Here at "A Dash" we have had a number of comments and emails asking us to explain how we pick stocks.  So far we have not dealt with this topic, feeling that stock-picking was for clients.  There is always a time for an exception.

 Educating by Thinking Out Loud

Out of thousands of books read, it is easy to name the one re-read most often, Play Bridge with Reese.  We are not putting this on the recommended list, since it would not be helpful to the average investor, but there are some deep lessons.  A generation of current bridge experts grew up with this book.

There is a substantial overlap between the skills required for expert play at bridge and excellence in trading.  It is no accident that many top options traders and investors are world-class bridge players.  Here is a hint:  It is not tea and crumpets.  Success at bridge involves some combination of understanding an abstract language, logical inference, card-play technique, weighing risk and reward, knowing when to bluff, seeing problems from the perspective of others, and maintaining a relationship with your partner.  No wonder it is so difficult!

Terrence Reese

Terrence Reese was a leading player and writer.  His intense concentration was legendary.  During one session at his London club, some players tried an experiment.  A nude model pranced around the room while Reese was playing a hand.  When it was over, someone asked him if he had noticed anything unusual.  "There was something surprising about the play of the spade suit," he replied.

While Reese's career was tarnished by a cheating scandal, his innovative "over my shoulder" approach was a big success.  He always set the stage -- the opponents, their skill, the form of the contest.  He then described his thought process as he solved the key problem.  Usually there was an enduring lesson at the end.

This approach was widely imitated by other bridge writers.  Anyone familiar with modern literature about poker will also have instant recognition.  Nearly every book these days includes actual hands with detailed thought processes and analysis.

Application to Investing

Since this is such a successful teaching method, why not use it while analyzing investments?  The safe approach would be to take a past winner.  We could then show the brilliance of our analysis.  This would be the pure Reese approach.

We are going to try something that is both riskier and more interesting.  Let us try to analyze an idea in real time.

DryShips

Our case in point is DryShips, Inc.