The DOIC meets weekly in East Utica , New York

( 29DEC08-18DEC09)

2008:DOIC +126.4%
Hal F. Wit +507
Oracle -61
Poodah -67
Randy Walker -10.2
2007:DOIC +111.2%
Hal F. Wit +345
Oracle -14.4
Poodah +2.6
Randy Walker +15.1

2006:DOIC +18.2%
Hal F. Wit +10.7
Oracle +11.1
Poodah +32.9

DOIC Bookshelf:
The Wealth of Nations, Adam Smith
Winning on Wall Street, Martin Zweig
The Intelligent Investor, Benjamin Graham
Beating the Street, Peter Lynch
Real Money, Jim Cramer
The Constitution of Liberty, Friedrich Hayek
A Random Walk Down Wall Street. Malkiel

Download the partnership agreement for the club.


The Drooling Oatmeal Investment Club
"Make money before you're so old that you're drooling  oatmeal"
Help end world hunger

Oracle of Jay Street


Hal F. Wit


An interesting article from Risk Magazine:

Rehypothecation "driver of contagion" during crisis
Author: Peter Madigan

"Rehypothecation of client assets was one of the “dominant drivers of contagion” during the financial crisis, amplifying the market turmoil in the wake of the Lehman Brothers collapse, the Senior Supervisors' Group (SSG) has concluded.

The body, consisting of financial regulators from the US, Japan, Germany, France, the UK, Canada and Switzerland, made the assertion in its Risk Management Lessons from the Global Banking Crisis of 2008 report, issued as a follow-up to its first survey published in March 2008. It noted that “many of the weaknesses highlighted in our first report continue to contribute to financial strains. Despite the passage of many months since our first survey, we found that a large number of firms had not fully addressed the issues raised at that time”.

The authors noted that, following the bankruptcy of Lehman Brothers International Europe (LBIE), clients that had elected to allow the dealer to rehypothecate their assets – the process by which a dealer lends out collateral posted by a client to another counterparty - found themselves caught in the bankruptcy as mere unsecured creditors to the estate, rather than having their assets preserved in segregated customer accounts.

As a result, counterparties that should not have been significantly affected by the collapse of the dealer found their assets trapped in the insolvency, shrinking their funding base and dragging a host of additional institutions into a precarious fiscal position, further deepening the crisis. LBIE’s administrators PricewaterhouseCoopers confirmed that more than $40 billion in hedge fund collateral had been swallowed in the collapse.

“Custody of assets and rehypothecation practices were dominant drivers of contagion, transmitting liquidity risks to other firms. The loss of rehypothecated assets and the “freezing" of custody assets created alarm in the hedge fund community and led to an outflow of positions from similar accounts at other firms. Some firms’ use of liquidity from rehypothecated assets to finance proprietary positions also exacerbated funding stresses,” the authors concluded.

The report focuses heavily on liquidity risk and capital management processes at institutions in seven of the world’s largest economies, and determined that firms continue to exhibit weaknesses more than 18 months after concerns were first raised by the SSG. 

Paying particular attention to liquidity risk, the report notes that the institutions found to be most vulnerable during the crisis depended heavily on uninterrupted access to secured financing markets, and relied on excessive short-term and often overnight wholesale financing of long-term illiquid assets, a practice that made it difficult for the firms to withstand market turmoil without a deposit base to draw upon and central bank support.

Conversely, the institutions that weathered the storm much better were those that resisted taking advantage of short-term credit and were able to draw on other sources such as deposits, liquidity pools consisting of government bonds and central bank lending facilities.

The SSG also concluded that “considerable work” remains to be done in the areas of governance and internal controls. It blamed senior managers and directors for being unwilling or unable “to articulate, measure, and adhere to a level of risk acceptable to the firm,” and added that existing compensation plans often conflicted with the control objectives of the firm and favoured risk-takers at the expense of independent risk managers and control personnel.

Opening your IRA statement

SEP 09



Oracle goes positive!
DOIC goes positive!
As does the S&P500.
(Click Picture to enlarge)





An Excellent Article from WIRED magazine on the mis-pricing of risk

Here's what killed your 401(k)   David X. Li's Gaussian copula function as first published in 2000. Investors exploited it as a quick—and fatally flawed—way to assess risk. A shorter version appears on this month's cover of Wired.


Specifically, this is a joint default probability—the likelihood that any two members of the pool (A and B) will both default. It's what investors are looking for, and the rest of the formula provides the answer.

Survival times

The amount of time between now and when A and B can be expected to default. Li took the idea from a concept in actuarial science that charts what happens to someone's life expectancy when their spouse dies.


A dangerously precise concept, since it leaves no room for error. Clean equations help both quants and their managers forget that the real world contains a surprising amount of uncertainty, fuzziness, and precariousness.


This couples (hence the Latinate term copula) the individual probabilities associated with A and B to come up with a single number. Errors here massively increase the risk of the whole equation blowing up.

Distribution functions

The probabilities of how long A and B are likely to survive. Since these are not certainties, they can be dangerous: Small miscalculations may leave you facing much more risk than the formula indicates.


The all-powerful correlation parameter, which reduces correlation to a single constant—something that should be highly improbable, if not impossible. This is the magic number that made Li's copula function irresistible.



2008 Results +126.4%


The market is tough all around but Poodah has some sure picks for us next week.

My picks for 2009:


The basis will be close-of-market 31dec08.
The first report will be as of the week ending 09jan09.

Get your picks in soon or be accused of picking with hindsight. Just to show
you what a fair guy I am, I ditched FNSR and BRCD for KBR and NAT. BRCD had
a 9.89% gain today and FNSR had a 15.74% gain. I could have started with
those gains in my pocket, but I didn't. Noblesse oblige.


Be Thankful for Difficult Times
By Author Unknown and modified by Hal F. Wit

Be thankful that you don't already have everything you desire.
If you did, what would there be to look forward to?
Be thankful when you don't know something,
for it gives you the opportunity to learn.

Be thankful for the difficult times.
During those times you grow.
Be thankful for your limitations,
because they give you opportunities for improvement.
Be thankful for each new challenge,
because it will build your strength and character.

Be thankful for your mistakes. They will teach you valuable lessons.
Be thankful when you're tired and weary,
because it means you've made a difference.

Free rice is a worthwhile charity that only requires intellect:  Please take a minute and make a (small) difference:



The Money Masters



Konica Minolta to purchase DOIC.(INDUSTRY NEWS)
Publication Date: 05-MAY-08
Publication Title: Printing News

Konica Minolta Business Solutions U.S.A. Inc. signed an agreement to purchase Danka Office Imaging Co. (DOIC) for $240 million.

Under the terms of the agreement, Konica Minolta will begin servicing network-ready multifunctional products (print, copy, fax, and scan all-in-one system), and network printers in DOIC markets in the middle...


Depression 2009?

The Party is over for Investment Banks

I have Sold my  LEH JAN 09 $35 PUTs  - Hal F. Wit June 08

Excerpt from: 

"Brokers threatened by run on shadow bank system "  Market Watch 19Jun08 By Alistair Barr

"A more worrying question from the Bear Stearns debacle is why customers and investors were willing to lend money to the firm in the absence of an adequate capital cushion, Hamilton said.

"The creditors thought that Bear was too big to fail and that the government would step in to prevent creditors losing their money," he explained. "They were right because that's exactly what happened."

"This is a system in which institutions like Bear Stearns are taking far too much risk and a lot of that risk is being borne by the government, not these firms or the market," he added.

The Fed has lent between $8 billion and more than $30 billion each week directly to brokerage firms since it set up its new program in March. Most experts say this source of emergency funding is unlikely to disappear, even though it's scheduled to end in September.

"It's almost impossible to go back," FDIC's Bair said on Wednesday."



HalfWit humbled by Google resurgence. Still far ahead, though. Oracle recovering steadily.Poodah numero ultimo. Finisar sucks sea water in patents appellate court. Randy Walker now beating the DOIC Fund. 

"What a revolt'n development this is!
(William Bendix in 'Life of Riley', radio program, 1940s - 1950s)

Is it time yet.....


I have placed a stop loss on my LEH JAN 09 $35 PUTs at $3.00.

- Hal F. Wit

Bear market (Wikipedia)

A bear market is described as being accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was after the Wall Street Crash of 1929 and lasted from 1930 to 1932, marking the start of the Great Depression.[5] A milder, low-level long-term bear market occurred from about 1967 to 1983, encompassing the stagflation economy, energy crises in the 1970s, and high unemployment in the early 1980s.

Prices fluctuate constantly on the open market; a bear market is not a simple decline, but a substantial drop in the prices of a range of issues over a defined period of time. By one common definition, a bear market is marked by a price decline of 20% or more in a key stock market index from a recent peak over a 12-month period. However, no consensual definition of a bear market exists to clearly differentiate a primary market trend from a secondary market trend.

Investors frequently confuse bear markets with corrections. Corrections are much shorter lived, whereas bear markets occur over a longer period with typically a greater magnitude of loss from top to bottom.

DOIC Update - Year End - 2007 
1 Jan 08 By:  Poodah

End of the year. What have we learned?  A year ago, in high spirits, we decided to test Malkiel's thesis ("A Random Walk Down Wall Street") - that random picks will statistically outperform choices made by presumed expert stock pickers. For a lark, we performed a single test of this thesis in the full knowledge that, statistically speaking, it was meaningless in isolation. Randomness evades proof or disproof. Invisible or venal bias pollutes the selection process and 100% proof requires an infinite number of trials. The first obstacle is that of ensuring that the selection is truly random.

We think we achieved respectable certainty on this point: an anonymous volunteer agreed to prick a folded copy of Barron's stock tables with a cheap hunting knife (enthusiasm prompted us to take the first instrument that came to hand). At least two flaws in our selection process will be apparent to the trained experiment designer:


We were beaten by random pricks.....

The first flaw was that one of the DOIC members folded the paper. Granted, it's a reach, but the critic might cite subconscious bias on the part of the folding member, drawing on the unknowable abilities of the mysterious human brain to internalize the contents of the tables and apply this buried information to an algorithm involving probabilistic calculation of the most likely stabbing point. Too much brain magic for me, but the purist might mention it. True rigor would have required that we find a "folder" who knew nothing of the stock market, as did our "stabber".

The second flaw was one of instrument selection: The blade of the knife, in piercing several pages of the tables, naturally created a line rather than a point, intersecting multiple stock symbols on each page. This required conscious selection by a sentient being to, in an unbiased manner, determine which of the candidate symbols would be selected. To compound this flaw, one of the DOIC members performed the task. Once again, subconscious bias could have been at work, and this time, no brain magic was necessary. In hindsight, an ice pick would have been preferable.

Having described the limitations and imperfections of our experiment, we present our analysis of its results:

On the face of it, Malkiel wins big. Randy Walker was up 15.1%, compared to plus 2.6% for Poodah, minus 14.4% for The Oracle, minus 4.2% for Hal F. Wit and minus 5.3% for the DOIC combined portfolio. In addition, he almost tripled the return of the S&P 500. (See Note, below) In the first place, however, we take the position that such dramatic results were not part of Malkiel's thesis and should be viewed with suspicion. In the second place, selection of the S&P 500 components is primarily quantitative, rather than qualitative. We aver that the selection process involved is not a proper target for Malkielien analysis. Moreover, the selection list (500) is large enough to introduce a large degree of randomness in itself. Statistically, we would expect Malkiel and the S&P 500 to exhibit similar results - after an infinite number of test cases, of course.

For these reasons, we declare the results of our experiment to be an outlier several sigmas to the right-hand side of the Bell curve and, therefore, totally without meaning. We plan to repeat the experiment for 2008. This year we will use an icepick.

[Note: Hal F. Wit was the undisputed champion with a gain of 345.3%, but this included a savvy bet against CFC based on his analysis of the subprime mortgage market debacle. We take it that Malkiel was addressing stock selection for relatively long-term investment purposes, not trading derivatives or short-selling, which would have greatly complicated his analysis while at the same time dilluting its impact for those we consider his his target audience, the tryo mutual fund investor.]

Hal F. Wit +345.3 ( Hal F. Wit w/o PUTs -4.2)
Oracle -14.4
Poodah +2.6
DOIC +111.2 ( DOIC w/o PUTs -5.3)
Random +15.1

S&P +3.5


Poodah, asleep for 10 weeks, has awakened!!!

We are humiliated to report that Poodah has been asleep at the wheel since 19oct07. On Monday of that week, KEYS was acquired by LKQX, an event to which Poodah was oblivious. Throughout the ensuing nine weeks, he noticed, with only mild interest, that KEYS was not much of a mover - unchanged week after week. Only this week did the observation percolate up through the little brown cells into the few remaining little grey cells.

The effect of this oversight has been to understate the performance of Randy Walker, believe it or not. Whereas, previously Randy Walker was reported as being up by between 1% and 13.6% during those weeks, the correct range is up between 4% and 18.2%. This is because KEYS was frozen at +41%, while LKQX went on to rise another 35%. So he's been beating us all by more than we thought.

Poodah has a reasonable excuse for his long funk, but who cares?

Fiat Currency

Hal F. Wit:   Per our agreement, I will reproduce 60 each of the attached and release  as local intellectual currency.

Backer:  My next step will be to motivate some currency exchange transactions so as to establish a market-based exchange rate valuation of my scrip.

Hal F. Wit:  They are only valid if signed in blue ink by the backer.

Backer: You create an interesting scenario: you are the issuer; but I am the backer. As issuer, you require an economic return; how do you attain it? Will you spend some of these notes? Will you lend them for interest or for a share in a venture (as in Islamic banking)? How much do you discount their value to reflect the risk you take by issuing a currency competing with the legal tender of the realm? How much will the market discount them?

By issuing copies, you inflate the money supply, which would normally deflate the value of each note; yet the notes state how they are backed, and the value of the backing has not diminished (assuming that 60 minutes of consulting time are within the limits of my production capacity).

Likewise, as backer, what is my motivation for ratifying this inflation? In this case, the possibility of increasing demand for my consulting time is easily worth the additional capital that I risk (the chance that the notes will actually be presented to me and a demand made); then there is the value I place on the experiment itself, from sheer curiosity.

As one of my main fictional heroes, Mr. Spock, would say, "Fascinating..."

Poodah:  "By issuing copies, you inflate the money supply, which would normally deflate the value of each note; yet the notes state how they are backed,  and the value of the backing has not diminished (assuming that 60  minutes of consulting time are within the limits of my production capacity)."

That's how it works - if you have more of the underlying asset upon which the notes are based (e.g., the gold-backed dollar of yore), you can issue more notes without deflating the unit value. Unlike gold, however, the unit value of this backing will, at some undefined (but easily boundable) threshold, diminish with use. Although gold is intrinsically stable, Stu's time is both highly variable in supply and an inexorably diminishing asset.





THIS AGREEMENT OF PARTNERSHIP made as of January ____, 2008 by and between the undersigned


1.              FORMATION OF THE PARTNERSHIP: The undersigned hereby form a General Partnership, in, and in accordance with the laws of the State of New York.

2.              NAME OF THE PARTNERSHIP: The name of the Partnership shall be the DOIC Investment Club.

3.              TERM: The Partnership shall begin on January 1, 2008 and continue until December 31, and thereafter from year to year unless earlier terminated as hereinafter provided.

4.              PURPOSE: The purpose of the Partnership is to invest the assets of the Partnership solely in stocks, bonds, and securities, for education and benefit of the partners.

5.              MEETINGS: Periodic meetings shall be held as determined by the Partnership.

6.              CONTRIBUTIONS: The partners may make contributions to the Partnership on the date of each periodic meeting, in such amounts as the Partnership shall determine.

7.              VALUATION: The current value of the assets and property of the Partnership, less the current value of the debts and liabilities of the Partnership, (hereinafter referred to as "value of the Partnership") shall be determined as of a regularly scheduled date and time ("valuation date") preceding the date of each periodic meeting determined by the Club.

8.              CAPITAL ACCOUNTS: There shall be maintained in the name of each partner a capital account. Any increase or decrease in the value of the Partnership on any valuation date shall be credited or debited, respectively, to each partner's capital account in proportion to the value of each partner's capital account on said date. Any other method of valuating each partner's capital account may be substituted for this method provided that said substituted method results in exactly the same valuation as previously provided herein. Each partner's contribution to, or withdrawal from, the Partnership shall be credited, or debited, respectively, to that partner's capital account.

9.              MANAGEMENT: Each partner shall participate in the management and conduct of the affairs of the Partnership on one partner/one vote basis regardless of his capital account.

10.         SHARING OF PROFITS AND LOSSES: Net profits and losses of the Partnership shall inure to, and be borne by, the partners in proportion to the valuation adjusted credit balances in their capital accounts or in proportion to valuation unit balances.

11.         BOOKS OF ACCOUNTS: Books of account of the transactions of the Partnership shall be kept and at all times be available and open to inspection and examination by any partner.

12.         ANNUAL ACCOUNTING: Each calendar year a full and complete account of the condition of the Partnership shall be made to the partners.

13.         BANK ACCOUNT: The Partnership shall select a bank for the purpose of opening a Partnership bank account. Funds deposited in said Partnership bank account shall be withdrawn by checks signed by any of three (3) partners designated by the Partnership. If check amount exceeds limit set in By-Laws, two signatures will be required.

14.         BROKER ACCOUNT: None of the partners of this Partnership shall be a broker, however, the Partnership may select a broker and enter into such agreements with the broker as required, for the purchase or sale of stocks, bonds, and securities. Stocks, bonds and securities owned by the Partnership shall be registered in the Partnership name unless another name shall be designated by the Partnership.

          Any corporation or transfer agent called upon to transfer any stocks, bonds and securities to or from the name of the Partnership shall be entitled to rely on instructions or assignment signed or purporting to be signed by any partner without inquiry as to the authority of the persons signing or purporting to sign such instructions or assignments or as to the validity of any transfer to or from the name of the Partnership.

          At the time of transfer, the corporation or transfer agent is entitled to assume (1) that the Partnership is still in existence and (2) that this Agreement is in full force and effect and has not been amended unless the corporation has received written notice to the contrary.

15.         NO COMPENSATION: No partner shall be compensated for services rendered to the Partnership, except reimbursement for expenses.


16.         ADDITIONAL PARTNERS: Additional partners may be admitted at any time, upon unanimous consent of all the partners in writing or at a meeting so long as the number of partners does not exceed 20.

      1. TRANSFER TO A TRUST: A partner may, after giving written notice to the other partners, transfer his interest in the Partnership to a revocable living trust of which ___________ is the grantor and sole trustee.
      2. REMOVAL OF A PARTNER: Any partner may be removed by the agreement of the majority of the partners. Written notice of a meeting where removal of a partner is to be considered shall include a specific reference to this matter. The removal shall become effective upon payment of the value of the removed partner's capital account, which shall be in accordance with the provisions of a withdrawal of a partner noted in paragraphs 18 and 20. The vote action shall be treated as receipt of request for withdrawal.


17.         VOLUNTARY TERMINATION: The Partnership may be dissolved by Agreement of the majority of the partners. Notice of said decision to dissolve the Partnership shall be given to all the partners. The Partnership shall thereupon be terminated by the payment of all the debts and liabilities of the Partnership and the distribution of the remaining assets either in cash or in kind to the partner's or their personal representatives in proportion to their capital valuations accounts.


18.         WITHDRAWAL OF A PARTNER: Any partner may withdraw a part or all of his interest. He shall give notice in writing to the Recording Partner. His notice shall be deemed to be received as of the first meeting of the club at which it is presented. If notice is received between meetings, it will be treated as received at the first following meeting. In making payment the valuation statement prepared for the meeting at which the notice of withdrawal is received will be used to determine the value of the partner's account. The other partners shall have and are given the option to purchase, in proportion to their capital accounts in the Partnership, the capital account of the withdrawing partner. If the other partners do not exercise their option to purchase, then the Partnership shall pay the withdrawing partner a portion or all of the value of his interest in the Partnership as shown by the valuation statement in accordance with paragraph 20 of this Partnership Agreement.


19.         DEATH OR INCAPACITY OF A PARTNER: In the event of the death or incapacity of a partner, receipt of such notice shall be treated as a notice of withdrawal. Liquidation and payment of the partner's account shall proceed in accordance with paragraphs 18 and 20.


20.         PURCHASE PRICE AND TERMS OF PAYMENT: In the case of a partial withdrawal, payment may be made in cash or securities of the Partnership or a mix of each at the option of the partner making the partial withdrawal. In the case of a full withdrawal, payment may be made in cash or securities or a mix of each at the option of the remaining partners. In either case, where securities are to be distributed, the remaining partners select the securities.

          Where cash is transferred, the partnership shall transfer to the partner (or other appropriate entity) withdrawing a portion or all of his interest in the partnership, an amount equal to the lesser of (i) ninety-seven percent (97%) of the value of the capital account in the partnership being withdrawn or (ii) the value of the capital account being withdrawn, less the actual cost of to the partnership of selling sufficient securities to obtain the cash to meet the withdrawal. If the sale of securities is necessary, at the next partnership meeting following the completion of such sale and payment of all associated costs, the partners shall review the details and determine which of the options (I) or (ii) pertain. A check for the appropriate amount will be issued and the check will be released to the withdrawing partner within 10 days of such review.

          If a partner withdrawing a portion or all of the value of his capital account desires an immediate payment in cash, the partnership at its earliest convenience may pay eighty percent (80%) of the estimated value of his capital account and settle the balance in accordance with the valuation and payment procedures set forth in paragraphs 18 and 20.

          When securities are transferred, the partnership shall select securities to transfer equal to the value of the capital account or portion of the capital account being withdrawn (i.e. without reduction for brokerage commissions). Securities shall be transferred as of the date of the Club's valuation statement prepared to determine the value of that partner's capital account in the partnership. The Club's broker shall be advised that ownership of the securities has been transferred to the partner as of the valuation date used for the withdrawal.

21.         FORBIDDEN ACTS: No partner shall:

      1. Have the right or authority to bind or obligate the Partnership to any extent whatsoever with regard to any matter outside the scope of the Partnership business.
      2. Except as provided in paragraph 16.1, without the unanimous consent of all the other partners assign, transfer, pledge, mortgage or sell all or part of his interest in the Partnership to any other partner or other person whomsoever, or enter into any Agreement as the result of which any person or persons not a partner shall become interested with his in the Partnership.
      3. Purchase an investment for the Partnership where less than full purchase price is paid for same.
      4. Use the Partnership name, credit or property for other than Partnership purposes.
      5. Do any act detrimental to the interests of the Partnership or which would make it impossible to carry on the business or affairs of the Partnership.
      6. Borrow money in name of the Partnership without majority consent or mortgage or pledge Partnership assets.

          This agreement of Partnership shall be binding upon the respective heirs, executors, trustees, administrators and personal representatives of the partners.

          The partners have caused the Agreement of Partnership to be executed on the dates indicated below, effective as of the date indicted above.

(Signatures of partners)


 Disclaimer:  If you buy stocks based on "tips/internet web sites/chat groups/message boards", you deserve what you get.

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