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  • QOTD

    Insisting on perfect safety is for people who don’t have the balls to live in the real world. Mary Shafer -NASA Dryden Flight Research Center, Edwards, CA SR-71 Flying Qualities Lead Engineer I stumbled across this quote and thought it was the most perfect description of what is required for trading. If you dont have… Read more…

  • The secret to happiness? Stop trying to be happy.

    A few minutes after Neil Pasricha learned his wife Leslie was expecting their first child, he got an idea for a book. They were sitting on a plane returning to Canada from a trip to Asia when a flight attendant handed them a plastic-wrapped muffin with a scrap of paper that read, “Congratulations!” Leslie had… Read more…

    The secret to happiness? Stop trying to be happy.
  • Ok…..Im Confused

    This popped up on my feed this morning. Long story made short. All analysts say Spotless is a bust, one analyst says no you are all dickheads – its actually worth $1.15. Spotless halves and then through a fluke gets a takeover bid lifting prices to $1.05. Analyst who said it was worth $1.15 is hailed… Read more…

    Ok…..Im Confused
  • The Astonishing Vision and Focus of Namibia’s Nomads

    Nestled in a grassy valley of north-western Namibia, Opuwo may seem like a crumbling relic of colonial history. With a population of just 12,000, the town is so small that it would take less than a minute to drive from the road sign on one side of town to the shanty villages on other. Along… Read more…

    The Astonishing Vision and Focus of Namibia’s Nomads

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RIP Chuck Berry

This is my favourite Chuck Berry clip simply for the wild eyed look he gets when Yoko One starts squealing as if someone had given her a Rubiks Cube suppository…

Financial Disclosure

The disclosure statement below is currently doing the rounds and it is apparently from a long defunct fund called the IPS Millennium Fund. Apparently it is being lauded as being an honest example of what a disclosure statement should be instead of the usual corporate speak that these things are comprised of.  However, the tone of the language indicates to me that the fund was always going to go broke simply because of the cavalier attitude of the funds owners with other peoples money. The statement seems to indicate no understanding whatsoever of trading and risk management. Granted corporate speak is a pain in the arse and once you are subject to any sort of regulatory regime it becomes part of the territory. However, it is not an excuse to be a dickhead with other peoples money and the way you do one thing is the way you do everything. If you are a dickhead in the way you frame your understanding of risk then you are going to be a dickhead when it comes to managing that risk.

First of all, stock prices are volatile. Well, duh. If you buy shares in a stock mutual fund, any stock mutual fund, your investment value will change every day. In a recession it will go down, day after day, week after week, month after month, until you are ready to tear your hair out, unless you’ve already gone bald from worry. It will insist on this even if Ghandi, Jefferson, John Lennon, Jesus and the Apostles, Einstein, Merlin and Golda Maier all manage the thing. Stock markets show remarkably little respect for people or their reputations. Furthermore, if the fund has really been successful, you might be buying someone else’s whopping gains when you invest, on which you may have to pay taxes for returns you didn’t earn. Just try and find somewhere you don’t, though. Dismal.

While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 – 4 years. It goes with the territory. Expect it. Live with it. If you can’t do that, go bury your money in a jar or put it in the bank and don’t bother us about why your investment goes south sometimes or why water runs downhill. It’s physics, man.

Aside from the mandatory boilerplate terrorizing above, there are risks that are specific to the IPS Millennium Fund you should understand better. Since most people don’t read the Prospectus (this isn’t aimed at you, of course, just all those other investors), we thought we’d try a more innovative way to scare you.

We buy scary stuff. You know, Internet stocks, small companies. These things go up and down like Pogo Sticks on steroids. We aren’t a sector tech fund, we are a growth & income fund, but right now the Internet is where we think most of the value is. While we try to moderate the consequent volatility by buying electric utility companies, Real Estate Investment Trusts, banks and other widows-and-orphans stuff with big dividend yields, it doesn’t always work. Even if we buy a lot of them. Sometimes we get killed anyway when Internet and other tech stocks take a particularly big hit. The “we” is actually a euphimism for you, got it?

We also get killed if interest rates go up, because that affects high dividend companies badly. Since rising interest rates affect everything badly, we could get killed even worse if the Fed raises rates, or the economy in general experiences higher interest rates beyond the control of those in control, or gets out of control. Whatever.

Many of the companies we buy are growing really fast. Like, 50% – 100% per year sales growth. Many of them also don’t make any money, although they may be relatively large companies. That means they have silly valuations by traditional valuation techniques. We don’t know what that means any more than you do, because we have never seen anything like the Internet before. So we might overpay for these companies, thinking we are really smart and can get away with it because they are growing so fast. It doesn’t take a whole lot for these companies to drop 50% or more, because nobody else knows what they are worth either. Received Wisdom can turn on a dime in this business, and when that happens prices fall off a cliff.

Even if we were really smart and stole these companies, if their prices run way up we are still as vulnerable as if we were really dumb and paid that high a price for them to start with. If we sell them, you will get pretty irritated with us come tax time, so we try not to do any more of that than we have to. The pole of that strategy, though, is that if we are really successful, you will have a lot of downside risk in a recession or a bear market. Bummer.

Finally, if you haven’t already grabbed the phone and started yelling at your broker to sell our fund as fast as possible, you should understand the shifting sands of technology. It doesn’t take billions of dollars to start a high tech company, like it did U.S. Steel or Ford Motor. Anybody can do it, and everybody does. Many of our companies are small, even though they dominate their market niche. It’s much easier for a new technology to blow one of our companies out of the water than it was in the old days of canal, mining, railroad and steel companies.

Just so you know. Don’t come crying to us if we lose all your money, and you wind up a Dumpster Dude or a Basket Lady rooting for aluminum cans in your old age.


Are market bubbles caused by traders’ testosterone levels?

Research conducted at Ben-Gurion University of the Negev (BGU) has determined that psychological momentum significantly affects performance among men but not among women, which may account for exaggerated risk-taking in financial and business endeavors among males.

Psychological momentum is defined as a state-of-mind where an individual or a team feels things are going unstoppably their way and is known to be caused, among other factors, by shifts in testosterone levels. The study, “Psychological Momentum and Gender,” is published in the March volume of the Journal of Economic Behavior & Organization.

According to Dr. Danny Cohen-Zada, a lecturer in the BGU Department of Economics, “The purpose of our study was twofold: to estimate the causal effect of psychological momentum on performance in real tournament settings, and to examine whether there are any gender differences in the corresponding response.”

More here – Eureka Alert


I woke up this morning to note that my short term positions in gold and silver had been knocked out by a spike overnight. This meant that the last pyamid position was a loss and because I run a wide stop the overall position was just a bit better than breakeven and I thought…bugger. Then I read this and thought it could be worse.

By my math, based on public filings, Bill Ackman’s Pershing Square Capital Management had spent a bit more than $4.6 billion on Valeant Pharmaceuticals International Inc. shares and options as of yesterday afternoon. Of that, Pershing Square had gotten back about $574 million when it sold shares at the end of 2015 and 2016, leaving it with about a $4.1 billion basis in its position. Yesterday it closed out that remaining position, selling the remaining shares, some 27.2 million of them, through Jefferies Group LLC for about $300 million (or about $11 per share). So out of a $4.6 billion investment, Pershing Square got back about $874 million.

But that math omits one final indignity. Ackman only owned 18.1 million of the 27.2 million shares that Jefferies sold. The other 9.1 million shares were underlying some stock options that he had traded with Nomura Global Financial Products Inc. Those options had been restructured various times, but as of the most recent filing they were put/call combos: Ackman bought call options with a $60 strike price and sold put options with the same strike price (all expiring in January 2019). That works out to be more or less a forward purchase of the stock for $60. So when Pershing Square announced yesterday “that it has sold its investment in Valeant,” presumably that means it also closed out those options. Ignoring time value and assuming that it closed them out at $49 per share, that means that Pershing Square owed Nomura about $447 million.

More here – Bloomberg View

For context here is a chart of Valeant.


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.


A long read but worth it. In the past I have written about the danger of combining hubris with concentration bets.

One day in the summer of 2011, Christine Richard arrived at the forty-second floor of a high-rise on Fifty-seventh Street in Manhattan to visit a hedge fund called Pershing Square Capital Management. Richard worked for a boutique research firm that identified “short” opportunities—companies that investors could profitably bet against—and she was there to present an idea to Pershing Square’s founder, William Ackman. On the way over, though, she was caught in a rainstorm, and by the time a receptionist directed her to a conference room she realized that she was dripping wet.

A few minutes past the appointed time, Ackman rushed into the conference room, trailed by an assistant who was listing a series of meetings for that day. Ackman couldn’t stay, so he summoned one of his most trusted analysts, a twenty-eight-year-old red-headed Texan named Shane Dinneen, to sit down with Richard. She placed the rain-spattered report she had prepared on the conference-room table. On the cover was a three-leaf corporate logo. Underneath it was the word “Herbalife.”

Pershing Square is what’s called an “activist” hedge fund. Ackman uses its considerable resources—around eleven billion dollars, raised from wealthy investors, institutions, and employees—to amass major stakes in publicly traded companies. The intention is then to push the companies to improve their businesses, or at least their stock price, which is how an activist investor generally makes money. There are debates over whether activist funds strengthen the companies they invest in or simply force them into taking short-term measures—laying off employees, selling off divisions—to drive up profits and the share price. Ackman, who is sensitive to stereotypes about profiteering, says that Pershing Square has fewer than a dozen investments in its portfolio at a time, and sees them as long-term commitments. He maintains that his firm puts tremendous resources into each one, gives strategic advice over a period of years, and often recruits C.E.O.s and board members.

More here – The New Yorker


This looks surprisingly peaceful.



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