have got it right year in and year out.

The hiatus of naive price momentum from the Japanese market has led most academic observers, who've in the last half-decade began taking momentum seriously, to issue geographical caveats similar to the warnings offered by the UK Foreign Office or US State Dept.: Japan is different! Barra, too, recognized the importance of "Trend ga tsuyoi" (literally translating as "there's a strong trend") recently adding what might be the only non-econometric factor in their model. Even Dr. John Brush at Columbine, doyen of investigators into the subject of persistence, labels Japan a no-go area for those seeking profit from serial correlation. Dr Brush is more sanguine about the large black hole in academic finance where an explanation for the phenomena should reside. He highlights the cruel choice theoreticians must make between bending the existing efficient markets & rational investor framework to accomodate the empirical evidence for momentum, or discarding existing theory and creating some replacement.

Younger traders/PM's don't seem to have any conceptual problems with price momentum, presumably because it dramatically simplifies the investment decision-making process. For them, it seems as natural as the existence of the remote control, or a President who says "Nu-kee-lar, and plays with sock puppets. This is useful since the young ones typically have little else upon which to base their decisions. And they've probably never lived through a three-standrad deviation event or a demoralizing multi-period bear market where all semblances of hope and optimism are painfully and systematically excised from one's being, neuron-by-bloody-neuron. Older people on the other hand, are decidely disturbed momentum. Perhaps because even with all of their experience and wisdom, it remains mostly inexplicable. And if there is one thing the older generation dislikes, it is that, after many trips around the sun, the feeling of failure at not being to explain something as simple as some over-valued piece-'o'-crap stock is rising uncontrollably.

But just as its epithet has been carved into its tombstone, it's reappeared with vigor not seen since the great bull market of the late 1980's. And it's everywhere! It's in the daily cross-section. It's on the tails. It's short-term, medium-term, long-term, arrrrgh! Help!! T-E-C-H-H S-U-U-P-P-P-O-O-O-R-R-R-T!!

Whew, now that I've got that off of my chest, I will say that actually, it's not that bad. There remains lots of value out there in Japan - both absolute and relative. And while some momentum IS indeed egeregious (check out the Titanium Stocks 5726 & 5727) whether growth stays or is a passing fad, much of it still falls into Cliff Asness's categorization of "value + momentum", and it's a sweet and comfortable spot to be. There remain numerous and plausible constraints and encumberances upon growth - both at the enterprise and national level and these will be explored in further posts. But the takeaway is that "Momentum is Back", brought initially IMHO by the thundering herd of American fund managers (both hedgies and long-only). In the shorter-term, those who ignore it or treat it cavalierly do so at their financial peril.

Expecting the Unexpected

Earlier today, Takasago Thermal Engineering Co. Ltd. (Quick Code #1969) revised earnings estimates significantly lower. Prior to the revision, there was little disagreement amongst the six or so analysts (+/- 10% from the mean) for both FY06 and FY07. The stock price may open down as investors react to the news, but it's already reasonably cheap on a number of metrics, and so although it may get cheaper, it probably won't be a catastrophe. I can't say I am emotionally attached one way or the other (though as a matter of disclosure I am short a little bit of the stock).

What I do care about, however, is that one of the big-three brokers had the audacity to proclaim "DOWNWARD REVISION TO 1H RECURRING PROFIT NOT SURPRISING". Umm, excuse me? It sure seemed to surprise the company (-25% from THEIR previous expectation). And it sure seemed to surprise the consensus of security analysts who ostensibly are supposed to have their collective fingers on the pulse of the business. And it even seemed to surprise the knowing analyst who proclaimed he wasn't surprised, since the 1H results were below his own stated forecasts. Maybe there was a translation problem here, an "engrish-ism" as the some less culturally sensitive gaijin like to call them Or a cultural difference. Or maybe he really didn't mean what he said, which is an increasingly common and understandable occurrence that could happen to almost anyone. In fact, it recently happened to President Bush in one of his early post-Katerina visits to New Orleans with then-FEMA director Brown, when to the press, the obviously embarrassed FEMA chief, and in fact the whole world he blurted out : "Brownie.....yer umm errrr doin' one heckuva job....", when what he really meant was "Jesus Christ this whole city smells 'o sh*t worse 'an a port-a-john atta west-Texas Chili where 's that damn Presidential Whirlygig??" We all make occasional slips of the tongue.

But in regards to said analyst's proclamation, my view is crystalline on this: it is linguistically impossible for a company revise down from previous forecasts (where the company, the consensus, and the analyst are on the same page) without it being "a surprise". Hindsight is one thing, but to say it wasn't "a surprise, well THAT'S cheating! For it becomes recursive: if it wasn't a surprise, then one needn't revise down because it would have been expected. Call me pedantic....

Thursday, October 20, 2005

Cassandra Does Tokyo???

Predicting the future is hard work and only for the most thick-skinned of sorts. Cassandra was, by most accounts of her time, one of the best, even if few heeded her prognostications. It is likely her reputation was only elevated ex-post. Irrespective, there are many pitfalls to exhorting prophecies. Like being wrong (causing a decline in one's credibility). Or being right (which Henry Louis Mencken discovered, can lead to a derisive erosion in one's popularity). Or being right at the wrong time (an occupational hazard particularly common amongst stock market strategists).

But why Japan? The simple and uninspiring answer is that many moons ago, fate conspired to acquaint me with the unusual world of Japanese securities markets. Combined with a tragically comical facility to mentally store, recall, and visualize historical price-series, company balance sheets and income statements as well as lots of other basically useless information (but unfortunately, not my wife's birthday or our anniversary!), this has led to a rather pathetic and boring professional existence that pays the bills, but provides scant conversational possibilities with those who are not aficionados of the arcane world of the Japanese Stock Market and the machinations and undulations of which it is composed.

This Blog will (hopefully) provide a cathartic release for sharing various market curiousities that I've observed, and my related musings. If I am lucky, it might also serve as a genuine forum to further my/our/your understanding of previously unexplored or otherwise inexplicable market phenomena. And if you're really lucky, one may find herein the possibility of gleaning insights that will enlighten you to previously unknown opportunity, or save you from potential losses.