I hope that you have found these question/answer posts on the blog beneficial. I enjoy answering these questions and am looking for more.

Please feel free to send questions to info@iitm.com with the subject line Question for Blog. Thank you for all of your questions so far and I look forward to answering more of them.

Posted by Van K Tharp at 02:03 PM | Permalink | Comments (0) | TrackBacks (0)

Q: From my understanding TIPS were designed to hedge us from the inflation. I believe the inflation fear is hanging everywhere. However the CPI released by the government is only around 2-3% which is pretty darn good to me.
I suspect that they are cooking the books since inflation is eating us alive in everyday activities: gas price, starbucks coffee, commodity price... Back to my question: If I would like to be hedged from inflation, is TIPS a good idea, or would I be better off with gold? Thank you very much.

A: Your question is really a two part question. Part one asks, "Is the CPI really a good measure of inflation?" The answer is unequivocally, "No." The government had too many obligations linked to the CPI and they couldn't afford to have payments such as social security going up with the real rate of inflation. As a result, they just started adjusting the CPI. John Williams has a web site called Shadow Government statistics (www.shadowstats.com) and it actually traces the what government is really doing. In fact, M3 was probably the best indicator of what is happening to inflation, but the Federal Reserve stopped publishing it some time ago, saying, "M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits." As a result, John William tracks M3 and his data
suggests that M3 is growing at 14% (which implies a 14% inflation). As a result, TIPS won't protect you.

In addition, the U.S. has another problem, which is the huge decline in the dollar. It's actually in a free fall. So not only is the dollar losing its value (inflation), but it's becoming weaker relative to other currency. As a result, your protection is gold.

Posted by Van K Tharp at 05:54 PM | Permalink | Comments (0) | TrackBacks (0)

Q:Van quotes William O'Neil advising for a multi-million dollar portfolio you only need hold 6 or 7 of your favorite stocks. I am investing 100000 so does purchasing 4 or 5 of the best performing stocks sound reasonable?
Once you have been stopped out of a share are there any rules as to when to re-enter that share. Should you try to re-enter when the value reaches where you were initially stopped out, or just wait till the market settles down?

A: Position sizing is all about how to meet your objectives. Without a clear statement of your objectives I could not possible answer any of the questions you have posed. The only reasonable answer to each of them is, IT DEPENDS. And what it depends upon is your objectives. Your objectives are half the task of developing a system that fits you. And if you did give me a complete set of objectives, then my answer to each of your questions would probably be at least a chapter long.

However, there is good news because we will be publishing the Definitive Guide to Position Sizing within the next few months and that will be a complete answer to this question.

Posted by Van K Tharp at 02:41 PM | Permalink | Comments (0) | TrackBacks (0)

Although I'm mostly using this blog to answer interesting questions that I get asked, trading and poker is one of my topics. And I just came across an amazing book. It's called the Mathematics of Poker. Its the first book I've really seen to emphasize game thery and poker. And, although I haven't read it yet, I believe that anything who reads (and understands) what it says will have a huge edge in the game of poker.

Bu that's the rub..its not easy reading. I skimmed it and it reads like a math book. However, several things fascinated me by it. First, it said that the "QUANTS" have taken over the trading business using information like this.

"In the same way that quants and mathematicians took over Wall Street in the late 80s, mathematical methods witll dominate poker for years to come." Jeffrey Yates, Founder, Susquehanna International Group.

But I don't know of any books related to a statstical, probability approach to the markets except my own. Thus, this book may be great for understand the markets better. That is certainly one of the reasons I'm going to be reading it.

Bill Chen, the mathematician author, won two World Series of Poker events last year. And both authors are professionals who cashed in on many events in 2006 (I don't know about 2007). And this book isn't really giving away secrets because few will understand it.

Posted by Van K Tharp at 07:02 PM | Permalink | Comments (0) | TrackBacks (0)