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Get the Joke
James Lackey

1/15/2001
Get the Joke

"Get the Joke." My father loves it when I use that line. He is the type who says, "How can you sell something that you do not own?" referring to short sales.

I learned that line from old friend Tony Forte, a Wall Street veteran who is now in Heaven. When I was a brand-new trader, guys would yell, "I can't believe the stock is going down on good news." I was new, but I would say, "Nobody cares," and Tony Forte would say, "Ya see, Lack gets the joke."

Tony took me under his wing, only for a short time until I realized that Wall Street is telling jokes all day long, and it was my job to get the joke. Then Tony Forte sent me out in the speculation world to learn my own style of comedy. Ya see, telling jokes is harder than writing them. It is all in the timing. Trading well is all about timing. Quick little one-liners are good for small laughs and small profits. Huge detailed stories have the potential to bring the house down, huge profits, but considerably more risk.

I have never been a fisherman for seafood, but I am a fisherman of trading ideas.

My entire life I have tried to figure out how the world works. Now, in my evolution of a speculator, I try to figure out why it works the way it does. Everyone reacts to the information they process differently. I am indeed interested in why your grey matter software is programmed differently than mine.

My first thought is, "Do I get the joke?" Next, "Can I gain an edge on this information for my next trade?" If not, I try to store the information for future reference. Do we all realize how much we pay for information? Every trading idea and trade is information, and it is very expensive. Spreads, commission, emotional capital and losing trades all add up to the cost of knowledge. The SpecList is an incredible tool and a huge savings of knowledge costs. It is easy, just like when trading, at first glance, to discount the value of other speculators' knowledge and experience. If you have not noticed, most good traders talk in depth of how they went wrong. This serves two purposes: to help others, and to firmly encode that information into their own grey matter software so it never happens again. So many lessons I have learned a thousand times.

"Get the joke" means not only, "Why is that guy saying that?" but "What does he mean by that?" In order to know what people really mean is to ask them. Well, that is the simple way. The best way is to get to know them. The best way to learn profitable speculation is from other traders. Maybe it is not the best way, but it is a lot cheaper.

The latest kick in the media is to bash analysts' predictions. The easiest thing in the world to do is to point at other people's failures. One of the hardest things is to learn from them. Anyone who has been trading for awhile is aware of the problems of stock recommendations on Wall Street. Conflict of interest is the major one. Now it seems that the press has found analysts. Maria in the morning, every now and then, asks the analyst she interviews if his firm does investment banking for the company he just recommended. Hey, I really don't care about analysts' feelings, only my own -- but I realized lately that the press has made a real push to themselves. I saw Maria on another network and a reporter asked what she thought the market was going to do. She actually answered: "We are going to see volatility." Nice answer. If we get the joke, Maria is a genius; the market will surely continue to go up and down. More likely it is the genius of NBC marketing.

Well, I can tell you from real losses not to fight analysts. My old trade was if an analyst downgraded a stock and it didn't go down I would get long it. Now, I just won't sell it because they downgraded it with a tight stop. If they have their heart set on pushing a stock, it is going, and far.

My point is that I have known for years that most analysts and talking heads are wrong, wrong a lot. Why? Because predicting the future is hard.

A new rule of mine is to not fight analysts' recommendations, at least not straight up. Everyone knows there are easier battles to fight. The press has the power to move the markets for a short time; traders can move it for a long, long time.

Comment by Dr. Andrew M. Lo, director, MIT Laboratory for Financial Engineering:

This contains some very deep ideas.

James Lackey is a Florida trader.