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The Scientific Method & Investment Management


 

Beat The Dealer – More Ed Thorp

Jesse And The Quake

At eight o’clock in the morning of Wednesday April 18th 1906, Jesse Livermore was sound asleep in his New York hotel room after arriving back late from Palm Beach the previous evening.

3000 miles away, across the country in California, it was five o’clock in the morning and the city of San Francisco slept contentedly. Barely two minutes later, the earth shook and all 410,000 citizens were awoken as the San Andreas Fault suddenly ruptured. There were two quakes. The initial quake was hardly noticeable but, 20 seconds later, the earth tremored for 42 seconds at force eight, just about as bad as it gets. It shattered the surface of the earth for a length of 296 miles across California. At its epicentre, the ground moved 28 feet.

More here – The Reformed Broker

Expert Interview Series: Louise Bedford

LB recently did a guest spot on Expert Interview for Best Choice Software. The entire thing can be found here.

The Incredible True Story of the Real Life ‘Trading Places

Click the image below to be taken to the recording.

Bloomberg

Quote Of The Day

“Become more humble as the market goes your way.” – Bernard Baruch

Lessons from a Legendary Short Seller

In 1978, Wilson had a disastrous experience shorting the Resorts International casino company. Forbes dubbed it “the most catastrophic short play in modern times.”

Wilson reasoned that gambling wouldn’t catch on in Atlantic City in the 1970s. Jet travel was picking up and people could easily fly to Las Vegas instead. Ironically, he has since been proven correct, but this is a testament to the old investing adage that “Being too early is indistinguishable from being wrong.”

Wilson’s interest in Resorts International was piqued when the company’s earnings went from “something like a $600,000 in one year to an understated $50 million,” he recalled. The market believed the firm had a powerful first-mover advantage and a sustainable monopoly. Wilson felt otherwise and believed competition would rapidly pressure the high margins.

He shorted 200,000 shares in 1978 at $15 and watched them hit $190 three months later — an enormous loss on paper. Wilson’s mistake was in anticipating government expediency, when in reality it took years for new casinos to be approved.

Wilson covered stock all the way up due to margin calls, losing millions in the process. Incredibly, he still managed to generate 25% returns for his investors that year, which he estimated would have been 50% to 70% without the Resorts International loss.

More here – CFA Institute

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