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Sunday, April 02, 2006

Disclosure: Part II

In an earlier disclosure, I talk about how I plan to disclose information on this blog. Now is a good time to add some more clarification.

There are two groups of people who will read this blog. The first group are regular readers who may possibly get investment ideas from this site and, performing their own due dilligence, might invest in stocks that I cover here, even stocks that I don't invest in, like Sunwin (D'oh!). The way I post information here, it should help in doing your own dilligence since I point to various links and over 80% of what I write here is simply collected public information. People in this group might also "spread the word" about companies that I cover, quite possibly without even giving me credit for it. This is useful to me because a lot of these companies have almost no visibility. By making them more visible, we increase the efficiency of the stock market overall and make money when the companies go up in price and stop selling so cheap.

The other group of people are those who find stuff here by searching for info on their own investments. Essentially this group is everyone who doesn't read this blog much.

Both groups of people find things of value here because all I've done is take public information and picked it apart in ways that are easily verified. But the first group hopefully will become somewhat different. Over time, I hope to develop a reputation for picking good stocks, but more importantly for providing useful information about a lot of stocks and for adhering to a standard of ethics that 1) I can live with, 2) is useful to people who read this blog. If that reputation becomes well recognized, then hopefully it will become more valuable than the amount of money I might make by deceiving people once or twice (and destroying the reputation). That reputation then becomes valuable to all of us. It's classic game theory stuff and it's the reason why successful product/service brands are so valuable*.

So getting down to details, we have a situation here where a stock that I'm currently invested in, and some regular readers might have invested in based on their own dilligence, has issued information causing the market to drop. I'm currently going through that information and I might discover that the market has either over-reacted (providing a buying oppportunity to increase my holdings) or under-reacted (providing a selling opportunity to exit my position). What is the right thing to do here? What is the action most likely to increase the value of my blogging activities in the long run? Have I already reached the point where the value of my reputation here is greater than the amount of money I'd make by deceiving people about C X T I?

I believe the answer to the last question is "yes" but that's mainly because I'm optimistic about the future of this blog. So I guess that means if I start seeming to be pessimistic, you should stop paying attention to what I write.

I think the other two questions have the same answer. The correct course of action is that, should I decide that there's a buying opportunity or a selling opportunity in C X T I for Monday and decide to withold the details until after I buy or sell, that I should state my opinion even if I don't post the details. And it would be a judgement call as to how much additional information I'd provide. It could be just a statement of whether I'm buying/selling, or I might add some high level explanation of what I see.

I can live that that code of behavior. As time goes on, I may need to commit to specific details about the "judgement call" when I run into any ethical issues in that area.

If this stuff seems odd, I'd suggest reading as much as possible about game theory and repeated trials of the "prisoner's dilemma". If you understand it, then you know why I'm holding myself to standards that no one is demanding or even asking for. Ok, so maybe one or two people are asking about it, but I could easily ignore them. It's in my own best interests to do what I'm doing.

In my opinion, all civilizations rest on nothing more than various solutions to repeated trials of the prisoner's dilemma, in a huge variety of forms. People have a very real motivation to get solutions and put them into place; if that weren't the case we would never even know about the concept of civilization.

* In many ways, a brand is an unwritten contract between customer and supplier that the product/service in question will continue to retain its characteristic qualities. The enforcement of the brand is essentially due to its value to the brand owner. Every car I've ever owned is a Toyota, but I can guarantee that I'll never own more than one low quality Toyota.

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