Long or Short Capital

I cannot give you a sure-fire formula for success, but I can give you the formula for failure, which is: Try to please everybody.
Herbert B. Swope

Past Quotes Entirely Relevant to Investing

The results for the TradingMarkets/Playboy 2006 Stock Picking Contest are finally in, with Deanna Brooks amassing a huge return of 43.43% on her portfolio. The premise was to combine models and charity as a way to promote the kind of active investing around which TradingMarkets builds its products. TradingMarkets.com claims to be “a financial information company that works with institutional and individual traders in helping them improve their trading.” I guess “purveyor of black box technical trading products to wannabe day traders” doesn’t sound as sexy.

Dorkins:

We advocate active investing as opposed to buy and hold. We do think [the performance of the playmates] is sort of a reflection on the buy-and-hold industry that shows that anyone can come in and do just as well or better than a supposed expert.

I’m sure he is familiar with statistics which, used properly, would indicate that there would be a high probability that some members of any sample of stock pickers will beat the S&P 500. Frankly, I’m not even sure he is familiar with numbers as the Playboy Model Composite underperformed the S&P 500 by a decent amount without adjusting for risk. Given that most models picked 3-4 random stocks, adjusting for risk would show that investing with the S&P 500 would have been a dominant investing option over investing in a portfolio of Playboy Model PM’s, a shocking and surprising result.

I am sure the majority of this site’s readers have been following the playmates more than their portfolios. Exploiting hot chicks that show their boobs is an excellent way to raise awareness for charity and forcing men to look at the stock market, or at least the boobies which are standing next to the stock market. But it’s apparent that this stunt was not for charity or even to boost the visibility of TradingMarkets.com. It was simply a way for this guy, Ashton Dorkins, to finally see in real life a woman he had also seen in her nude suit, blending his porn with his real life, to create a synthetic sexual experience.

Dorkins also said:

The ones that did very well picked stocks that they are familiar with. That goes back to the point that stock pickers should pick the stocks of companies they understand.

It is true that investors should make long or short choices about stocks which they are familiar with, especially when presented with a stock you are familiar with and a stock which you are not. If the opposite was true, then the yacht Mr Juggles bought with the money he has been paid to get familiar with companies would seem even more ludicrious than it already does. But Dorkins’ statement does not mesh with the reasons Deanna Brooks gave for her decisions:

Hauppauge Digital (HAUP), I’m a tech head my self, so anything that advances something like TV on your computer…you get my drift…

Pfizer (PFE), I like staying healthy and alive (and I think most people do!)

Yamana Gold (AUY), What girl doesn’t like a little bling? I’m hot for gold this year…

Petroleo Brasileiro (Petrobras) (PBR), Ok, I do own 2 hybrids and I’m pro-eco/ recycler/tree hugging liberal, but…oil is making money…(maybe I can buy my next Hybrid with the profits…)

IBM (IBM) Hey I’m emailing you on my computer aren’t I…they (computers) aren’t going away.

Maybe “familiar” is spelled differently in model-speak.

Recommendation: The real lesson of this story? Even if your point is wrong and stupid or your firm’s product expensive and terrible, it never hurts to bring in boobies, the zero downside asset class. Short Dorkins, Long boobies, Long long.

Note: This all presume Ashton Dorkins exists as a live human being. He may in fact just be an amalgam of digital nerds (or Nerd CEOs) which only exists in digital form like that terrible movie with Al Pacino. The name sounds made up, as no parent would give their child the name Dorkins — they would sooner change names or kill themselves than create progeny so endowed.

Since some firms already received their bonuses, it’s time to start Raising the Bar

To raise the bar in this case requires an accomplice, henceforth referred to as your confederate.

1. Put a call into your confederate and make sure that they’re within earshot of the person you want to mess with (usually enemies, sometimes friends and always douchebags). This person should be someone who does not work in finance, and who does not have a full grasp of such employment. They shall be henceforth referred to as the mark.
2. Have your confederate make it clear that they are speaking with you, and then start feeding them lines to exclaim aloud.
   Example:
   You: Ask me how my review went, then make an exclamation and ask
   Your confederate: How did your review go?
   You: It went well, they gave me [insert barely reasonable amount then multiply by the Raising the Bar multiplier of 1.2].
   YC: BY ZEUS, [1.2x the barely reasonable amount] is the most ever for a third year. I hate you. [1.2x the barely reasonable amount] is ridiculous.
3. When your confederate is out of earshot of your mark(s), find out if the mark was trying to listen or stopped their conversation. They only need to have heard one side of the above conversation to have absorbed the full effect

The above tactic will have manifold effects. Your mark will be made to:

• Think they’re getting a huge bonus if they haven’t received one yet.
• Think their “investment banker” (I don’t know what (s)he actually does, but (s)he works at XYZ Asset Management, how much do you think (s)he makes?) girlfriend/boyfriend is going to get a huge bonus.
• Hate you for getting more than they will get.
• Hate themselves for not working in finance.
• Feel the above points for no good reason, due to the fact that while those non-finance douches think you’re an investment banker, the reality is that your bonus was probably only $1000 in quarters because you’re an event planner at an investment bank.

Hedge Funds have become ubiquitous in today’s pop culture according to the NY Times. They use this snippet from the long running soap opera “All My Children” as proof:

Soft light gently illuminates two former lovers, eyes only for each other, as they stand on a balcony on a warm, starry night.”Love isn’t like a hedge fund, you know?” Ryan tells Kendall. “You can’t have all your money in one investment, and if it looks a little shaky, you can’t just buy into something that looks a little bit safer.”

Obviously, the writers have no idea what a hedge fund is; they probably assume that it’s where all the stock brokers work. What they should say is that love isn’t like a non-diversified traditional long-only fund.

In reality, love is exactly like a hedge fund. Love is a limited partnership structure (LP), it takes a large initial investment, and is largely unregulated. Frequently, it uses an aggressive strategy, relying on large directional bets and substantial amounts of leverage. The plan is to generate significant alpha (using the Lipper Love Average as a benchmark) but it is not uncommon to see a hedge fund or a love relationship with an unsuitably low Sortino ratio, indicating that it has strayed from it’s raison d’etre. This is a hedge fund (marriage) destined for fund outflows (divorce).

Love is relatively illiquid, such that if it takes on large speculative investments, and develops into something like a live-in relationship or marriage, there will be a lock-up period. This is where derivatives and hedging come into play. According to our possibly fabricated research, the married put was developed specifically for use in reducing the downside risk in instititional marriage markets.

It floors your downside, and there is unlimited upside; if the love falters or a better substitute arrives, you can walk away with no marginal pain. The best hedge funds just as the best marriages understand risk management and create an environment where downside protection is a given.