Mamis Last Letter

JUSTIN MAMIS [email protected] June 29, 2014 THE LAST MAMIS LETTER

“Stock Market Survival & the Meaning of Life” ...a retrospective

Justin “then” Barron's September 13, 1993

Justin “now” RETIRED! RETIRED!

While browsing around in the barn’s piles the other day, I came upon an old button which read “Justin E. Mamis, Assistant Assistant Director, Director, Department Department of Floor Procedure.” That sent my mind off in reminiscing reminiscing.. Working for the New York Stock Exchange was the only real job I ever had, and I was, so to speak, the helper to the head of the Floor Department, Department, a wonderful fatherly fatherly Irish gentleman. gentleman. One afternoon afternoon while standing together in the middle of the Exchange floor, looking up at the tape, he turned to me and said, “A wonderful wonderful day. The Exchange is going to have volume of 10 million shares for the very first first time.” Imagine how long ago that must have been, how young I must have been. Instead of staying with the Exchange, however, I had a chance to go to work as a Member-Trader for Phelan Phelan,, Silver Silver (John (John Phelan Phelan subseque subsequentl ntly y became head of the NYSE). NYSE). I sat “upstai “upstairs” rs” next to Lew Horowitz, a major partner in the firm, leaning over the railing to keep an eye on what was happening on the “Floor” below. below. Lew would tell people people that he made money from Justin’s Justin’s “mumbles” “mumbles” and so he did. He subsequently subsequently became Vice Chairman Chairman (Grasso (Grasso became Chair) and prices on the “Floor” went from eighths and quarters to pennies, and the whole market world became different, and I’ve never forgiven it. That’s That’s one recollection. recollection. Another Another is earlier. earlier. I came back from serving serving in Korea with $5000 (nothing (nothing to spend spend money on in Pusan except except for a wonder wonderful ful paintin painting g that still hangs hangs on our wall). wall). I asked our prosperous college roommate what to do with that money, and he took me to a brokerage house – we

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thin think k it was was Good Goodbo body dy.. We sat sat with with a part partne nerr who who expl explai aine ned d owni owning ng stoc stocks ks and and such such and and recomm recommend ended ed three three stocks stocks:: AT&T, AT&T, GE and DuPont, DuPont, the three adding adding up to our military military savings. savings. Having little else to do, I began to read the newspaper’s financial section every day to see how my three three stocks stocks were doing. doing. I remember remember very clearly clearly:: one was going down, down, one was going up, and the third was going nowhere, nowhere, and I said, loudly, to myself: “There’s “There’s got to be a better better way!” Not long after, I discovered Barron’s … not so much for the texts, which I didn’t understand, but for the various small advertisements recommending this way to get rich, or that way to pick stocks, and such, usually charging two bucks for a sample, and among those ads was a $5 one for John Magee’s discussion discussions. s. I forget the details but remember remember that for the same five bucks, I also got several charts in each each issue, issue, so I started started learni learning ng things things I’d I’d never never heard of before. before. I found an editio edition n of Technical Technical Analysis of Stock Trends (Edwards and Magee) and still have it on the shelf right in front of me (plus a copy of Magee’s The General Semantics of Wall Street)…and not only that, I have used Magee’s chart paper all these decades up to and including the charts I posted for the last time last week. (A big pile of unused, 11”x17” chart paper is available cheap!). So there there you you have have it. it. Afte Afterr five five decades decades,, I can’t can’t think think of anyth anything ing else else to do in the stock stock market market besides sincerely thanking each of you who have been compiling, formatting, editing, fixing, contributing to, following, paying for, inspiring and even criticizing my work over these many years. And finally, I want to thank the stock market itself. Although it has no more socially redeeming value than pornography, it is never boring (even on dull days), often fascinating (even when aggravating), and occasionally occasionally challenging challenging enough to redeem it socially. socially. I wish for all of us enough stimulati stimulation on from the market, as our equivalent of Picasso’s brush and Casals’s bow, to keep us going into a similarly, lively old age. — Justin Justin

From The Nature of Risk (Stock Market Survival and the Meaning of Life (1991) especially y The value of technical analysis in the stock market is to reduce risk. It is especiall helpfu helpfull in guidi guiding ng you you to believ believee what what otherw otherwise ise seems unaccepta unacceptable ble.. By extens extension ion,, therefore, it is most helpful at at identifying significant market turns, both for the market and for individu individual al stocks stocks.. The action action of indivi individua duall stock stockss cumulatively becomes becomes the most important indicator of market direction, and all our internal indicators are but reliable ways of summarizing summarizing that individual individual stock action. (Sentiment (Sentiment indicators indicators are attempts attempts to identify identify the consensus consensus so as to be grouchily grouchily contrarian). contrarian). Stock charts charts and the indicators indicators are like like doctor doctors’ s’ advice: advice: exerci exercise, se, diet, diet, reduce reduce stress, stress, and so on. They They are a means means of establishing imperfect but relatively objective ways to understand market risks and market choices. I’d prefer to be a purist – shut the door and look only at the charts, using John Magee’s dictum of reading the newspaper only when it is is yellow – but stock market market life isn’t like that. Decisions – real decisions – are made by those who know what they are doing and why, and with the power power of money behind behind those decisions decisions.. They are





At other times, however, (2) recognize that all significant (that is, affecting the price) buying and sellin selling g stems stems from some form or other other of fundament fundamentals als.. Chief Chief among these, these, perhap perhapss in order of importance, are (a) corporate management; (b) the reliability of corporate information; and then (c) whatever information – book value, cash flow, even earnings and dividends – a particular investor values values.. Fundame Fundamenta ntals, ls, therefor therefore, e, are derived derived apart from the market, whereas technical factors are rooted rooted in the market itself. We would argue that fundamental fundamental forecast forecastss are based on judgments as to how the company is likely to do in the future applied subjectively to future price in the marketplace, wherea whereass a technic technical al foreca forecast st is based based on the potential potential validity validity of those those judgme judgments nts as reveal revealed ed by objective data already in the marketplace. In both cases, however, however, the willingness willingness to forecast forecast is vital. There’s There’s really nothing you can do about the inherent risk of being in the stock market at all – and little you can do about the ongoing risk that, because the market is constantly changing, no sooner do we act than we may perceive something significa significantly ntly different different occurring occurring.. The future is not guarantee guaranteed. d. And all choices choices have a possibility possibility of failure. But that’s that’s as true of daily life as it is of the stock market. Crossing Crossing the street symbolizes symbolizes the sense sense of risk that every little act involves as we cross into the future. It expresses expresses our our ability ability to look both ways, ways, to be careful or careless, to be in control of our own destiny and yet vulnerable to what others, including crazy people, might do. Snippets from The Nature of Risk

In a simple standard “Collegiate Notebook” bought in any stationery store or supermarket , each morning morning I record record the DJIA’s high, low, and closing closing price, its price change from the previous previous day, NYSE highs highs and lows, the advances advances and declines and the day’s day’s volume. On the notebook’s facing page, I then record the net differential between advances and declines and calculate the 10-day moving average of that differential…………… I make a joke of saying that I don’t know what’s happening or what is likely to happen next until I put my pencil to the piece of chart paper and sketch in the day’s price and volume action. action. It sounds sounds silly because there is obviously obviously no artistic artistic leeway to change where I draw that line; nevertheless nevertheless,, there is a kinship kinship with the artist creating creating a drawing in that we both use the objectivity objectivity of our pencilings pencilings to take the next step into the future. future. Our needs for sensitivity sensitivity are are similar. similar. As you can see, now we are talking about a third third language: first first the scientific; then the market’s; now the artist’s. Not long ago, a New York Times article, entitled “Forecasters’ Art in 1929 and Now,” noted how the economists of that earlier day were unable to foresee not only the crash crash but also the ensuing ensuing depression. depression. Some researchers, researchers, using modern techniques, techniques, recently went back to that era and demonstrated that even today’s fancy computer-driven approaches would have failed failed as miserably. miserably. Their conclusion conclusion was that there was no way to anticipate anticipate such disasters. disasters.





Snippets from How to Buy (An insider’s guide to making money in the stock market (1982)

We’ve discusse discussed d when to buy, and how to buy. But the most importan importantt aspect aspect of all is what what to buy. buy. Litany Litany on on this subjec subjectt has already already been been runnin running g through through this book: book: buy strengt strength; h; don’t guess guess at bottoms; bottoms; if there isn’t much to buy, don’t buy; wait for the stock to prove itself; etc. etc. Over Overal alll mark market et actio action n tell tellss us when when to buy, buy, but the the indi indivi vidua duall stock stock can also also signal signal the proper timing timing.. Since Since we are always always looking looking for a betting edge, we want the stock itself, as compared to all other stocks, to tell us that now is the time to buy it. What What are are we looking looking for in a stoc stock? k? Th That at’s ’s easy to answer answer,, even even if there are infinite infinite variations. variations. We are looking for success in holding, holding, to begin with. A stock that has just made a new low is clearly not succes successfu sful. l. A stock that manage managess to hold hold above its prior prior low on the next sell-off sell-off has accomplished accomplished something positive. positive. Similarly, Similarly, a stock that manages to rise above its previous rally peak has also achieved a succ succes ess. s. A stock stock that has has higher higher lows lows and higher higher peak peakss clearly clearly is trending trending upward. Simply stated, stated, that is the art of charting. Let the market market tell you. Don’t try to tell tell the market. Why should the market market cooperate cooperate with your needs?

Snippets from When to Sell, (Inside Strategies for Stock Market Profits (1977) Since, indeed, indeed, the stock market is nothing but a game, with players players on both sides of each transaction, with a score in money-points, and with eventual winners and lose losers rs,, it is ofte often n reve reveal alin ing g to comp compare are it to mo more re fami famili liar ar game games. s. Take Take baseball: the manager who orders a sacrifice bunt whenever nobody’s out and the tying run is on first base knows it won’t work every time. time. The batter might might pop it up, a fielder could pull off a brilliant play, or the runner might die on second second anyhow. But he knows knows that the law of averages, averages, developed over over similar past situations, is on his side, and he can, based on his own experience and insight, refine the odds by considering other factors, such as the bunting ability of the batter, the speed of the base runner, the skill of the next batter, and so on. Strang Strangely ely,, the same same fan who apprec appreciat iates es that that the manager manager is playin playing g percen percentag tagee baseba baseball ll is unabl unablee to translate translate that approach approach from baseball baseball to the game he is playing playing – the stock market. market. Instead Instead of looking back over his own record of success and failure to see which technique worked and which didn’t, or what frame of mind affected each decision or failure to decide, he tends, in the market, to repeat his errors time and again. “Next “Next time,” he insists, insists, after striking striking out again with the winning run on third, third, “it will be different.”





premier investment for those who’d made their pile and wanted to keep it safe and sound. More than one will of the pre-Depression era specified in unbreakable terms that the heirs were to entrust the family family fortune fortune only only to railro railroad ad shares shares.. As it turned turned out, railroad railroadss were were safer safer than bug buggy-w gy-whip hip or street streetcar car compan companies ies,, but by the time time the countr country’s y’s massiv massivee indust industria riall growt growth h began began to produ produce ce a comparable boom in the stock stock market, railroads weren’t the thing thing to be in. Industry – products – became the fashionable investment; railroads, especially as disaster stuck in the thirties, lost their respectability and became speculative. One generation’s gilt gilt became the dross of the next. Given ample opportunity to rise during a bull market, the failure of a particular issue to move upward in gear with the averages averages can be warning enough enough in itself that something something is wrong. wrong. To be sure, speculat speculative ive flings in search of “something that hasn’t moved yet” can sometimes sweep up a laggard issue or two, but by and large, the hope is that what did not happen yesterday and today will happen tomorrow, and as the bull surges on without that stock, the reality becomes becomes progressively progressively more urgent: a stock does not have have to go down down first to sho show w that that it is becoming becoming weak. weak. Merely Merely not going going up is, under under most bullish bullish circumstances, a sign of trouble brewing. The one thing we can guarantee guarantee is that none of it is easy. Just try to walk that fine line between not selling selling too soon and not procrastina procrastinating ting one day too long! Any time any one of us, from profession professional al trader to odd-lotter, odd-lotter, can boast of taking taking a profit, we have done something something right. right. Luck is a mere bonus. What was right, right, simply put, put, was that a stock was bought cheap cheap and sold dear. But don’t let anyone anyone claim that the two halves of the act are equally easy. Only someone who has has never played the market market game would believe that.

Snippets from Justin’s market letters FIRE THE COMPUTER! (1984) Which technical indicator do you think is most out of favor nowadays? No, it’s not the overly arbitraged short interest ratio. Nor is it the morib mo ribund und odd-lot odd-lot statis statistic tics. s. And everybod everybody, y, on the princip principle le of “a little knowledge is a dangerous thing,” now knows about divergences. Contra Contrary ry opinio opinion n still still works works best, best, with with front front page page articl articles es and magazi magazine ne covers covers provid providing ing usefu usefull headlines to go contrary contrary to. But what has gone the way of the aardvark is the ticker ticker tape. The computer computer is just another another tool. It is no more of a magical magical machine than than the Ouija board or the crystal crystal ball. It has, unfortunately, caused investors and traders and analysts to lose track of the virtues of using both sides of the brain – the intuitive and the objective - instead, everyone has become lopsided. The art form of playing the market has been relegated to museums, and the computer has become the new emperor. emperor. The result has been the current current market’s aggravati aggravating ng behavior behavior in which which the averages averages made new highs yet no one was happy. happy. If you step back from the daily fray, fray, and let everyone everyone else play their short-term short-term games, games, you’ll do better. better. And if you find some little little old guy in a back room room with the blinds pulled down, the tape clattering, and his charts posted by hand, ask a sk him how he feels about the market .

The Phil osop osophy hy of Tops (Jul y 31, 31, 1987 1987) ) Tops are not made in a day. Unlike bottoms, which often often can abruptly materialize on a climactic panic, with many many stock stockss making making their their lows lows at the same same time time (altho (although ugh still still requir requiring ing ample ample sub subseq sequen uentt basebase building), tops form over a much longer period of time. Also unlike bottoms, which form in anticipation





If you look at every top we’ve lived through, they each have certain ingredients – internal market deterioration; rationalizations and lulling; using up buying power even though you used to know better; and waiting and waiting for the bell to go off, which proves in hindsight to be rather more of a little tinkle that you thought you heard but weren’t sure sure enough of to act upon. The one eternal aspect of every market top is that it occurs before we’re ready for it.

Special pecial Report Report on th e Phil osop osophy hy of B ottoms ottoms…T …T he F utur e –Base –Based on the Past Past (Janu ary 11, 1988) 1988) ...it is necessary to understand the nature of bottoms. Lows in the averages are not bottoms; bottoms bottoms are not made on a blend of hope and good news; bottoms are formed by basing; basing forms over a period of time, and in the face of bad news, on pessimism, not optimism…..Thus a soothing bear market rally is the spiritual sire of the second leg down……bottoms are made when selling becomes exhausted.

Special pecial Report Report on Bon ds (Au gust gust 31, 1988) 1988) Note that in the midst of the October (1987) crash, with the entire trading world in total disarray, bond prices came down to the support area of that breakout and held almost exactly where they were supposed to! For those who were able to keep their heads, it proved to be a nice neat fairly obvious buying opportunity… If few are to be on board when the next important upward drive begins, the current market action becomes all the more intriguing. Pessimism abounds – there’s far more bearishness towards bonds than towards towards stocks. Similarly, for a longer-term target, one would measure the distance of the entire pullback……If my math is right – this is an equity guy speaking – that would translate into a long-bond yield in the neighborhood of about 6%-6 1/2 % (from 9.85%). 9.85%). What else do you need need to know?







F rom Justin, Justin, in a lette letterr to a fri end who is a fin ancial ancial r eporte porter: r:

My time at the Exchange in that role (Assistant Director of the Floor Department) was during the mid to late 60s – ferment time, and I was a bit too long-hair long-haired ed for some some senior senior executiv executives. es. I went to the Exchange Exchange because I had three mouths to feed and my hobby of charting the stock market market was all I knew that was emplo employabl yable. e. I went in with any and all the suspicions any leftist could have about that den of capitalism, and was astounded to find the degree of honesty and decency on the floor at that that time. time. I have to emphasi emphasize ze “at that that time.” time.” These These were men who, who, for the most part, had never gone to college, and some hadn’t even finished high high scho school ol…s …so o ther theree was was noth nothin ing g high high falu faluti tin’ n’ about about thei theirr ethi ethics cs,, noth nothin ing g patr patric icia ian n about about thei theirr backg backgro roun und. d. But But they they trad traded ed on each each other’s word, and made million dollar transactions on a hand shake, and never thought otherwise.

Some fu n titles titles of pas pastt M amis lette letters: rs: Damaged Goods on Sale “What is the matter with Mary Jane? We’re having rice pudding pudding for dinner again.” —A.A. Milne 40 Points Down, 40 Points Up – All in a Day’s Work Honey, I Shrunk My Helper or The Demise of the Technician Tulip Bulbs and the Tooth Fairy Flushing It Down the Toilet “Don’t Confuse Brains With a Bull Market” (from a Fraser button) Stock: a family of languages, tribes, race…the race…the barrel of a gun…lifeless, dull…a dull…a punishment device, used often by the Pilgrims…cooking broth…railroad rolling stock…





We have have to include include a chart chart of The Sentiment ntiment Cycle Cycle,, pag page e 199, 199, in T he Nature of Risk: Risk:

A cycle c ycle begins with stocks climbing climbing “a wall of worry,” and ends when there is no worry anymore. anymore. Even after after the rise rise tops out, investors continue to believe that they should buy the dips…..Unwillingness to believe in that change marks the first phase down: “It’s “It’s just another another buying buying opportunity opportunity.” .” The second, second, realistic, phase down is the passage from bullish to bearish sentiment...Selling begins to make sense. sense. It culminate culminatess with the third third phase: investors, in disgust, d isgust, … dump right near the eventual low in the conviction that the bad news is never going to stop…

A Note fr om Kate Welli ng.. ng... Most investor Most investorss do not need need an introd introduct uction ion to Kate Welling Welling.. She spent spent over two decades at Barron’s as a featured writer, assistant to the editor (Alan Abelson) and managing editor, and produced virtually all of the magazine's signature signature "Q&A" interviews, interviews, including including its annual Roundtable Roundtable issues. Today, Kate ate publ publis ishe hess her her own own jour journa nall of resea esearc rch, h, anal analy ysis, is, opin opinio ion n and insight, WellingonWallSt ….singular, ….singular, incisive, thought-provoking. www.wellingonwallst.com .

"Justin Mamis ostensibly employed the tools and language of technical





A Note fr om Don Pres Preston… Don Preston met Justin in 1984 while they were together at Cowen & Co. After Justin Justin spent some some time at Gordon Capital, Capital, they met up again at Hancock Financial/Tu Financial/Tucker cker Anthony. Anthony. Later, they left left together to form the independent advisory firm, Noah Financial.

Thirty years! For a “young” man like me, that’s a long time to have a personal and professional relationship. For Justin, a “less young” man, maybe it looks like a blip. My reality is that I have had nearly half a lifetime of learning from a man of few (spoken) words but with a strong positive presence. His composure in times of stress taught me that not every adverse situation calls for panic. His trust in me has been enduring. His excellent sense of direction has repeatedly saved me from first exiting the Fidelity building through the wrong door—and then turning in the wrong direction. Indeed, I have followed his lead in many ways, and I am a better person for it. This attests to the privilege and joy it has been to know him. Now, Justin, it’s your turn to follow me and – finally! – retire. But stick around. I ca can n use a good gu gurru. Most of all ll,, be well, Teacher, Leader, Friend.

A Note fr om H elene lene M eisle isler… r… Helene Meisler writes a daily technical analysis column as a Real Money contributor for TheStreet.com. She met Justin in 1984 at Cowen Cowen & Co., rejoined him in 1992 at at Gordon Capital, and then together together they left for for Hancock Institutional/Tuck Institutional/Tucker er Anthony. Not long after, after, she went to work for Cargill in Minneapolis Minneapolis where she managed equity money for three years. Then came a long stay in Singapore. Justin has described Helene as witty, cheerful, and upon occasion, accurately sharp-tongued.

It’s been about thirty years yea rs since I first met and began working with Justin. The first day of working together together I was taught how to hand-post the John Magee stock charts. They are on semi-logarithm semi-logarithmic ic scales so took while the hang of still posting definitely no





From our bulletin board to yours...

Justin’s business card

Painting Painting done by our Swiss son-in-law, son-in-law, Jürg Obrist, Obrist, in late 1987 .

TO MOTHER MARKET whose rewards when we are right,

Mamis Last Letter

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