Copyright © 2014 by Nicholas Atkeson and Andrew Houghton All rights reserved Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher ISBN: 978-0-07-181291-7 MHID: 0-07-181291-1 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-181290-0, MHID: 0-07-181290-3 E-book conversion by codeMantra Version 2.0 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill Education books are available at special quantity discounts to use as premiums and sales promotions or for use in corporate training programs To contact a representative, please visit the Contact Us page at www.mhprofessional.com This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, securities trading, or other professional services If legal advice or other expert assistance is required, the services of a competent professional person should be sought —From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations TERMS OF USE This is a copyrighted work and McGraw-Hill Education and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill Education’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL EDUCATION AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill Education and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill Education nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill Education has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill Education and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise To Shawn for his incredible generosity and support over the years and To C.J for hiring us as stock jocks Contents Foreword by Charles Githler Our Offer to You Introduction Authors’ Note Part One: Streaks and Investing CHAPTER ONE The Story of Sonny CHAPTER TWO The Nature of Streaks CHAPTER THREE Why Should We Invest? CHAPTER FOUR The Story of Mr M CHAPTER FIVE Building Blocks a Money “M” b The Cost of Money: Interest c Gold d Bonds e Stocks f Confidence in Stocks CHAPTER SIX The Story of Modern Finance Theory a Investing 101 b History of Financial Theory c Random and Efficient d Normal Distribution e Correlation and Modern Portfolio Theory f Capital Asset Pricing Model g The Market Portfolio h Portfolio Optimization i Conclusions CHAPTER SEVEN The Story of Mike CHAPTER EIGHT Style a Technical, Fundamental, and Quants b Stocks, Bonds, and Options CHAPTER NINE Your Brain on Stocks CHAPTER TEN Observations from the Trading Floor of an Investment Bank a The Sell-Side Analyst Conundrum and How Earnings Momentum Can Be Predictable b Institutional Stock Buyers c Cross-Asset Class Price Manipulation d Information Distortions e Investment Period End Markups and Markdowns f Unequal Information Distribution g The Institutional Stock Marketing Process h The Insider and Private Equity Information Advantage i Trade What Is Versus What You Want It to Be CHAPTER ELEVEN Risk CHAPTER TWELVE A History of Mutual Funds and the Story of Jeffrey Vinik CHAPTER THIRTEEN Paradigm Shift a Shift One: The Buy-and-Hold Era b Shift Two: The Return of Active Management CHAPTER FOURTEEN The Story of Neil Peplinski and Good Harbor CHAPTER FIFTEEN What Is Tactical Investing? CHAPTER SIXTEEN The Story of Vinay Munikoti Part Two: Applying a Tactical Trading Discipline to Profit from Investable Equity Market Trends CHAPTER SEVENTEEN Capturing the Ups and Missing the Downs: Five Steps Step 1: When to Buy and Sell: Learn to Identify Bullish and Bearish Markets Step 2: What to Buy When the Market Is Bullish Step 3: What to Own During Bearish Periods Step 4: Take the Emotion Out of Your Investment Strategy Step 5: Start Today CHAPTER EIGHTEEN Do Enough to Make a Difference CHAPTER NINETEEN Knowing If It Works: Attribution Analysis CHAPTER TWENTY Seeing the Forest for the Fees CHAPTER TWENTY-ONE Parting Shot Sources Index Foreword AS COFOUNDER and chairman emeritus of the MoneyShow, the largest self-directed investor conference series in the world, I have spent the past 35 years helping individual investors find winning investment strategies During these four decades, I have often been frustrated that the retail investment industry for the most part has provided cookie-cutter-type advice involving allocating your hard-won savings into standardized mass-market investment products that are ill suited to handle rapidly changing market conditions Unfortunately, many of you have been poorly served by your financial advisors There is an awakening going on caused by the lack of stock market appreciation over the last 12 years and the shock of a more than 50 percent stock market crash in 2007–2009 Your retirement savings, your children’s education funds, and your overall wealth have not advanced in more than a decade Something is wrong What financial advisors have been preaching is not working It turns out that what seems wrong is actually quite normal when you look at long-term stock market “supercycles.” Over the last 112 years of the Dow Jones Industrial Average, there have been four periods of 17 to 25 years in which the market has shown no meaningful appreciation and experienced high volatility When I first met Nick and Andrew, they were speakers on a panel discussion, talking about asset allocation in the new investment environment at the World MoneyShow in Orlando I have moderated hundreds of these panel discussions, and virtually all the advice provided to investors comes down to grin and bear it during the hard times in the stock market When I heard stock managers Nick and Andrew say without hesitation that there are times when you should not own any stocks, I nearly fell out of my chair Finally, someone was stating the obvious Here were advisors focused not just on fee collection but on absolute returns I could not wait to hear what they had to say next What Nick and Andrew show you in this book is how to take a completely different approach to investing They show you how to look at the investment world from the standpoint of “how much money might I lose?” rather than “how much money might I make?” By protecting your capital first, you will learn how to make a fortune Chasing return often leads to the poorhouse, whereas protecting capital is Warren Buffett’s first and second rule of investing They explain the importance of evaluating and measuring risk when investing Risk, rather than return, is the important metric The first reason why risk is so important is basic math Positive and negative returns are not symmetric If you lose 50 percent of your portfolio, you have to have appreciation of 100 percent to get back to breakeven Too many of us are spending the bulk of our investment years just trying to get back to where we were years ago Second, changes in perceptions of risk are an important driver of stock prices in the short and intermediate term rather than expected return (company earnings) Although earnings move up and down, they hardly budge relative to the radical short-term movements in perceived risk In 2008, the CBOE market volatility index (VIX)—considered a measure of perceived market risk—jumped from the midteens to 89.53, a climb of almost 500 percent in a few months The jump in risk perceptions during the late summer of 2008 gave us the worst market collapse since the Great Depression Rising risk perceptions are horrible for markets if you are looking for appreciation Falling risk perceptions make for bullish markets The purpose of this book is to (1) teach you what market metrics are really important when it comes to building wealth, (2) give you the tools to measure these important metrics, and (3) provide you with a disciplined system for knowing when to buy, what to buy, and when to sell In short, Nick and Andrew take the myth and emotion out of investing and replace it with a proven, disciplined method of building and protecting wealth This book provides you with the tools to actively manage your portfolio in a nontrending market and, for that matter, any market Unlike the famous manager of the Fidelity Magellan Fund, Peter Lynch, who talks about “investing in what you know,” this book is much more focused on when you invest than on what you invest in when it comes to stocks It is not necessary to be an expert in a company to find winning stocks The market will let you know who the winners are All you have to is know when to own them and, most important, when to sell them Benjamin Graham’s book Security Analysis on value investing is in its fourth edition Once again, value investing requires the investor to perform a significant amount of research into individual companies that may not offer a real edge in today’s information economy and high-frequency computer-controlled trading and index-fund-driven stock market The focus of this book is not on individual companies but on stocks in the aggregate Although a company may be great, it may simultaneously be a lousy stock Much more important than the action of a single stock is the action of the overall market When you are investing, you want the wind at your back You are much more likely to own a winning stock if the market is moving higher in the aggregate than you are if the market is depreciating If Nick and Andrew were talking only about the theory of investing, their message would not have much impact What really jumps out is that they are speaking from the experience of having created long-term, audited real-world results After you read this book, your approach to investing will be changed forever If you are looking for straightforward, actionable guidance on how to stay out of major down markets and participate in major up markets, you have found the right book Mark Twain once wrote, “October This is one of the peculiarly dangerous months to speculate in stocks The others are July, January, September, April, November, May, March, June, December, August, and February.” Your investment success depends on migrating your investment approach away from buy and hope to a proactive program of staying out of major down markets and participating in major up markets CHARLES GITHLER Markdowns, investment period end, 125–126 Market, stock (See Stock market) Market capitalization (market cap), 46 Market portfolio, 85–86 Market sentiment (See Investor sentiment) Market timing: arguments against, 115–118 The Delta Wealth Accelerator, xvi examples of, 85, 136 financial advisor’s reluctance, 212 hedge funds, 161 paradigm shift to, 160–164 risk management, 142–144 Vinik’s approach, 152–154 (See also Capturing ups and missing downs; Moving average crossover (MAC) model) Market volatility: buy-and-hold approach, 56 CBOE market volatility index (VIX), xii portfolio volatility and, 205–207 up- vs down-market volatility, 226 Marketing, 127–128 Markowitz, Harry, 61, 71, 79, 83, 155 Markups, investment period end, 125–126 Massachusetts Investors Trust, 149 Mean, in normal distribution, 69, 70, 73, 74 Medallion Fund, 91 Medicare, 22 Merrill Lynch, 101 Merton, Robert C., 70, 71 Metrics, xii Microsoft (MSFT), 16 Mid-cap stocks, 46 “Mike” the broker, 93–104 Milken, Michael, 52 Miller, Bill, 228–229 Modern finance theory, 55–92 active management, 56 buy-and-hold approach, 55–56, 87–89 capital asset pricing model (CAPM), 83–85 correlation and modern portfolio theory, 79–83 efficiency, 63–66 efficient market hypothesis, 63–66 fee impact, 56 history of financial theory, 60–63 investing basics, 57–59 market portfolio, 85–86 normal distribution, 66–78 passive management, 55–56 portfolio optimization, 86–87 predictability of stock prices, 55–56, 87, 90 randomness, 63–66, 69 risk perceptions, 169 Modern portfolio theory (MPT), 79–83, 141–142 Momentum: earnings, 120–122 indicators, 188 streaks, 16 Momentum investing, 121–122 Momentum market, bond market as, 43 Monetary policy, 34, 36, 38 Money, 33–36 cost of (interest), 36–38 Federal Reserve monetary policy, 34 liquidity, 33–34 M designations for, 33–34 market sentiment, 36 multiplier, 34–35 origins of U.S dollars, 33 supply, 34–35, 36 takeaways, 36 U.S credit crisis (2007–2009), 34, 35, 36 velocity of, 34–35 Money multiplier, 34–35 Money supply, 34–35, 36 MoneyShow, xi Monte Carlo simulation, 86–87 Montgomery Securities, xviii–xix, 109 Moria, J P., 53 Morningstar, 116 Motorola, 167, 168–169 Moving average crossover (MAC) model: effectiveness of, 197–202 “Mike’s” use of, 97, 100–101 portfolio volatility and, 206–207 Moving averages, 213 Municipal bonds, 145 Munikoti, Vinay, 185–190 Mutual funds: asset holdings, 150, 151, 158–159 expense ratios, 234 fees, 232–234 history of, 149–150 management strategies, 157–159 market timing decisions, 116 performance of, 159 purchase during bull markets, 205 style boxes, 159 target-date, 220–221 watching stock movements of, 122–124 N Nasdaq, dot.com bubble (2000-2002), xix, 18, 50, 180 NationsBank, xix The New Market Wizards (Schwager), 110 Newhard Cook & Co Inc., 96 Newman, Alan, 160 New York Times, 17 “Nifty fifty,” 100 Nobel Prize in Economics, 60, 63, 70, 71, 90 Nokia (NOK), 16 Normal distribution, modern finance theory, 66–78 O Oakland A’s baseball winning streak, 18–19 Observations from investment bank trading floor, 119–134 cross-asset class price manipulation, 124–125 information distortions, 125 insider and private equity information advantage, 128–131 institutional stock buyers, 122–124 institutional stock marketing process, 127–128 investment period end markups and markdowns, 125–126 sell-side analyst conundrum, 120–122 trade what is vs what you want it to be, 132–133 unequal information distribution, 126–127 October 1987 crash, 17, 18, 69–70, 72 October 1997 Asian currency crash, 72 Odds, “Sonny” the high-roller, 3–12 O’Leary, David, 123 Olsen, Ken, 178 O’Neil, William, 98, 203 Open option contracts and stock prices, 77–78 Options: institutional investor specialists, 109–110 pricing, 63 trading, 77–78, 124–125 Outlier events, 74–75 Outliers (Gladwell), 136 Outperformance, 225–226 P Panics, 73 Paradigm shifts, 155–164 to active management, 160–164 to buy-and-hold approach, 155–160 Passive management, 55–56 P/E (price/earnings) ratio, 46, 48–49, 196–197 Pensions, 21, 22 Peplinski, Neil, 165–176 Perceptions of risk (See Risk perceptions) “The Performance of Mutual Funds in the Period of 1945-1964” (Jensen), 62 PIMCO, 56, 89, 90, 161–162 Poker, 109–110 Ponzi scheme, Madoff’s, 51 Portfolio managers, 125, 158, 160 “Portfolio Selection” (Markowitz), 61, 83 Portfolios: allocation, 217–221, 224 market portfolio, 85–86 modern portfolio theory (MPT), 79–83 optimization, 86–87 risk, 83–84 volatility, 205–207 Position, and taking action on positive or negative steaks, 19 Positive streaks, 11, 19 Post-earnings-announcement drift, 122 Predictability of stock prices, 55–56, 87, 90 Price, stock (See Stock prices) Price/earnings (P/E) ratio, 46, 48–49, 196–197 Princeton University endowment fund, 212 Private equity investors, 128–131 Probability: conditional, 16, 74 forecasts using, 180 modern finance theory, 66–78 “Sonny” the high-roller, 3–12 Profits: adjusted after-tax corporate profits as percentage of GDP, 46, 47 as institutional focus, xx Project investing, vs stock market investing, 58–59 “Proof That Properly Anticipated Prices Fluctuate Randomly” (Samuelson), 62, 63 Public sector retirement benefits, 22–23 Put orders, 69, 70, 78 Q Quantitative analysis (quants): computers and, 107–108 definition of, 105 “Mike’s” use, 103 Vinay Munikoti’s use, 185–187, 188 risk measurement, 197 sports, 19 Quantitative easing, 36, 38 “Quit with the win,” (See also Capturing ups and missing downs) R Rajaratnam, Raj, 52 Random distribution model, 69 Randomness: modern finance theory, 63–66, 69 Monte Carlo simulation, 86 nature of streaks, 13–14, 20 throwing darts at stock pages, 99 Real estate, 25–31, 58–59 Reasons to invest, 21–23 Rebalancing, portfolio, 219–221 Recessions: Great Recession, 51, 116, 117 stock and bond returns during, 208–209 Redemption fees, 233 Relative strength stocks: bull market holdings, 203–205, 214, 226 “Mike’s” strategy, 97, 98–99, 101, 103–104 mutual funds, 122 outperformance, 207 Renaissance Technologies, 91 Research Affiliates, 220 Retail investors, 108–109 Retirement: age of, 23 as reason to invest, 21, 22 Returns: bonds, 42, 43, 208–209 bull market (1982-2000), 88–89 buy-and-hold approach (2000–2012), 88 real, vs GDP, 89–90 risk-adjusted returns, 225 stocks, 49, 208–209 (See also Capturing ups and missing downs) “Rim,” gambling, 7–8 Risk, 135–147 bonds, 43, 44–45, 144–145 capital asset pricing model, 83–85 correlation and, 79 counterparty risk, 44–45 as crucial metric, xii diversification to reduce, 81–83 insurance against, 146–147 interest, 37–38 management of (See Risk management) measurement of, 197 Monte Carlo simulation, 86–87 nature of, 135 perceptions of (See Risk perceptions) Sharpe on downside, 84–85 stock-specific, and diversification, xv stocks, 48, 50, 135–144 systematic risk, 83 tail risk, 73 time and, 57 unsystematic risk, 83 U.S Treasuries, 41–42 Risk-adjusted returns, 225 Risk management: avoiding losses, 103 gambling, investment horizon and, 84 market timing and, 142 modern portfolio theory, 79–83 retail investors, 108 systems for, 144 tactical investing and, 209 Risk-on/risk-off trade, 164 Risk perceptions: bull markets and, xii emotions and, 114–115 market sentiment and, 35 measurement of, 168–169, 172–173, 188, 196, 240 stock market entry and, 196 volatility of, 202 Risk premium, equity: definition of, 43 in equity market, 185, 239 stock prices and, 90, 107, 197 volatility and, 196 Rogue traders, 52 Rydex SGI, 217–218 S Sage, Russell, 53 Samuelson, Paul A., 56, 62, 63, 71–72, 132–133, 155, 203 Sarbanes-Oxley Act of 2002, 51 Scandals in corporate accounting, 51 Scholes, Myron, 70 Securities and Exchange Commission (SEC), 53, 156 Security Analysis (Graham), xiii, 60 Self-directed investors, 231 Sell-offs, 139 Sell-side institutional investment banks, trends, xix (See also Observations from investment bank trading floor) Sentiment (See Investor sentiment) Separately managed accounts (SMAs), 234, 235–236 September 11, 2001, terrorist attacks, 50–51 September 1998 LTCM hedge fund collapse, 70–71, 72 Sharpe, William F., 61–62, 83, 84–85, 155 Shiller, Robert, 48, 115 Short sales, 123–124, 209–210 Short squeeze, 124, 209–210 Short-term market dynamics, real estate, 25–31 Short-term market indicators, 178–179 Short-term profit, as institutional focus, xx Short-term trading, price of, 182 Siegel, Jeremy, 88–89 Sigma, normal distribution, 68, 69, 72 Simon, James, 91 Singer, Dean & Scribner, 94 Single stock, vs aggregate stock market investing, xiii Small-cap stocks, 46 SMAs (separately managed accounts), 234, 235–236 Smith Barney, 101 Social Security benefits, 21–22 “Sonny” the high-roller, 3–12 S&P 500: average daily return, 1950–2012, 74 buy-and-hold approach impact, 156 correlation with various world equity markets, 81 credit crisis (2007–2009), 51, 160 daily advance/decline reading, 73 normal distribution, 72 recoveries after decline, 136 stocks earnings, 49 Vanguard 500 Index Funds, 56 S&P 500 SPDR (SPY), 160 Sports, winning streaks, 18–19 Standard deviation, 68–69, 72 Stanford, Allen, 51 Stanford University endowment fund, 212 Stanley, H Eugene, 108 Star traders, 90 Status quo bias, 210 Stock market: aggregate vs single stock investing, xiii appreciation, xvii, 137–139 bear market (See Bear markets) bull market (See Bull markets) charting, 98–99 efficiency, 90 historic view of performance, 52–53 interconnected financial markets, 76 major downside events, 72–73 movements in, 38, 61–62, 66 (See also Market volatility) predictability, 90 September 11, 2001, terrorist attacks, 50–51 size of U.S., 52 “supercycles,” xi, xii, xv, 137 volume, and computer trading, 75 when to invest in, 196 Stock Market Crash (1929), 53 Stock prices: in bear markets, 48, 50 discounted cash flow, 48 earnings and, 45, 46, 196–197 earnings/price ratio, 48–49 efficient market hypothesis, 63–66 investor sentiment and, 48, 49 normal distribution, 66–78 open option contracts and, 77–78 perceived risk and, xii predictability of, 55–56, 87, 90 price/earnings (P/E), 46, 48–49 as random, 14 Stock quotes, 162–163 Stock recalls, 123 Stock-specific risk, and diversification, xv Stocks, 45–53 adjusted after-tax corporate profits as percentage of GDP, 46, 47 confidence in, 50–53 described, 45 discounting, 46 earnings and dividends, 45, 46 holding period, 163 institutional investors, 109–110 investor sentiment, 48 market capitalization (market cap), 46 portfolio allocations, 217–221 returns, 49, 208–209 risk, 48, 50 S&P 500 earnings yield, 49 trends, 50 types of, 45–46 volatility, 45, 48, 49, 50, 221 (See also Stock market) Stocks for the Long Run (Siegel), 88–89 Streaks, 3–20 buy-and-hold approach vs., 13 conditional probabilities, 16 emotions, 16–18 Darrell Green’s football winning streak, 19 momentum, 16 Oakland A’s baseball winning streak, 18–19 position and actions, 19 randomness, 13–14, 20, 69 “Sonny” the high-roller, 3–12 trade recommendations, 14–15 waves and surfing analogy, 13–14 winning streak, 18–19 Style boxes, 159 Style of investing, 105–111 Subprime mortgage crisis (2007), 43, 180 “Supercycles,” xi, xii, xv, 137 Surfing analogy, streaks, 13–14 Susquehanna, xix–xx, 109–110 Systematic risk, 83 Systems, trading behavior, 103 T Tactical investing, 177–238 advantages and disadvantages of, 240 asset allocation decisions, 180–181 of Warren Buffett, 223–224 capturing ups and missing downs, 193–216 definition of, 177 disadvantages of, 181–183 evaluation of results, 223–230 evidence for, 212 fees and expenses, 231–238 forecasting methods, 178–180 of Vinay Munikoti, 185–190 objectives of, 177–178 portfolio allocation for, 217–222 tactical asset manager selection, 181–182 tips, 183 Tail risk, 73 Target-date mutual funds, 220–221 Tavdy, David, 52 Tax issues, 183 Tech bubble (2000–2002), xix, 18, 50, 160, 180 Technical analysis, 105–107 Theoretical win percentage formula (Theo), casino, 6–7, 8, The Theory of Investment Value (Williams), 60 “The Theory of Speculation” (Bachelier), 60 Thiel, Peter, 131 Time, 57, 86–87 Timing the market (See Market timing) Top-down analysis, 152 Traders, education of, 94–102 Trading: emotion and, 114–118 execution of, 163 “Sonny” the high-roller, 11 strategies, 195 streaks in, 16–18 style of, 105–109 Trading floors, vs computer trading, xix, 64–65 Transaction fees, 233 Treasuries (See U.S Treasuries) Trend-following category, 105 Trends: interest, 37–38 stocks, 50 Twain, Mark, xiv 12B-1 fees, 232 U Underwriting, 128 Unemployment, 116, 117 Unsystematic risk, 83 Up markets, capturing (See Capturing ups and missing downs) Upside participation, 104 U.S Census Bureau, 36, 95 U.S credit crisis (See Credit crisis) U.S Department of Health and Human Services, 21 U.S Department of the Treasury, 33, 34 U.S Tactical Core, 172 U.S Treasuries: bear market holdings, 208–210 bonds, 37, 41–42, 89, 208–209 credit crisis (2007–2009), 83 as international safe harbor, 42 Vinay Munikoti’s trading strategy, 188–189 risk, 41–42 risk-off trade, 164 yield, 42, 145 Utah, precious metal legal tender, 38 V Valuation: gold, 39, 40 stock market entry based on, 196 Vanguard Group, 56 Vanguard 500 Index Fund, 56, 149 Velocity of money, 34–35 Vinik, Jeffrey, 149–154 Volatility: 1906–1982, xvii bonds, 42, 205 cash, 205 correlation and, 79–80 diversification to reduce, 81–82 increases in, 72–73 interconnected financial markets, 76 Monte Carlo simulation, 86–87 portfolios, 205–207 risk perceptions, xii, 202 stocks, 45, 48, 49, 50, 221 as streak indicator, 14 (See also Market volatility) Volume-weighted average price (VWAP), 64 W Walker, Scott, 22 Wall Street Journal, 106 Washington Redskins football team, 19 Watson, Tom, 178 The Wave Principle (Elliott), 106 Waves and surfing analogy, streaks, 13–14 Weise, Karen, 145 Whipsaws, 182 White Motor, 94 William O’Neil + Co., Inc., 98–99 Williams, John Burr, 60 Winning streaks, 18–19 Wong, Theodore, 197–198 World War I, 53 World War II, 25–26 Wyly, Charles, 52 Wyly, Sam, 52 X Xerox, 98 Y Yale University endowment fund, 212, 217 Yass, Jeff, 110 Yield: bonds, 42, 49 U.S Treasuries, 42 various securities (2005–2012), 57–58 Z Zynga IPO, 129–130 About the Authors Nicholas Atkeson is a founding partner of Delta Investment Management, LLC Mr Atkeson has over 17 years of industry experience Prior to founding Delta Investment Management, Mr Atkeson was a partner and portfolio manager of Delta Force Capital, LLC, a San Francisco based hedge fund, from 2006 to April 2009 Prior to Delta Force Capital, Mr Atkeson was a managing director for Banc of America Securities and ThinkEquity LLC Additionally, Mr Atkeson helped build the institutional sales team on the West Coast for Susquehanna International Group, LLC Mr Atkeson is currently an editor of investment newsletters He graduated from Haverford College, Phi Beta Kappa with a BA in economics, and from Stanford University Graduate School of Business Andrew Houghton is a founding partner of Delta Investment Management, LLC Mr Houghton has over 17 years of industry experience Prior to founding Delta Investment Management, Mr Houghton was a partner and portfolio manager of Delta Force Capital, a quantitative hedge fund, from 2006 until April 2009 Prior to founding and managing the hedge fund, Mr Houghton was a managing director at ThinkEquity, and served in senior institutional sales positions at Banc of America Securities and Susquehanna International Group Mr Houghton is an editor of investment newsletters He has a BA in economics from Boston University and served in the Peace Corps in Togo, West Africa ... Navy and was trained as a landing craft captain His company was assigned to participate in the first American offensive in the central Pacific region The objective was to island-hop across the Pacific,... Have a plan for holding on to your winnings Keep your emotions out of the investment process Win By Not Losing is all about building wealth and protecting capital Sonny’s Takeaways We not advocate... important than the action of a single stock is the action of the overall market When you are investing, you want the wind at your back You are much more likely to own a winning stock if the market