This document discusses predictions and the importance of adapting investments based on market conditions rather than making predictions. It notes that many predictions at the start of the year and football season end up being wrong. Successful portfolio management requires adapting to changing trends rather than stubbornly holding onto incorrect predictions. The author's approach focuses on identifying leadership in the market and having rules to accept when a trend is no longer favorable.

1. 6363 Woodway Dr
Suite 870
Houston, TX 77057
Phone: 713-244-3030
Fax: 713-513-5669
Securities are offered through
RAYMOND JAMES
FINANCIAL SERVICES, INC.
Member FINRA / SIPC
Green Financial Group
An Independent Firm
Predictions, Prognostications and Market Parity
Upon reaching the beginning of a new calendar year, an impulsive trend takes hold each and every year as
experts and armchair experts engage in the practice of predictions. It happens every year, it comes in
various forms, and arrives with the dependability of your neighbors every time you risk getting the paper
in your PJs. Some of these predictions are relatively innocuous, as few people are likely to adjust their
savings or spending habits dramatically based upon the bold predictions from the people at various fine
dining magazines as to what the up-and-coming trends at local eateries will be this year (for those keeping
score at home, start training your taste buds for generous portions of Rabbit in 2011). Others are a bit
more esoteric predictions that often result in outcomes both unexpected by the prognosticator, or
unpalatable by the investor.
The best part about predictions in the “New Year” is that very few people let the inaccuracy of last year’s
predictions have any bearing upon their gusto for this year’s prognostication. The issue is not really that
their predictions have been so horrible, but rather that predictions of any kind in the market often have
undesirable outcomes when an “of the year” moniker is attached. In my view, sound portfolio
management should not be about predicting what will happen from now until the end of some Gregorian
calendar that was established a few hundred years ago. My approach to investing is instead based upon
finding leadership in the market, and attaching a discipline that offers rules for accepting that a trend is
no longer working for me. My discipline is based upon the irrefutable economic principles of supply &
demand, and dictates that I adapt into assets controlled by demand and away from those controlled by
supply. In the end, this philosophy means that while others spend the month of January predicting, I
spend 12 months of the year adapting.

2. On a lighter note, though sad for many of us, January does represent the end (or nearly so) of another
football season. Both college and pro athletes will hang up the cleats for a few months as the competitive
season of 2010-2011 fades to a conclusion. What is interesting about football, however, is that many fans
unwittingly embrace a tactical approach toward identifying leadership in that sport just as I do in the
securities market. We may all have our “gut feelings” as the season begins as to who will represent the
leadership in the NFL or among the college football ranks by the end of the year. So often we are absurdly
wrong, and so the various polls we watch adapt in a much needed way each week. Consider the two
graphics below, the first compares the NFL Power Rankings (provided by ESPN.com) before the NFL
season began to those at the end of the year. While some of the preseason favorites of the NFL experts
proved accurate as time wore on (they found a good trend and stayed with it), many fell quickly from the
ranks of the elite, and some fell quite a bit further into the ranks of a particularly high draft pick come
April.
Clearly NFL experts needed a bit of portfolio management throughout the season. Three of their pre-
season favorites, after all, didn’t even make the playoffs. There’s no shame in that – predicting is hard to
do. Adapting can be even harder, as our egos don’t want to admit that just a few weeks into the season
our logical pre-season predictions have been proven wrong. But it is by adapting their expectations based
upon what was actually happening on the field, rather than just what was supposed to happen based upon
preseason aspirations, that ESPN’s top 10 “power” positions were occupied by only eventual playoff teams
by week 6. Meanwhile, the “unmanaged” portfolio of Preseason favorites (shown above) had some rather
unsightly holdings by the end of the year, trends that had clearly turned against them months before.
College football was no different this year as the BCS Championship game was eventually decided
between two teams who were not even ranked in the AP top 10 at the beginning of the season. As flawed
as the college football championship determining process may be, at least it adapts throughout the season

3. as new information is collected from the hundreds of games that occur each Saturday. By the end of the
year, five pre-season top 10s remained at the top of the their class, while three of college football’s pre-
season favorites were nowhere to be found amongst even the AP top 25.
Many predictions are made throughout the course of the year, and they are made by people both very
smart and very well versed in their particular fields of study. Sometimes this expertise works against
them. Experts get it wrong too. The best of them adapt quickly upon realizing it though. As we are all far
too familiar with, even the best meteorologists get it wrong from time to time. And so when we open our
front door to an unexpected morning rain shower, we adapt to the scenario (or at least my wife does),
generally by “selling” cashmere and being “long” vinyl; or its equivalent.
In our day-to-day lives we regularly adapt, but in our investments it is all too easy to buy into a story or a
concept that is simply rejected by the reality of the market. My business is built upon the ability to adapt,
as I know I will be wrong in any number of investments decisions over the course of my career. It is okay
to be wrong, in fact it’s inevitable. But it isn’t okay to stay wrong, and it isn’t okay to arbitrarily wait until
December 31st, 2011 to realize we were wrong.
If you would like to become more familiar with my investment process and the tools I use to identify
market leadership across major asset classes, please contact me at your convenience. Otherwise, I’ll spare
you the predictions and simply thank you for your business, trust and confidence, and wish you a very
Happy New Year.