> Stock Market Gambling: Turning on a Dime
> For years, when Stanley Mazor’s stock broker called him, he joked
> he was “talking with his bookie.” Is buying stock investing? Or is
> a speculation -- a bet? After 40 years of “investing” in stocks,
> decided to try “gambling.” He used a short term trading scheme
> “turning on a dime.” He bet on price wiggles, rather than trying
> spot a trend. Stan will describe his “gambling” strategy in a talk
> based on his new book, which is definitely not about investing.
> Stan Mazor has spoken previously to TASC on his French chateau
> project-- that used styrofoam blocks, about "clocks and culture",
> about his experiences as a computer chip designer.
> Stanley Mazor has published more than 50 papers on integrated
> chip design and computer architecture over the years, as well as
> written a book, A Guide to VHDL. He was awarded the Kyoto
> Ron Brown American Innovator Award, and the SIA Robert Noyce Award
> his work at Intel. He has also been inducted into the Inventor’s
> of Fame. What does a scientist/engineer know about gambling?
> book gives a perspective.
Stan began his talk by saying a few
words about investing. He said professionals would recommend that you
have much less of your stock invested internationally than he does.
However, the dollar has been going down and investing over seas makes
sense in that environment. He controls risk in his international
portfolio by only buying closed end mutual funds that pay dividends and
are Morning Star rated. He has had good luck with Aberdeen Australia
Fund, Asia Pacific Fund, Swiss Helvetica Fund, and some others. He has
had bad luck with New Ireland Fund and some others. Over all he is
ahead of where he would have been if he had invested in a standard
instrument like T-bills.
Then Stan explained that the rest of his talk would be about stock
market gambling. He explained that you would be a fool to try these
strategies if you really needed the money you were using. Sometimes
they win, and sometimes they lose. He got up on a high horse and
gestured. In a loud voice Stan declared "THIS IS GAMBLING!" and "YOU DO
IT AT YOUR OWN RISK!". Then he put away the slides of microscopic text
listing safe investments and brought out an easily read bell shaped bar
What Stan is looking for with the "turn on a dime" strategy is a boring
company with a reliable product in an established niche in the
marketplace. He used Ford as an example. They have been making cars for
many years. They will be making cars for many years. If you chart the
daily close over time the stock price looks like a bell curve, meaning
most of the time it hovers around $8/share, occasionally going down as
low as $6.80/share, and sometimes going as high as $9/share. The idea
is to buy when the price is at the low end of the spread, and sell when
it gets above the middle of the spread.
In engineering terms, his concept is to trade on the noise, not the
signal. Whatever Ford's stock is worth this week, they still sell cars.
It is reasonable to expect the same thing to be true next week as well.
We know that the price swings are often caused by news, but Stan
doesn't care about that. His strategy works when that stuff evens out,
which is often enough for his purposes. Stan warned us again that it is
easy to lose your shirt, so don't gamble in the market with money you
are going to need to eat and pay the bills.
Stan calls it "turning on a dime" because a $3/share stock value drifts
a dime when the stock price changes 3%. He showed us an example of a
Silicon Valley company he traded in. (One of his rules is don't invest
in Silicon Valley companies.) The stock fell. He bought some. The stock
fell. He bought more. The stock rose. He sold. The stock rose more. He
sold the rest. The net result: Stan pocketed some money and the stock
broker also got something. He warned us again that this doesn't always
work out that well. Sometimes the company goes bust. When that happens,
you loose your investment.
During Q&A a number of interesting things came up:
The most Stan has made in the past year is $90/share on a $50/share
stock. Sometimes it is difficult to say, because often he still has
money in something, so it's not clear how it will work out yet.
Other strategies he sometimes uses are commonly known as "weak sister"
strategies and "fallen angel" strategies. A weak sister strategy
involves buying a stock like the one that has fallen on news that fell
because people connected the two and sold both. A fallen angel strategy
involves investing money in a company that has fallen a lot because you
think it will rebound. He cautioned that he lost money on Delta
Airlines when it went bankrupt betting that it would rebound with that
kind of strategy.