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TMF was an innovator when it came to arguing that the average schmoe can invest in stocks.


The Gardner brothers weren’t innovators, but cribbers, albeit amusing ones. Pull their history, and then dig into the writings of the real innovators, men like Dow, Wyckoff, Schwabaker, Livermore, Merrill, whose focus was trading for their own accounts, but who had the awareness that their writings would enable small investors to trade for themselves, that they didn’t need a broker for anything but execution, and they didn’t need any more info to make their investing decisions than price and volume, graph paper, a pencil, and straight edge.

You want a nuts-and-bolts approach to bond investing? Those guys invented its basis over 80 years ago. My adapting of their work to bond investing was the lowest of low-level hacks, and I can tell you to the day and hour when I realized that. I can tell you the chair I was sitting in, the direction I was facing, feet up on the desk, a book in my lap, the quality of the mid-afternoon light as it streamed through the windows of my home office. In a flash of intuition, I knew I could apply stock trading techniques to bond investing and make it work. The key was managing my risks through position-sizing. To survive, I couldn’t over-bet my hand. To prosper, I couldn’t under-bet it.

Where do “modern” bond investors go wrong? Ah, let me count the ways. But the chief is fable known as ‘Modern Portfolio Theory’ which follows upon their unwillingness to question the conventional “wisdoms”. Investing, all of it, is a negative-sum, betting game. You and a counter-party are making bets with each other. One of you is wrong, and the middlemen always get their cut. Your job is to ensure, as best you can, you’re right more often than he is about the things that matter. That means you can’t let yourself get thrown out of the game while you’re trying to learn the game. If your account is small, you’ve gotta bet small, and you’ve gotta think diachronically, not synchronically, about risk-management. The rest is just details, picked up on the fly. To use a fly fishing analogy, how do you work a stretch of water? Bond investing ain’t no different. Read the water, do a presentation. Pick up line, lay it out again, and then move on to the next setup.

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