ant, Geraldine, 6Fallacy:of aggregation, 63, 203of composition, 63ecological, 63–64of mobility, 201–202Fannie Mae, 146, 147Farley, Alan, 74Farrell, Robert, 125–129, 130“Fatal conceit,” 215FDA (Federal Drug Administration)approval process, 301–312Fear, 121–122
IndexFederal Reserve, 34, 35, 36, 359. See alsoGreenspan, AlanFeedback, 122Fels, Paul, 318Fessant, Alain, 267Festinger, Leon, 117–118Feynman, Richard, 264Fibonacci, Leonardo Pisano, 101Fidelity, 100, 143Financial health. See EarningspropagandaFine Art of Propaganda, The, 61–62, 102Finn, Jeremy D., 200Finney, Jack (Invasion of the BodySnatchers), 1, 2, 5, 13, 335, 362–365Fiorina, Carly, 137Fischer, Bobby, 286Fisher, Jeffrey D., 253Fisher, Kenneth L., 52, 54Fishing, lessons from, 352–358Ford Motor Co., 320Forecasters, new, 207–215Fosheim, Jon, 261Fowler, William Worthington, 130Franchise (Devil’s definition), 345Frankl, Viktor, 42Friction and heat dissipation, 276–277Fried, David, 318Friedman, Milton, 306Fruit of the Loom, 156Galbraith, John Kenneth, 220Galton, Francis, 187, 189, 341, 348Games. See Sports/gamesGates, Bill, 30, 294Gateway, 83, 142, 143Geico, 169Genentech, 142General Electric:earnings comparisons, 175executive hubris, 163, 164magazine cover indicator, 155meeting earnings expectations byselling a company (2002),337–338, 339reporting/accounting practices,28–29, 58, 66selected financial figures for 2001 and2000, 317Six Sigma, 190skyscraper indicator, 154
381
General Motors, 156Genomes, 35, 40George, Henry, 247, 248, 254, 255Getty, J. Paul, 294Gilder, George, 215Gillette, 146, 147Gilovich, Thomas, 80, 104GlaxoSmithKline, 163Glittering generality, 62, 102–103, 123Global Crossing, 39, 41, 325Global-Investor Book of Investing Rules,The: Invaluable Advice from 150Master Investors, 74Global Systems funds, 6Goldberg, Ray A., 301Goldcamp, James Cornelius, 347Golden Fleece Award, 122Goldman Sachs, 28, 100Goodrich, 320Goodwill (Devil’s definition), 345Gore, Al, 40, 41Gould, Jay, 292Graham, Benjamin, 16, 44–45, 69,165–172, 202mythical quality in personal life, 172Rea-Graham fund, 45, 169, 170,202value investing, 166–168Granville, Joseph, 73Greenspan, Alan, 18, 358–361hubris, 36“irrational exuberance,” 14–15, 24–25,26, 35, 40, 50, 259, 271, 357media and, 174–175memes and, 24, 32–34, 358–361real estate and, 259returning basketball shoes, 36World trade center attack meme,358–361Zeckhauser on, 33Green Street Advisors, 258, 261Groom, Winston, 45–46Gross, Bill, 322Gross, Ed, 139Grossman, Dan, 161–162Grove, Andy, 155Growth vs. value, 171, 172Grubman, Jack, 30Grubman, Richard, 66Grulon, Gustavo, 318Guaranteed Known Thing (GKT), 101
382 IndexHamel, Gary, 66Han, Jun, 251Hastie, Reed, 198Hayek, Friedrich, 215, 343Hays, Don, 90Head-and-shoulders, 94, 95–97Henry, John W., 102Heyne, Paul, 12, 33, 281–282Hill, Henry, 17, 230–231Hitchings, George, 306Hochberg, Yusef, 200Hoffman, Alan, 230Hogan, Marty, 282Home Run Indicator, 236–239. See alsoBaseballHoodoo Man, 355–356Hovland, Carl, 121Hoyt, Homer, 254HSBC Holdings, 163Huberman, Gur, 229Hubris, 15–16, 133–164arrogance of power, 133–134Boastful 13, 142–146celebrity and, 147–148, 162–163chutzpa, 140–141“did you summit?,” 139–140examples, 36, 137–139executives’ telling stories analysts wantto hear, 136–137vs. humility, 146–149magazine cover indicator, 154–155meme, 363performance study, 142–147quantifying effects of, 142–146skyscraper indicator, 149–154stadium indicator, 155–156, 158Hughes, Sara, 339Hulbert, Mark (Hulbert Digest), 224,277–278, 318Human Genome Sciences, 142, 143Humble companies, 146, 148–149Hunt’s Merchant’s Magazine, 361–362Hussman, John, 129Huxley, Thomas Henry, 173IBM, 66, 137–138, 153, 338Icarus, 135–136Icons, explanation of (five broadthemes), 19–20count/count/count (pencil/envelope),19
ever-changing cycles (racehorse), 20law of ever-changing cycles (Bacon),20propaganda (Mr. Moneybags), 19spurious correlations (pair of storks),20untested propositions (wizard’s hat),19Idea transfers, 266–267Idec Pharmaceuticals, 142Idenberry, David, 318“If ” (Kipling), 7–8Illusion of control, 58–59Illusion of validity, 58Induction (element of scientific method),118Information:asymmetrical, 308–309incremental, 228value of, in bargaining, 297–298Insider buying, 309, 310Institute of Propaganda Analysis, 61–62,102Intel, 84, 155Interest rates (Devil’s definition), 345Internet Capital Group, 69Invasion of the Body Snatchers (Finney), 1,2, 5, 13, 335, 362–365Inventory and accounts receivable, 57,315, 329–332, 334, 336Investing Rules, 111Invisible hand, 168, 265IPO (initial public offering):Devil’s definition, 346source of money for, 273–274“Irrational exuberance,” 4, 14–15, 24–25,26, 35, 40, 50, 259, 271, 357Isidore, Chris, 156Jackson, Stonewall, 99Jackson, Thomas Penfield, 35, 40, 41James, Bill, 240–241Janus, 100Jenks, Philip, 74Johnson & Johnson, 83–84Kahneman, Daniel, 84, 88, 104Kaiser, Ronald, 252–253, 254, 260–261Kandel, Shmuel, 229Kane, Gordon, 263Kant, Immanuel, 20, 199
IndexKaplan, Robert S., 229Keech, Marian, 117Keeley, Steven “Hobo,” 282, 297Kelman, Herbert, 121Kenner, John, 249Kimberly-Clark, 146, 147Kipling, Rudyard (“If”), 7–8Kira Equation, 263–264, 269–271KKR, 162Kmart, 162Knight, Martin, 349Know Sure Thing (KST) indicator, 101Kohn, Ken, 27Kondratief (Devil’s definition), 346Koresh, David, 121Kozlowski, Dennis, 39KPMG Consulting, 143Kreicas, Leonard, 278Kroger, 146, 147Kroll, Stanley, 91Krugman, Paul, 154Kuhn, Thomas, 15, 264, 265Lackey, James, 100, 351–352Lakonishok, Josef, 318Lamberg, John, 90, 100–101, 352–354Lambert, Johann Heinrich, 101Lambert, John, 94Lasagna, Louis, 306Lay, Kenneth, 137, 154, 164, 309Least squares regression analysis, 197,222Lebrecht, Norman, 297Leeds, Larry, 64–65Leibovich, Mark, 138–139Lenin, 29Levitt, Arthur, 28, 338Levy, Haim, 55Lewellen, Jonathan, 82Lewinsky, Monica, 27Lewis, Michael, 141Liang, Youguo, 251, 254Lies, 173, 175–176, 338Limit orders, 275Linux (Devil’s definition), 346LitWick.com, 86Lloyds of London, 150Lo, Andrew, 333Lockheed Martin, 146Lockup expiration (Devil’s definition),346
383
Loews Corporation, 37London Business School, 207, 208Longman, Roger, 303Long-Term Capital Management, 6, 28,142Loomis, Carol, 28, 338Lorie, Jim, 304–305, 306Lowe, Janet, 168LTV, 136Lucent, 83, 134, 137, 138, 142–144, 163Lutzius, John, 261–262Magazine cover indicator, 154–155Magic T formula, 72Malone, Michael S., 307Malzer, Ron, 198–199Mankiw, N. Gregory, 297Market experiments vs. market feel,264–267Market Facilitation Index, 103Market makers, 100Market News-O-Matic, 176–179Market orders, 275Market Technicians Association, 72, 75Market thermodynamics, 17, 263–279law of conservation of energy,268–274variation 1: the Kira equation,263–264, 268–270variation 2: disappearing money,270–272variation 3: where does money forIPOs come from, 272–273variation 4: transformation ofenergy, 274law of entropy, 275–279variation 1: maximization oftransfers, 275–276variation 2: friction and heatdissipation, 276–277variation 3: sector rotation andmaximum entropy production,277–278market experiments vs. market feel,264–267money as energy, 267–268Markman, Jon, 259, 295Marsh, Paul. See Triumph of the Optimists(Dimson, Marsh, and Staunton)Marshall, Alfred, 168Martin, Alix, 208–209, 213, 214
384 IndexMcLane, Drayton, 155McNabb, Mark M., 347, 352–354Mean reversion, 77Media/news stories, 16, 173–179harmfulness of, 175–176headlines inducing fearfulness/hysteria, 1–4“hide-and-seek escalation” (corporateearnings propaganda), 65–66hubris stories, 135Market News-O-Matic example,176–179National Enquirer, 135Medimmune, 142Meditz, Al, 242Meeker, Mary, 30Meir, Golda, 146Melcher, Jamie, 290Memes, 14–15, 23–42defined, 31–32examples, 31, 36, 311, 358–361timeline (1996–2002), 40–411996, 23–251997, 25–271998, 27–281999, 28–312000, 31–362001, 36–382002, 38–39Mendeleyev, Dmitri Ivanovich, 217, 220Merrill Lynch, 67–69, 125, 259Mewborn, C. Ronald, 121Meyer, Julius Lothar, 217Meyers, Thomas, 91Michaely, Roni, 318Microsoft:antitrust suit, 27, 35, 40, 41shares, 26, 27, 30, 84Mitchell, William J., 149, 150–151Mitsuda, Shui, 88Mobility, fallacy of, 201–202Momentum pendulum, 81–82, 85Momentum play (Devil’s definition), 346Money as energy. See MarketthermodynamicsMotorola, 329–339Munger, Charlie, 38, 167Murphy, John, 74Murphy’s Law and Market Anomalies,82Muthoo, Abhinay, 296
Nalebuff, Barry, 81Name calling, 62, 102, 123NASA (Internet traffic record), 26Nasdaq bubble, 359National Association of Real EstateInvestment Trusts (NAREIT),250–251, 252, 253National Enquirer, 135Negative correlation, 46Negotiating. See BargainingNewbegin, John, 149Newlands, John A. R., 221New York Stock Exchange (NYSE):baseball’s timeline and, 243–245number/value of seats, 276Nicolson, Harold, 136Niederhoffer, Arthur, 8, 12, 15–16, 141,339Niederhoffer, Galt, 164Niederhoffer, Katie, 166–167Niederhoffer, Kira, 17, 301–302Nison, Steve, 85, 89–90Nock, Albert Jay, 30–31Nortel, 138Novell, 83Nucor, 146, 147Number Cruncher Statistical System,190Nvidia Corporation, 329–330Observation (element of scientificmethod), 118O’glove, Thornton L., 58Ogukuo Nirrus, 146Olympics scandal, 339Omega, 28Omission, error of (missing thirdvariable), 200–201Oracle, 164Orders, types of (and energy forms),275Orlowski, Andrew, 359Osborne, M. F. M., 285Osborne Computer, 136O’Shaughnessy, James P., 202Osler, Carol, 95–96Outside magazine, 139Packard Motor Car, 136Park, Robert L., 104Parker, Jerry, 102
IndexParticle finance, 267Pataki, George, 245Pathak, Bipin, 184Pearson Product Moment correlationcoefficient, 196–198Pendulum, momentum, 81–82, 85Penny stocks (Devil’s definition), 346PepsiCo, 156Periodic table of investing. See ValueLine classification system for stocksPerkinElmer, Inc., 83Peter, Laurence J., 220Philip Morris, 147Phrenology (Devil’s definition), 346Physical laws. See MarketthermodynamicsPiel, Gerard, 217Pitney Bowes, 146, 147Plain folks, 62, 103, 123Pooling of interest accounting, 157Pope, Alexander, 34Portfolio (Devil’s definition), 346Powergen plc, 163Priceline.com, 142, 144PricewaterhouseCoopers study, 258Primitivism, 359–361Princeton Review technique, 105–107Pring, Martin, 101Profits, taking, 290Propaganda. See also Earningspropaganda:in Abelson columns, 122–125headlines and, 3–4icon (Mr. Moneybags), 19Institute of Propaganda Analysis,61–62, 102scientific method as antidote, 4 (seealso Science/scientific method)in technical analysis, 101–105techniques (seven basic):bandwagon, 62, 103, 123card stacking, 62, 103, 123, 175glittering generality, 62, 102–103,123name calling, 62, 102, 123plain folks, 62, 103, 123testimonial, 62, 102, 123transfer, 62, 103Proxmire, William, 122PSINet, 156Puzo, Mario, 43, 45, 79–80
385
Qlogic, 142Qualcomm, 156Quantum, 28Qwest Communications, 320–321Rally (Devil’s definition), 346Randomness:error of, 199–200vs. predictability (of stock market),350Rational Software, 144Rea-Graham fund, 45, 169, 170, 202Real estate, 17, 247–262bearish call, and response, 256–260business cycles, stocks, and, 253–256promoting REITs, 249–251REITs vs. stocks, 251–253shifting ground, 261–262tax benefits, 249untimely optimism, 260–261warning signs, 258Recency effect, 260Regression analysis, 47, 197, 222Reinganum, Marc, 76Replicating entity. See MemesReserves/storehouse, 57Restructuring charges, 56Returns, future, 17, 205–216controversy over, 214–215forecasters, new, 207–215second opinion, 215–216variations for improving, 2081: a stumble, a skip, and a jump,209–2112: lucky 5, 211–2133: limits of leverage, 213–214Reversing, 288Ricardo, David, 248, 254Risk, 12–13, 283, 358Ritter, Larry, 236RJR Nabisco, 162, 163Robinson, Adam, 106Rogers, Ronald W., 121Roll, Richard W., 161Rooney, Brian, 30Rosenberg, Joe, 128Round numbers, 299Rubin, Robert, 37Ruff, Howard, 120Russell, Dick, 126Russia, 27, 29, 126
386 IndexSaad, Hany, 81, 92–93Sales activities, timing, 56Sanford, Charles, 267Savvis Communications, 156Scatter diagrams, 14, 189–193and correlations (see Correlations)creating, 190–193enhancing, showing path of a timeseries, 198examples, 47, 48, 49, 52, 54, 78, 79uses of, 46, 51, 189, 197, 198Scharack, Frederick C., 207–208Scheling, Thomas C., 296Schilit, Howard, 58Schwabacher, Patricia K., 319Schwager, Jack, 73Schwartz, Martin “Buzzy,” 72Schwinn, 136Science/scientific method, 4, 107, 118,205, 264–267Scott Paper, 142, 163Sears, Richard, 214–215Sector rotation, 277–278Self-correcting mechanisms, 122–123Shell, Richard, 292–293Sherden, William A., 229Shermer, Michael, 125, 130Shiller, Robert, 35, 37, 41, 50–53, 59–60Siebel Systems, 164Siegel, Jeremy, 27Siegelman, Jim, 121Signals required before buying (threesignal monte), 336–339Silicon Investor Web site, 67Sills, Steven, 45Simon, David, 108Simon, Julian, 349–350Simonton, Dean Keith, 351Siskind, Don, 150Six Sigma, 190Skilling, Jeffrey, 4, 66Skyscraper indicator, 149–154Slovic, Paul, 84, 88Smith, Adam, 33, 168, 265Smith, Gary, 81Smithers, Andrew, 128Sobel, Robert, 136Soros, George, 6, 32, 35, 103, 294, 342,356SpecList, 348Spence, Michael, 308
Spencer, Herbert, 268Spitzer, Eliot, 68–69, 314Sports/games:baseball and the stock market (seeBaseball)board games and deception, 99chess, 88, 99, 148, 181–185, 286,361fishing, lessons from, 352–358hunting for humble executives likesports figures examples, 146streaks, 79–81survival principle in chess, 181–185tennis (see Tennis/racquet sports,practical market lessons from)Sprint, 66, 142, 144Stadium indicator, 155–156, 158Standard & Poor’s (S&P):core earnings measure, 57–58S&P 500 membership, and real estate,258–259Staricka, Don (Devil’s Stock MarketDictionary), excerpts, 345–346Statman, Meir, 52, 54Staunton, Mike. See Triumph of theOptimists (Dimson, Marsh, andStaunton)Steenbarger, Brett:cane award to, 344–345children, 345, 355on ever-changing cycles, 350–351on illusion of control, 58–59on memes, 365–366on music and stock market, 344on source of market triumphs, 205on SpecList, 347–348on TRIN, 90, 111–113Stewart, Martha, 142, 143, 162Stigler, George, 298, 305Stigler, Steve, 19, 201, 298Stiglitz, Joseph, 249, 308Stochastic calculus, 60Stock buybacks, 315, 317–319, 336, 337Stock market:best/worst stocks of 2000, 83century as time frame, 2–3, 4, 17,206classification system (see Value Lineclassification system for stocks)disconnected facts about, 219exchange seats (number/value), 276
Indexhumorous definitions (excerptsStaricka’s Devil’s Stock MarketDictionary), 345–346last time down three years in a row, 4list of things commonly thought todirectly/inversely influence,187–188predictability vs. randomness of, 350predictive connection, stocks andbonds, 269–270relations known about stocks,219–220Wall Street analysts, 30, 67–69Stock options, 57Stop loss (Devil’s definition), 346Storehouse (relying on reserves), 57Storks, 199, 200, 201Streaks, 79–81, 85Super Bowl Indicator, 200, 237Supply and demand (Devil’s definition),346Survival principle, 181–185Survivorship bias (value stocks), 202Swing system, 109Sympathy (Devil’s definition), 346Taking profits, 290Tamhane, Ajit, 200Tannous, Charbel, 267Tax(es):accounting, 326corporate taxpayers (lowest/highest),327, 328as earnings quality indicator, 315,326–329real estate benefits, 249Taylor, James, 10–11Taylor, Louis W., 260Technical analysis, 15, 71–113candlestick patterns, 85–90deception and, 98–101error of randomness, 199–200head-and-shoulders pattern, 93–97humorous definition of, 346indicators (testing/using), 341,342–343momentum pendulum, 81–82, 85pendulum vs. streak, 85persistence of belief in, 105Princeton Review technique, 105–107propaganda aspects of, 101–105
387
streaks in sports, 79–81trend following, 74–79, 82–85TRIN, 90–92, 111–113VIX indicator, 107–110volume, 92–93Tellabs, 329Tennis/racquet sports, practical marketlessons from, 17–18, 70, 281–290before the game, 282–285deciding how much risk you willtake, 283having backup equipment, 284–285having a game plan, 28