> Stanley Mazor                                                                            
> Stock Market Gambling: Turning on a Dime
> For years, when Stanley Mazor’s stock broker called him, he joked that
> he was “talking with his bookie.” Is buying stock investing? Or is it
> a speculation -- a bet? After 40 years of “investing” in stocks, Stan
> decided to try “gambling.” He used a short term trading scheme called
> “turning on a dime.” He bet on price wiggles, rather than trying to
> 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", and
> about his experiences as a computer chip designer.
> Stanley Mazor has published more than 50 papers on integrated circuit
> chip design and computer architecture over the years, as well as
> written a book, A Guide to VHDL.  He was awarded the Kyoto Prize, the
> Ron Brown American Innovator Award, and the SIA Robert Noyce Award for
> his work at Intel. He has also been inducted into the Inventor’s Hall
> of Fame.  What does a scientist/engineer know about gambling? His new
> 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 graph.

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.

Tian Harter