June 29, 2014

THE LAST MAMIS LETTER

Stock Market Survival & the Meaning of Life
...a retrospective
While browsing around in the barns piles the other day, I came upon an old button which read Justin
E. Mamis, Assistant Director, Department of Floor Procedure. That sent my mind off in 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, a wonderful fatherly Irish gentleman. One afternoon while
standing together in the middle of the Exchange floor, looking up at the tape, he turned to me and said,
A wonderful day. The Exchange is going to have volume of 10 million shares for the very 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, Silver (John Phelan subsequently became head of the NYSE). I sat upstairs 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. Lew would tell people that he made money from Justins mumbles and so he
did. He subsequently became Vice Chairman (Grasso became Chair) and prices on the Floor went
from eighths and quarters to pennies, and the whole market world became different, and Ive never
forgiven it.
Thats one recollection. Another is earlier. I came back from serving in Korea with $5000 (nothing to
spend money on in Pusan except for a wonderful painting that still hangs on our wall). I asked our
prosperous college roommate what to do with that money, and he took me to a brokerage house we
Justin then
Barron's September 13, 1993
Justin now
RETIRED!
JUSTIN MAMIS
mamismail@aol.com
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think it was Goodbody. We sat with a partner who explained owning stocks and such and
recommended three stocks: AT&T, GE and DuPont, the three adding up to our military savings.
Having little else to do, I began to read the newspapers financial section every day to see how my
three stocks were doing. I remember very clearly: one was going down, one was going up, and the
third was going nowhere, and I said, loudly, to myself: Theres got to be a better way!
Not long after, I discovered Barrons not so much for the texts, which I didnt 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 Magees
discussions. I forget the details but remember that for the same five bucks, I also got several charts in
each issue, so I started learning things Id never heard of before. I found an edition of Technical
Analysis of Stock Trends (Edwards and Magee) and still have it on the shelf right in front of me (plus a
copy of Magees The General Semantics of Wall Street)and not only that, I have used Magees chart
paper all these decades up to and including the charts I posted for the last time last week. (A big pile
of unused, 11x17 chart paper is available cheap!).
So there you have it. After five decades, I cant think of anything else to do in the stock 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 challenging enough to redeem it socially. I wish for all of us enough stimulation from
the market, as our equivalent of Picassos brush and Casalss bow, to keep us going into a similarly,
lively old age.
From The Nature of Risk (Stock Market Survival
and the Meaning of Life (1991)
The value of technical analysis in the stock market is to reduce risk. It is especially
helpful in guiding you to believe what otherwise seems unacceptable. By extension,
therefore, it is most helpful at identifying significant market turns, both for the market and
for individual stocks. The action of individual stocks cumulatively becomes the most
important indicator of market direction, and all our internal indicators are but reliable
ways of summarizing that individual stock action. (Sentiment indicators are attempts to
identify the consensus so as to be grouchily contrarian). Stock charts and the indicators
are like doctors advice: exercise, diet, reduce stress, and so on. They are a means of
establishing imperfect but relatively objective ways to understand market risks and market
choices.
Id prefer to be a purist shut the door and look only at the charts, using John Magees dictum of reading the
newspaper only when it is yellow but stock market life isnt like that. Decisions real decisions are made by
those who know what they are doing and why, and with the power of money behind those decisions. They are
the lords of the playing field, while the technician is but the observer and reporter of their (collective) behavior.
Experience over the years tells me that (1) in a crunch confusion, chaos, crisis being pure helps: (a) put
blinders on in trying to understand the markets behavior; (b) try to be on the side of the New York Stock
Exchange (NYSE) specialist; and (c) constantly ask oneself: what is the least expected thing the market could
do? (Such guidelines would have helped immeasurably at such otherwise bewildering times as October 19 and
20, 1987 and January 15 and 16, 1991).
Justin
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At other times, however, (2) recognize that all significant (that is, affecting the price) buying and
selling stems from some form or other of fundamentals. Chief among these, perhaps 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. Fundamentals, therefore, are derived apart from the market, whereas technical factors are
rooted in the market itself. We would argue that fundamental forecasts are based on judgments as to
how the company is likely to do in the future applied subjectively to future price in the marketplace,
whereas a technical forecast is based on the potential validity of those judgments as revealed by
objective data already in the marketplace.
In both cases, however, the willingness to forecast is vital. Theres 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
significantly different occurring. The future is not guaranteed. And all choices have a possibility of
failure.
But thats as true of daily life as it is of the stock market. Crossing the street symbolizes the sense of
risk that every little act involves as we cross into the future. It expresses our ability to look both 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 I record the DJIAs high, low, and closing price, its price change from the previous
day, NYSE highs and lows, the advances and declines and the days volume. On the
notebooks 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 dont know whats happening or what is likely to happen next
until I put my pencil to the piece of chart paper and sketch in the days price and volume
action. It sounds silly because there is obviously no artistic leeway to change where I draw
that line; nevertheless, there is a kinship with the artist creating a drawing in that we both
use the objectivity of our pencilings to take the next step into the future. Our needs for
sensitivity are similar. As you can see, now we are talking about a third language: first the
scientific; then the markets; now the artists.
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 but also the
ensuing depression. Some researchers, using modern techniques, recently went back to that
era and demonstrated that even todays fancy computer-driven approaches would have
failed as miserably. Their conclusion was that there was no way to anticipate such disasters.
The scary truth, the author of the article wrote, is that the limits of macroeconomic
models reflect inherent limits to economic knowledge. Imagine! An entire essay about a
serious limitation on the ability to anticipate economic trouble, and not a sentence, not a
word, not a phrase, about the economic forecasting tool that works the stock market. The
market is smarter than you, I, and economists computers.
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Snippets from How to Buy (An insiders guide to making money in
the stock market (1982)
Weve discussed when to buy, and how to buy. But the most important
aspect of all is what to buy. Litany on this subject has already been
running through this book: buy strength; dont guess at bottoms; if
there isnt much to buy, dont buy; wait for the stock to prove itself;
etc. Overall market action tells us when to buy, but the individual
stock can also signal the proper timing. Since we are always 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 are we looking for in a stock? Thats easy to answer, even if
there are infinite variations. We are looking for success in holding, to
begin with. A stock that has just made a new low is clearly not
successful. A stock that manages to hold above its prior low on the
next sell-off has accomplished something positive. Similarly, a stock
that manages to rise above its previous rally peak has also achieved a
success. A stock that has higher lows and higher peaks clearly is
trending upward. Simply stated, that is the art of charting.
Let the market tell you. Dont try to tell the market. Why should the market cooperate
with your needs?
Snippets from When to Sell,
(Inside Strategies for Stock Market Profits (1977)
Since, indeed, the stock market is nothing but a game, with players on both sides of
each transaction, with a score in money-points, and with eventual winners and
losers, it is often revealing to compare it to more familiar games. Take
baseball: the manager who orders a sacrifice bunt whenever nobodys out and
the tying run is on first base knows it wont work every time. The batter might
pop it up, a fielder could pull off a brilliant play, or the runner might die on
second anyhow. But he knows that the law of averages, developed 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.
Strangely, the same fan who appreciates that the manager is playing percentage baseball is unable to
translate that approach from baseball to the game he is playing the stock market. Instead of looking
back over his own record of success and failure to see which technique worked and which didnt, 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 time, he insists, after striking out again with the winning run on third, it
will be different.
Ever since the first corporate share was purchased, it has been a credo of American culture that the road to
wealth is the patient accumulation of stocks in growing corporations. As the country expanded, steel,
oil, mining, and railroad ventures paid off handsomely. For years, railroad shares were considered the
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premier investment for those whod 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 fortune only to railroad shares. As it turned out, railroads were safer than buggy-whip or
streetcar companies, but by the time the countrys massive industrial growth began to produce a
comparable boom in the stock market, railroads werent the 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 generations 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 can be warning enough in itself that something is wrong. To be sure, speculative
flings in search of something that hasnt 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 progressively more urgent: a stock does not
have to go down first to show that it is becoming weak. Merely not going up is, under most bullish
circumstances, a sign of trouble brewing.
The one thing we can guarantee is that none of it is easy. Just try to walk that fine line between not selling too
soon and not procrastinating one day too long! Any time any one of us, from professional trader to odd-lotter,
can boast of taking a profit, we have done something right. Luck is a mere bonus. What was right, simply put,
was that a stock was bought cheap and sold dear. But dont let anyone claim that the two halves of the act are
equally easy. Only someone who has never played the market game would believe that.
Snippets from Justins market letters
FI RE THE COMPUTER! (1984)
Which technical indicator do you think is most out of favor nowadays?
No, its not the overly arbitraged short interest ratio. Nor is it the
moribund odd-lot statistics. And everybody, on the principle of a
little knowledge is a dangerous thing, now knows about divergences.
Contrary opinion still works best, with front page articles and magazine covers providing useful
headlines to go contrary to. But what has gone the way of the aardvark is the ticker tape.
The computer is just another tool. It is no more of a magical machine than the Ouija board or the 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. The result has been the current markets aggravating behavior in which the averages made
new highs yet no one was happy. If you step back from the daily fray, and let everyone else play their
short-term games, youll do better. And if you find some little old guy in a back room with the blinds
pulled down, the tape clattering, and his charts posted by hand, ask him how he feels about the market.
ThePhilosophyof Tops(J uly31, 1987)
Tops are not made in a day. Unlike bottoms, which often can abruptly materialize on a climactic panic, with
many stocks making their lows at the same time (although still requiring ample subsequent base-
building), tops form over a much longer period of time. Also unlike bottoms, which form in anticipation
of discernible, albeit unbelieved, change, tops seem to come out of nowhere, indeed, out of a glowing
good-news climate. Nevertheless, there are several repeatedly appearing essential ingredients to tops,
the chief of which is, of course, how to fool the most number of people into confidently holding (and
even buying) stocks as the bull market ends. The way this is done see the November 1972 upside
breakout from a big head and shoulders consolidation is often almost by magic: Tops dont look like
tops.
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If you look at every top weve 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 werent sure enough of to act upon. The one eternal aspect of
every market top is that it occurs before were ready for it.
Special Report onthePhilosophyof BottomsTheFuture BasedonthePast (J anuary11, 1988)
...it is necessary to understand the nature of bottoms. Lows in the averages are not 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 downbottoms are made when selling becomes exhausted.
Special Report onBonds(August 31, 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 theres far more bearishness towards bonds than towards
stocks.
Similarly, for a longer-term target, one would measure the distance of the entire pullbackIf 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%). What else do you need to know?
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FromJ ustin, inaletter toafriendwhoisafinancial reporter:
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-haired for some senior executives. I went to the Exchange
because I had three mouths to feed and my hobby of charting the stock
market was all I knew that was employable. 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 time. I have to emphasize at that time. These were men who, for
the most part, had never gone to college, and some hadnt even finished
high schoolso there was nothing high falutin about their ethics,
nothing patrician about their background. But they traded on each
others word, and made million dollar transactions on a hand shake, and
never thought otherwise.
Somefuntitlesof past Mamisletters:
Damaged Goods on Sale
What is the matter with Mary Jane? Were having rice pudding for dinner again.
A.A. Milne
40 Points Down, 40 Points Up All in a Days Work
Honey, I Shrunk My Helper or The Demise of the Technician
Tulip Bulbs and the Tooth Fairy
Flushing It Down the Toilet
Dont Confuse Brains With a Bull Market (from a Fraser button)
Stock: a family of languages, tribes, racethe barrel of a gunlifeless, dulla pun-
ishment device, used often by the Pilgrimscooking brothrailroad rolling stock
Lock, stock and barrelput stock in, confidencea theatre company, often traveling
livestocka store or supplystock car racingStockholmstockingstock in
tradestock pilestock yardstockadestock certificates, stock holders, and stock
market!
Is Complacency the Opium of the Stock Market?
Is This Stock Market A Form of Three Card Monte?
Leverage is the Markets Form of Infidelity
The Wall St. Two-Step Put your little foot out the doorput your other foot back in
Hello, Everybody, Hello, Hello, HelloWake Up! Theyre Going to Rally!
(somewhat, sometime soon, and in some stocks)
Stop Stabbing at that Snooze Button! Get up, get up, you sleepyhead. Theres a rally underway!
Barrons, August 19, 1991.
Dorothy Ahle, Illustrator
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Wehavetoincludeachart of TheSentiment Cycle, page199, inTheNatureof Risk:
ANotefromKateWelling...
Most investors do not need an introduction to Kate Welling. She spent over
two decades at Barrons as a featured writer, assistant to the editor (Alan
Abelson) and managing editor, and produced virtually all of the magazine's
signature "Q&A" interviews, including its annual Roundtable issues. Today,
Kate publishes her own journal of research, analysis, opinion and
insight, WellingonWallSt.singular, incisive, thought-provoking.
www.wellingonwallst.com.
"Justin Mamis ostensibly employed the tools and language of technical
analysis to decipher the markets manifold moods over his long and
illustrious Wall Street career. And that he did, with admirable clarity,
without the hocus pocus oft resorted to by lesser practitioners, and
always with a self-deprecating sense of humor. But what also can be said
now, in retrospect, is that Justin, with his keen insights and gut instincts
into what was driving investors not to mention his curmudgeonly
contrary tendencies was actually one of the first, and certainly the
most original, practitioners of whats now called behavioral
analysis. The markets and investors have been immeasurably
enriched by Justins embrace of the risks and opportunities inherent in a
less-than-efficient market created by imperfectly rational investors."
A cycle begins with stocks
climbing a wall of worry, and
ends when there is no worry
anymore. Even after the rise tops
out, investors continue to believe
that they should buy the
dips..Unwillingness to believe in
that change marks the first phase
down: Its just another buying
opportunity. The second,
realistic, phase down is the
passage from bullish to bearish
sentiment...Selling begins to make
sense. It culminates with the third
phase: investors, in disgust,
dump right near the eventual low
in the conviction that the bad news
is never going to stop
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ANotefromDonPreston
Don Preston met Justin in 1984 while they were together at Cowen
& Co. After Justin spent some time at Gordon Capital, they met up
again at Hancock Financial/Tucker Anthony. Later, they left
together to form the independent advisory firm, Noah Financial.
Thirty years! For a young man like me, thats 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 doorand
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, its your turn to follow me and finally! retire. But
stick around. I can use a good guru. Most of all, be well,
Teacher, Leader, Friend.
ANotefromHeleneMeisler
Helene Meisler writes a daily technical analysis column as a Real Money contributor for
TheStreet.com. She met Justin in 1984 at Cowen & Co., rejoined him in 1992 at Gordon Capital,
and then together they left for Hancock Institutional/Tucker Anthony. Not long after, she went
to work for Cargill in 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.
Its been about thirty years since I first met and began working with Justin. The first day of working
together I was taught how to hand-post the John Magee stock charts. They are on semi-logarithmic
scales so it took quite a while to get the hang of it. I was still posting away at 8:30 pm, definitely not
pleased to be working so late.
Keeping in mind these were the days before there was a personal computer on every desk, the next
morning I said to Justin, "This is ridiculous! There must be a way to computerize this. In typical
Justin fashion, he responded that there was not only a certain feeling you got from putting the pencil to
the paper but from sharpening the pencils themselves.
A little more than ten years later, when internet usage was spreading fast, I tried to give up hand-
posting my charts; I couldnt. I found myself laughing out loud that in fact Justin was right: there is a
certain feeling you get from putting that pencil to the paper each night.
Thank you, Justin, for being my mentor and teaching me about the markets. As you always say, the
market teaches us something new every day, even when its dull, just to keep us interested.
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TO MOTHER MARKET
whose rewards when we are right,
stern responses when we are careless,
and fickle changes of direction,
have kept daily life fascinating
and challenging.
Inside cover of When to Sell, 3rd edition, 1999
Noah Financial Justin Mamis.. mamismail@aol.com
Michele Bernstein phone: 862-216-0066.mbernstein@gmail.com
Justins business card
Painting done by our Swiss son-in-law, Jrg Obrist, in late 1987 .
From our bulletin board
to yours...