<FOOLISH FOUR PORTFOLIO>
Deciphering the Library of Babel
by Ethan Haskel ([email protected])
Baltimore, MD (June 30, 1999) -- Let's take a little summer holiday and visit a land far, far away. Welcome to the Library of Babel, Jorge Luis Borges' magical, metaphorical universe. It's a world elegantly described in one of his short stories contained in the collection Labyrinths:
The universe (which others call the Library) is composed of an indefinite and perhaps infinite number of hexagonal galleries, with vast air shafts between, surrounded by very low railings. From any of the hexagons one can see, interminably, the upper and lower floors. The distribution of the galleries is invariable. Twenty shelves, five long shelves per side, cover all the sides except two; their height, which is the distance from floor to ceiling, scarcely exceeds that of a normal bookcase...
This Library is quite a place. Basically, the universe consists wholly of an array of hexagonally aligned bookshelves, expanding out almost ad infinitum. And these shelves don't contain just any old books.
There are five shelves for each of the hexagon's walls; each shelf contains thirty-five books of uniform format; each book is of four hundred and ten pages; each page, of forty lines, each line, of some eighty letters which are black in color. There are also letters in the spine of each book; these letters do not indicate or prefigure what the pages will say.
Each line of each book contains only the letters of the alphabet, a space, a comma, or a period. The volumes in the library are filled with every possible combination of these symbols, in near infinite number, as the bookshelves reach out into the cosmos.
The possibilities and potential of such a library are tantalizing. Since every possible combination or permutation of these characters exists,
There was no personal or world problem whose eloquent solution did not exist in some hexagon. The universe was justified, the universe suddenly usurped the unlimited dimensions of hope. At that time a great deal was said about the Vindications: books of apology and prophecy which vindicated for all time the acts of every man in the universe and retained prodigious arcana for his future.
The Librarians searched endlessly for such books that held the ultimate truths. But, alas, their efforts proved fruitless."For every sensible line of straightforward statement, there are leagues of senseless cacophonies, verbal jumbles and incoherences." For instance, someone found a volume that consisted only of MCVMCVMCV repeated over and over. Another book appeared to be complete gibberish, except for the next-to-last page, which read "Oh time thy pyramids."
Borges' fictional Library of Babel has a very real counterpart in the modern world of the exploding media. The sheer quantity of information out there is truly astounding. When it comes to financial advice, most of it is just plain false, misleading, or inappropriate for a specific individual. For every valuable piece of advice, there may be ten others of dubious merit.
A quick skim through a major finance periodical could serve as our first volume for the Library of Babel. The recent issue of SmartMoney Magazine touts the cover story "10 STOCKS NOW," with a ticking clock as the centerpiece. Of course, since the current issue on the newsstands was written many weeks ago, a more accurate headline might read "10 STOCKS TO BUY A MONTH AGO."
The SmartMoney article itself contains such Wise babbles as "... unless you work at it, it's very hard to get good economic diversification with as few as 20 stocks." Stocks are recommended based partly on analysis of financial gooroo Elaine Garzarelli, the market timer famous for her call of the "crash" of 1987. Here's one Foolish take on Elaine.
It's a jungle out there. Like the Library of Babel, the truth is out there somewhere. In fact, SmartMoney does sprinkle some good advice throughout. But how can we find the golden nuggets among all the "leagues of senseless cacophonies, verbal jumbles and incoherences?"
Unfortunately, there is no neon sign highlighting worthy information that flashes "TRUTH TRUTH TRUTH." Neither should readers take my writings nor any other Foolish Four column as gospel. The concepts spelled out here daily seem to make sense to us, but others have argued otherwise.
Deciphering the Library seems to require a hefty dose of equal parts common sense, independent thought, and the diligence to ask questions until satisfied. Our message boards can help sort things out quite a bit. Just keep on reading and questioning.
[Editor's Note: Following are the returns of a "paper" Beating the S&P portfolio that Ethan has been reporting on in the Foolish Workshop for many months. The stocks were selected December 31, 1998 and "purchased" in equal dollar amounts to be "held" for one year. To see a list of stocks for portfolios starting now, see Today's Stock Lists
Beating the S&P year-to-date returns (as of 06-29-99):
Schlumberger (NYSE: SLB) +33.0% Kimberly-Clark (NYSE: KMB) +5.5% Campbell Soup (NYSE: CPB) -20.1% Ford Motor Co. (NYSE: F) -7.2% Bank of America (NYSE: BAC) +22.9% Beating the S&P +6.8% Standard & Poor's 500 Index +10.5% Compound Annual Growth Rate from 1-2-87: Beating the S&P +20.6% S&P 500 +18.1% $10,000 invested on 1-2-87 now equals: Beating the S&P $101,900 S&P 500 $78,700
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Stock Change Last -------------------- CAT -1 1/8 60.00 JPM +4 3/4 140.50 MMM - 1/8 86.94 IP -2 1/2 50.25
Day Month Year History FOOL-4 -0.80% 3.58% 25.77% 27.63% DJIA +1.44% 3.89% 20.27% 19.80% S&P 500 +1.58% 5.45% 12.25% 12.53% NASDAQ +1.65% 8.71% 22.48% 24.16% Rec'd # Security In At Now Change 12/24/98 24 Caterpillar 43.08 60.00 39.28% 12/24/98 9 JP Morgan 105.51 140.50 33.16% 12/24/98 14 3M 73.57 86.94 18.17% 12/24/98 22 Int'l Paper 43.55 50.25 15.38% Rec'd # Security In At Value Change 12/24/98 24 Caterpillar 1034.00 1440.00 $406.00 12/24/98 9 JP Morgan 949.62 1264.50 $314.88 12/24/98 14 3M 1030.00 1217.13 $187.13 12/24/98 22 Int'l Paper 958.12 1105.50 $147.38 Dividends Received $49.99 Cash $28.26 TOTAL $5105.38