Lighthouses Rule

I will be in SF Friday – Tuesday if anyone wants to meet up.


The 13fs are rolling in and I will be updating the Hedge Fund Best Ideas and Consensus strategies this weekend. Are there any funds readers would like to see backtested? Maverick, Blue Ridge, Appaloosa, King Street, Baupost?


I can’t read enough about evolutionary biology, and Olivia Judson is the best. From “A Seedy Rivalry“:

A standard indicator of the risk of sperm competition is the ratio between a male’s body size and his testes: the larger the relative size of the testes, the greater the historical risk of sperm competition. (Larger testes mean larger numbers of sperm.) Chimpanzees — a species in which females are fantastically promiscuous — have enormous testes. Gorillas — a species where they’re not — have tiny testes. Humans are in between, albeit closer to gorillas than to chimps — which is consistent with a moderate, but not huge, risk of sperm competition in the past.


Quote of the day, “A ship in the harbor is safe – but that is not what ships are for” – John Shedd


In honor of the passing of the great Swiss chemist Albert Hoffman (who was 102!), below is one of my favorite and most quoteable YouTube videos. But then again I have the humor of a 12 year old.

Not safe for work. Half the people that see it love it, and the other half think it is the stupidest thing they have ever seen.

My paper just passed 10,000 downloads, which places it in the top 30ish downloads of all time (out of about 160,000), and near the top 10-15 finance papers. Seeing as 7 of the top 10 in finance are authored by Fama, French, or Jensen, that’s some pretty good company.

I have received emails from people all over the world who have put the model to work (with their own tweaks). Everything from small retail accounts to multi-hundred million dollar hedge funds. If you are using the model, drop me a line and let me know your experience. 2008 should be a good showing so far.


Quote of the day, “All the trouble in the world is due to the fact than man cannot sit still in a room” – Blaise Pascal

Harvard as a tax-free hedge fund?


Bill Miller is struggling.


Need some eclectic new music in your rotation? Check out I Liked This.


No wonder people have a dim view of the investment business. A few of the presentations at the Money Show today in Las Vegas:

“Double Your Money in Six Weeks with a Conservative Option Approach”

“A Low Risk Approach to Doubling Your Money Every Three Years”

“How to Get Rich with X Product”

I would like to ask the presenters, “So when was the last time you doubled your money?”


I don’t get why every scandal these days gets -gate tacked on at the end of the name. I mean, what does the Patriots recording football practices have to do with a Washington DC hotel during the Nixon administration?

Buy the Rumor, Short the News

I am a big fan of David Einhorn (haven’t yet had the chance to read his book), so I was glad to see the videos Barry posted on his site. Einhorn has a website here for his new book as well.


From an article at HedgeWeek on the foreign listed funds:

Why this sudden explosion of IPOs? One reason is easing of the rules for listing on the London Stock Exchange’s Main Market, including a provision allowing dual listings. But mostly fund IPOs are becoming an attractive route for managers to increase assets and diversify their revenue streams.

With increased competition and global uncertainty, a listed vehicle is a good way to capture investor interest. As one hedge fund manager puts it: ‘It is basically a move toward permanent capital.’

The fact that many funds are following the IPO route is an indication that investor interest is out there, which goes to show that even in the current investment climate, well-founded IPOs will attract solid support.


Mike Zarren 2, LeBron James 0


An article in the Times by Mark Hulbert, Report Earnings and Watch the Stock Fall, profiles the following paper:

Limited Attention and the Earnings Announcement Returns of Past Stock Market Winners by Aboody, Lehavy, and Trueman

We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58 percent during the five trading days before their earnings announcements and a significant average market-adjusted return of -1.86 percent in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test two possible explanations for these anomalous returns. The first is that unexpectedly positive news hits the market over the few days prior to these firms’ earnings announcements, and that unexpectedly negative news comes out just afterwards. The second possibility is that stocks with sharp run-ups tend to attract individual investors’ attention, and investment dollars, particularly before their earnings announcements. We do not find evidence for an information-based explanation; however, our analysis suggests the possibility that the trading decisions of individual investors are at least partly responsible for the return pattern we observe.

-70%? Now that’s what I call a drawdown


Picks from the Value Investing Congress West


I wonder how a tactical system using the timing model would perform on just high vol asset classes? Maybe the following?

Nasdaq (QQQQ)
Microcaps (PZI)
Foreign Emerging (EEM)
Foreign Small Cap (GWX)
Junk bonds (HYG)
Emerging Bonds (ESD)
Foreign REITS (RWX)
Commodities (DBC)
Commodities (GSG)

Any other high risk ETFs that could be used?


Forbes bungling of their aggregator opportunity is getting worse. From an email I received yesterday:

Please assist us in building the relationship with OptionsXpress and others. We are asking you to place an OptionsXpress widget (no revenue – it’s a small widget, I promise) on your site (above the fold). By placing this widget on your site, you will provide OptionsXpress with additional exposure, branding and awareness. This additional exposure will add to our solid click through rate performance and to increased sales / conversions for OptionsXpress. Increased conversions will lead to renewals at higher revenue commitments.

I just want to be clear that this is entirely voluntary and there is no requirement you need to do this– there is no commitment from us to OptionsXpress regarding the widget…however our experience shows us this may indeed boost future revenue levels from this advertiser

So, not only do you take most of the revenue from the blog, then you run ads for the Forbes site for 3 months, then you ask the blogger to run free widgets? What?


Spam Again

I wonder if my email address being listed on the blog results in so many emails getting tossed into the spam folder?

Once again, if you have emailed me recently and have not received a response, please fire it back over.

When Markets Collide

I don’t really like responding to comments in the comment section because I feel like no one reads them. I am going to start including reader questions with answers at the end of some posts. At the end of this post is one related to my last rant on the hedge fund space.


I just signed up, and at $1/day, a subscription to Bespoke Premium is a steal.


I was at the NAAIM conference earlier this week, and I heard a great analogy this week about drawdowns and time frames. Greg Morris said that investing in stocks for the long run is nice – if you’re a Sequoia Tree or a Giant Tortoise (or an endowment).

Recovering from a -30% loss (at 10% returns) requires about 4 years to get back to even, a -40% loss 6 years, and a -80% loss an insurmountable 20 years. . .


Quote of the day, “All progress is based upon a universal, innate desire on the part of every organism to live beyond its income.” – Samuel Butler


PIMCO manager/Harvard endowment/PIMCO manager El-Erian has some new Summer reading for you – When Markets Collide: Investment Strategies for the Age of Global Economic Change


Popular Mechanics puts the Aptera in the lead spot to win the X-prize. With oil hitting new highs, I really should have put down the deposit for one of these instead of that SUV.


My response to comments are below:

Hedge funds are over rated.

I don’t want it to seem that I am a cheerleader for hedge funds across the board because there are plenty of crappy ones. However, I don’t see why they should be limited to rich people. I like the option to invest in hedge funds. As I mentioned in another post, “hedge fund” is just a legal structure (and typically a fee structure).

So why don’t you start a service that provides knowledge of and access to these foreign alternatives to the small American investor. Isn’t that doable? Just a service that covers the 50 or so listed FOFs in London, along with education as to how to integrate them with a multi-asset conventional portfolio ( a la Yale endowment, etc, which you write so much about) would be huge.

You would not only be a hero, but considering that the hedge fund industry is over $2 trillion, and the little guy here still has no viable access, you might stand to make a pile as well.

I would absolutely love to. For an example, about 10 of the 40 odd FOFs listed abroad had investments in the Paulson funds (which were up 200-500+% in 07). However, a US investor really can’t invest in them due to PFIC rules and their tax implications (namely you get hammered at current income taxes and have to mark to market the positions). I am convinced that Powershares is either unaware of these implications for their PFP fund, or are not admitting to it. They haven’t surfaced because the fund has gone straight down, but when it goes up I imagine the holders will get a very nasty surprise with their tax distributions. I hope I am wrong.

As far as I can tell, the individual funds should be OK for tax deferred accounts (IRA, etc).

To try and get around the taxable problem I have been chatting with the index providers about developing an index on the foreign listed funds – I’ve owned the domain for some time but have just been waiting for someone else to do it. I think with some clever financial engineering and maybe some swaps you could get around the tax problems. Stay tuned.

As an aside I was reading an article in Futures magazine last night written by Daniel Collins. It detailed the difficulty in developing alternative funds for the retail market. He used the Frontier Funds as an example, whose prospectus is 535 pages long. So onerous are the listing requirements that the CIO estimates the breakeven cost on most of their products at 2.25%. The cost structure ends up being around 4% and 20%, which is higher than Winton’s 1% and 20%, but the minimum goes from $1M to $1,000. (The article also mentioned Peregrine Financial’s CTA seeding program.)

[PS - I liked the comment posted for an educational requirement to invest in alternatives (or really any listed product) instead of the accredited rule. Why not have a dimple DMV driving test style test use could take online to invest in them? I know a lot of uninformed rich people as well as many brilliant and versed non-accredited individuals.]

Why The World Is Backwards

This post is in honor of the 10th anniversary of Bre-X.

I am going to go on a bit of a rant. It makes me so angry to see how difficult it is for US investors to invest in hedge funds. Not only that, but the mis(education) of investors to the riskiness of hedge funds is a tragedy. Foreign govements and investors are decades ahead of US investors in this regard, and I have written plenty on the foreign listed hedge fund industry in the past.

The fact that individuals can logon to their online brokerage site and buy dog-sh!t penny stocks that are 10,000X more risky than most hedge funds or FOFs. Ditto for OJ futures on 10% margin, ditto for stock fraud which is probably 1000 times larger than all of the hedge fund blow ups combined. How about an example?

My girlfriend and I were driving to breakfast the other day (Auntie Em’s in Eagle Rock which is amazing btw) and we passed this billboard.

How is it possibly legal for a pink sheets company trading at $.05 to advertise their stock symbol on a LA freeway, but a hedge fund manager cannot even let it slip that he even runs a fund? Out of curiosity, I pulled up the page for the company, Copper King Mining. Not only is the CEO wasting shareholder money advertising their stock symbol on billboards, but they hired Peterman from Seinfeld to be the spokesman for the company! Peterman!!

A few gems from their website:

Over the next five years, Copper King is projected to extract:

230,200,000 lbs. Copper
115,100 ounces Gold
11,510,000 ounces Silver

Based upon current market prices, the value of these minerals would be:

Copper: $893 M
Gold: $112 M
Silver: $234 M

It is estimated that with current proven reserves Copper King could process 2400 tons or ore per day for approximately 10 years producing almost $282,100 per day of revenue or $102,966,500 annually. Of course, proven reserves are a small fraction of what is believed to be in the Milford Mineral Belt.

Unbelieveable. And just when I thought my billboard was a unique find, how about this press release:

Copper King Mining Corporation (Pink Sheets: CPRK), under the direction of its PR Firm Alexander Lindale L.L.C., has installed 55 full-sized billboards in LA County with 24 to follow in Utah. The billboards invite people to come and view the website for Copper King.

In conjunction with the billboards, there will be the release of a several-minute video news release on Copper King Mining that will be sent to several thousand TV stations via satellite uplink, and several thousand radio talk shows, newspapers and trade magazines. The purpose of the advertising blitz is to bring public awareness to Copper King Mining, a major employer in Milford, Utah, and provide an educational experience in the history and development of copper in the United States.

Truly depressing.

Contrarianism and The Market Portfolio

I like to think about what the most contrarian position is in the financial markets. It really has to be long term bullish on the dollar, right? (Leave a comment with any other suggestions.)

In a somewhat related note, want some Yuan? New currency income ETFs launch.


Apparently, institutional investors are good at intra-quarter timing of trades.


I don’t understand why there are not any funds that attempt to track the global market portfolio as defined by market cap? Seems like a simple portfolio to own (owning everything). I wrote an article last Summer about the topic, and came up with some rough figures. I think the PowerShares Autonomic (could they have come up with a worse name?) ETFs are close, but still no commodity holdings.

James Picerno at the Capital Spectator has a nice article here.


I love it – become an instapreneur.


I wonder if any investors in private equity hedge their holdings – either on a constant or tactical basis? It would make sense to me to use a simple moving average to hedge a PE portfolio since the biggest threat is a long bear market which dries up deals and exits.

Here is a list of the top 50 Private Equity firms.


Want to know when you are going to run out of money? Retirement Forecaster is a nice (free) program.


Yesterday I walked past the (very nice) offices of Superfund, a great marketing company ….errr, I mean a managed futures offering. Their fees border on the absurd:

Charges to each Series per year (payable pro rata on a monthly basis): 1.85% Management Fee, 1% Organization and Offering Expenses, 0.15% Operating Expenses, 4% Selling Commission, 3.75% Brokerage Fee AND very high round trip costs (Performance results are reported net of all fees and expenses)

Incentive Fee: The Incentive Fee is calculated on a monthly basis and applies to any new appreciation, if any, only. The Incentive Fee is 25%.

Old Bloomberg article here.


Posts have been light due to all of my traveling (and flights getting canceled). I hope to catch up later this week. Although I forgot how much I love NYC (even when it is rainy and nasty like it is right now). One of these days some one will figure out why the pizza here is so much better than in LA.


Sat down with the Mark Yusko in Chapel Hill (he used to run the UNC endowment). Lots of moving parts at his firm Morgan Creek, who manages the Endowment Fund (Salient), the Hatteras Funds, and the Tiger Select Funds. I think their late stage VC fund is pretty interesting.


Also sat down with the manager of Quantitative when I was in Charlottesville. Jaffray is one of those people I could talk to for hours – extremely interesting. Not a bad equity curve either (from IASG):


I am not sure why Lehman wouldn’t launch a foreign listed hedge fund (or private equity) ETN first, but here is a copycat private equity ETN. I wonder if the ETN structure will get around the foreign listed funds getting taxed as current income?


Lots of different commodity indexes.


Nice day for hedge consensus and best ideas holding Mastercard (MA). Third Point, Marsico, Viking, Tiger, Ruane Cuniff, Lone Pine, Atticus, Bridger, Blue Ridge, Heebner, and DE Shaw all owned it as of the last 13F.


If you have nothing else to do, a paper from the Journal of Psychoanalysis.


Longleaf, Dodge and Cox, and Sequoia are all reopening.


I wish they offered this class when I was at Virginia. In an unrelated note, they just dedicated a building to Julian Robertson this past weekend led by head donor John Griffin (Blue Ridge Capital).


I picked a bad week to leave LA – the Milken conference looks pretty interesting, and even has a panel on Econoblogging. At least most of the content is online.

Page 122 of 151« First...102030...120121122123124...130140150...Last »
Web Statistics