 A Random Walk on the Stock Market Beach
Life stretches far ahead when you're young. Your constant companion is that slightly fizzy mix of dread and excitement that comes with knowing you're about to experience something for the first time. There are so many firsts in life - your first love, your first solo drive, your first stock pick.
By contrast, when you're older, the fizz of the unfamiliar can be rare. Life is more apt to be about routine and responsibility or, if you're not careful, grim determination. Unless you seek out new experiences, you risk never experiencing the unfamiliar fizz again.
I am, as you may know, a fan of novelty. So imagine my thrill when I experienced something entirely new this summer - a vacation at the Jersey Shore, in Ocean City. Daruma's co-founder (and my partner for 11 years), Noreen McKee, invited my family to enjoy her condo at the southern end of the island, right on the beach.
My time with Noreen that week provided a wonderful opportunity to reminisce about our 27 years' worth of memories (we've known each other since 1987, when we first worked together for small-cap value maven Chuck Royce). And the beach itself gave me a chance to experience a daily fizz of never-ending firsts.
At the shore I woke up early every morning, to watch the sunrise and take a 2 - 3 hour walk. Dawn is my favorite part of the day because it is the distilled essence of potential; experiencing it while walking on a beach remains my favorite form of meditation, no matter the weather.
This daily walk allowed for some gorgeous pictures (scroll down for photos). Every sunrise has a different quality to it and what the sea washes up onshore changes each morning as well.
The story of what went on in that vast churning liquid universe during the night is told by the litter left behind on the sand. One day it's nothing but mussel shells; the next it might be moon snails, followed by tiny angel wings, or an army of horseshoe crabs. Though the debris may be the same, the proportions are not. There might be one skate egg case or a hundred, depending on the day.
As with the ocean, the quality of each day and of what's happening beneath the surface of the market changes constantly; my early morning walks proved to be a great reminder to me of the importance of a daily routine and the value in seeing what "washes up" in the screens and reports that we run.
These are not especially sophisticated reports - they range from flagging big movers, to big estimate changes, to those making new lows, management changes, sell-side ratings changes, companies that are falling or rising into our investable universe, and insider changes of note. However, when these are combined with other weekly screens that sort companies by various quantitative factors, valuation and technicals, patterns emerge.
But I'm not looking for any single constellation of clues. I might find, for example, that there's a cluster of insider buying in an industry group that's been under pressure - stocks are down and estimates have been cut. Or maybe I notice the qualities of those stocks making new highs and lows. Whatever the specifics, the idea is to have a daily pulse of the market, including the usual round robin of news, strategist chatter and economic data.
Some days there's an internal fire to put out, or an early management meeting, or a research conference, and I miss my daily walk on the stock market beach ... a small backlog of daily screens results. But I find that batch-processing a few days' worth of screens is not as much fun, or as enlightening. The difference is subtle, but the lack of freshness means I lose the feel for what the currents were stirring up each day.
As long-term investors (our average holding period is 2.5 years, and we've held stocks for 10 years or more) it's easy to justify skipping the daily screen routine. After all, we are not trying to game the market in the short-term. But the world and the market changes daily, and the long-term is made up of a series of short-terms.
Seeing how each sunrise and each beach walk varied on vacation reminded me to stick to my daily routine. Just as a week's worth of sunrises in one day would dim my ability to appreciate each one, a week's worth of screens takes away that sense of the market moment.
Sometimes the familiar, performed daily, reveals an insight as fresh and longed for as one's first kiss.
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