NY Times

Point & Figure Charts Tell A Better Story

by Thomas Mullooly on August 30, 2008

There’s a great story I read in the New York Times. It’s part business/part technology. While it delves into some pretty sophisticated topics, I’ll try and summarize it as best I can right here.

The author, Anne Eisenberg, wrote about an experimental website, www.many-eyes.com. This is a site where visitors can upload data they want to visualize and use tools to generate displays.

Basically, what they’re trying to do is take a range of data — and instead of leaving it on a spreadsheet for people to interpret, they use images, charts and graphs to “paint” a better picture. The idea being that a picture may tell a better story — a clearer story — than trying to sift through data on a spreadsheet.

I hate to break it to the author, but Charles Dow came up with that concept nearly 120 years ago. Dow was the first publisher of the Wall Street Journal, and the Dow Jones Industrial Average that bears his name. Dow kept listening to all of the “experts” who were giving all of their fundamental reasons why particular stocks “should” go up or “should” go down.

Dow simply came up with a method to plot the price movement. The “image” that he came up with on a chart gave him a much clearer view of stocks that were in demand and stocks that were in supply. Much clearer than what any analysts could ever “predict.” Anything “in demand” must see a price increase. And anything “in supply” will see a price decline. That’s not an economic theory — it’s a law. It’s called the law of supply and demand, and even a fourth grader can explain it.

The article quoted a professor of computer science (Pat Hanrahan) at Stanford, “when analyzing information, no single person knows it all,” he said. This helps dispel the thinking of the “expert stock analyst” following a stock. Rather, a chart shows the “flow” between supply and demand. The chart shows the cumulative votes that people make (on a daily basis) to either get in — or get out — of a particular stock.

One of the founders of the site, Dr. Viegas, mentioned “… why not a visual that gives you some insight into the sea of data that surrounds us? I might find one thing; someone else, something completely different, and that’s where the conversation starts.”

This is precisely the problem when trying to make investment decisions based on only fundamental analysis. The data can be twisted in so many different directions to paint a very good — or very bad — story. Additionally, the fundamental information (supplied by the company… like earnings) can be wrong, or rewritten in the future.

For those of you who have seen these point & figure charts I use in managing the risk in your investments…do they help paint a clearer view of what’s happening? Let’s hear it!

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News or Noise? Real Estate Lender Is 10th Bank to Fail

by Thomas Mullooly on August 29, 2008

A story reported in the New York Times recently talked about the failure of Integrity Bank of Alpharetta, Georgia. The Times reported that integrity Bank was the 10th US Bank to fail so far in 2008.

And buried a little further in the story is the fact that another bank — Regions Bank — is assuming all of the insured — and uninsured — deposits held at Integrity Bank. Typically, when a bank failure is involved, the FDIC will step in and “broker a deal” between the failed bank and another bank willing to step into the fray. The surviving Bank is under no obligation to assume any uninsured deposits. So this is a very nice deal for the depositors of integrity Bank, in my opinion.

As a reminder, are you holding deposits at one particular bank that may exceed $100,000? Why would you do such a foolish thing?

Integrity Bank closed Friday afternoon at 3 p.m., as usual and will open on Tuesday (because of the Bank holiday Monday) at 9 a.m. as Regions Bank branches. For many Bank customers, they will hardly notice the difference.

This is not a story. But it grabbed the headlines in the New York Times.

What kills me though, is the last line of the article in the Times: the number of bank failures has shot up this year amid continuing mortgage defaults. Way to stir the pot! In the typical media scaring everyone routine, the writer carefully crafts a closing line that will most likely get picked up on the news report elsewhere…which will further stir the pot.

Let’s put this in perspective. In the recession of the early 1990s, hundreds of banks failed. Hundreds! And, although the book is not completely written yet on this economic phase, it’s important to point out — to stress — Integrity Bank is just the 10th bank failure this year.

In the last few days, much has been written about the executives at Fannie Mae losing their jobs. Why is this news? Most companies would replace chief executives for continuing poor performance.

Years ago, I used to work with a manager who would always lament, “there are far too many retail brokers in this town. Something has to give — either this town doubles in size or we lose half of the brokers.”

You could apply the same thinking to the media: there are far too many reporters milling around with nothing to talk about. So they try to make stories where there aren’t any.