popular interviews

the latest

Strapped for Cash, Do’s and Don’ts (Financial Literacy via Music)

Posted on November 28, 2010 at 11:31 am

I find that I use music a lot to explain issues to my teenage children.  Not surprisingly, many tough issues are dealt with via music, rhythm, and lyrics.  Pop music has become a form of modern-day poetry for the masses — much like epic poetry for the Greeks.  While my kids flinch at memorizing anything for school, they have an ENORMUNGOUS repository of songs/lyrics resting under the hood.

Fountains of Wayne: Strapped for Cash

Lessons in debt management

Fountains of Wayne (Wikipedia) has “Strapped for Cash”, a fun yet serious song about debt and the vicious cycle that can envelop a person, company or country.  Debt can take its toll on us, not only monetarily but also psychosomatically.  Feeling trapped, many investors turn to short-sighted activities that only increase the velocity of the debt cycle.

Well it was Saturday night, I was sitting in the kitchen
Checking out the women on Spanish television
Got a call from Paul who was just let out of prison
He said hey listen, there’s something I’m missing
I said I’m on it, honest, it’s on its way
You’re gonna get your money in a couple of days, okay?
I’m just a little strapped for cash
Take it easy baby, cut me some slack, I said (most of the time, creditors are willing to negotiate terms of debt and would rather see some return on their loans than a total zero.  Don’t be afraid to negotiate)

I’m just a little strapped for cash
Very temporary, don’t you worry ’bout that
Strapped for cash

So I headed out west to invest in the races (‘invest’ in races?  C’mon, this is a very dangerous strategy that involved betting/trading/investing in something else in order to win back money lost — bad idea and compounds the problem.)
All the goddamn horses kept falling on their faces (investing requires patience, time horizon and a way to better your changes via value investing, dividends, etc.)
Didn’t fare much better at the Taj Mahal
Chalk it up to bad luck and free alcohol
And now I’m laying low, you know I’m trying to stall (stalling just increases the anxiety — better to be proactive about debt and meet it head-on. Try negotiating and finding other ways to bring in some money via part-time jobs, hobbies, etc.)
But I don’t know how much longer I can dodge the calls
Sayin’

I’m just a little strapped for cash
Don’t you know I wouldn’t do you like that
I’m just a little strapped for cash
Give me a minute you know you’ll get it back
C’mon

Strapped for cash
Strapped for cash

Six bodybuilders pulled up in a Pinto
Next thing I know they’re coming through the window (at some point, debt has to catch up to a person, company or society and payback can be harsh)
Hate to keep you waiting, I know times are hard
Now would you prefer a Visa or a MasterCard (quick word of advice: don’t use credit cards to pay off debt.  It’s extremely onerous debt and works to increase the velocity of the debt cycle — better to pay off credit cards first)

Because I’m just a little strapped for cash
Take a seat, I’ll be back in a flash, I said
I’m just a little strapped for cash
No need to have a heart attack (debt and the struggle to free oneself from it has definite effects on our health and psychological well-being)
Bop shoo wop, bop bop shoo wop

(lyrics)

0

  • Credit Suisse Hedge Fund Index finishes down for November

    Posted on December 15, 2010 at 9:18 pm UTC

    Dow Jones Credit Suisse Hedge Fund Index saw a down month in November finishing down -.18%. The index is still up almost 8% for the year.

    Category Nov 2010 Oct 2010 YTD 10
    Dow Jones Credit Suisse Hedge Fund Index -0.18% 1.92% 7.82%
    Convertible Arbitrage 0.04% 1.98% 9.68%
    Dedicated Short Bias -2.36% -3.60% -17.64%
    Emerging Markets -0.38% 2.21% 9.69%
    Equity Market Neutral -2.51% 0.93% -2.54%
    Event Driven 0.15% 1.80% 8.37%
    Distressed 0.33% 1.32% 7.33%
    Multi-Strategy 0.04% 2.17% 9.14%
    Risk Arbitrage -1.44% -0.62% 2.01%
    Fixed Income Arbitrage 0.74% 1.10% 11.82%
    Global Macro -0.52% 1.62% 10.52%
    Long/Short Equity 0.46% 2.00% 5.66%
    Managed Futures -4.11% 4.29% 6.44%
    Multi-Strategy 0.30% 2.03% 7.46%

    0

  • What Urban Meyer’s retirement means for investors

    Posted on December 10, 2010 at 4:36 pm UTC

    Massively winning University of Florida football coach Urban Meyer announced his resignation (again) from coaching. After some health problems and a premature announcement of his exiting coaching last year, this move appears is permanent

    What prompted a coach that has built one of the most successful and winningest football programs in the US to just give up and quit?

    At the end of the day, I’m very convinced that you’re going to be judged on how you are as a husband and as a father and not on how many bowl games we won (Washington Post blog)

    Winners leave on top

    Being successful in investing — like life — means knowing when you’ve seen your fortunate share.  Exiting a winner shows a certain gratitude for what you’ve been given, whether monetary abundance, family bliss, or other gifts.  Staying around too long, trying to push the envelope beyond this natural departure point doesn’t work.
    I’m sad when I watch Brett Favre play football.  I’m embarrassed for him.  He doesn’t know when to say goodbye.  One of my favorite players of all time, Detroit’s famed running back, Barry Sanders surprised everyone when he just bowed out.  He had a few more years and a few more thousands of yards in him.  But he was done.  Michael Jordan battled with his fate, returning to basketball, when he should have been at home, coaching, investing — anything but continuing to do the same things that had made him so successful in the first place.

    Leaving is harder than staying

    Sticking around for Meyer would have been the easier decision, but not necessarily the right one.  It took a huge pair of testicles to do what he did.  That’s a true sign of leadership and success.
    History has a natural replacement cycle.  People die and new generations of people replace them and their roles.  Successful investors should recognize this pattern, be thankful for what they have and realize at some point, it’s someone else’s turn to take over.
    No one says you have to remain invested.  That’s just one of many false aphorisms we’ve been fed.

    0

  • High nominal stock prices don’t mean anything (or do they?)

    Posted on December 1, 2010 at 1:15 pm UTC

    I’m curious why so many high-flying stocks in our current market also carry very high (nominal) price tags.  As investors, we’re used to seeing Buffett’s Berkshire Hathaway shares priced in  mortgages (plus $100k).  But look at the prices on these stocks that have been standout performers this year:

    • $NFLX (around $200)
    • $PCLN (around $400)
    • $GOOG (near $600)
    • $BIDU (over $100)
    • $AAPL ($300 and change)

    Why not just split the stock?

    In recent historical markets, companies would have been quicker to split their firms’ stocks.  Although stock splits don’t impute any real economic change (instead of 1 share of stock worth $50, I now have two shares worth $25 a piece), a lot of research has been done analyzing the after-effects of splitting stock.  Ever since Fama, Fisher, Jensen and Roll’s seminal paper The Adjustment of Stock Prices to New Information (1969) , investors have been seeking to understand why markets react to stock splits.  I’m more concerned, though, with what the lack of splitting is signaling to investors.

    (Not) Catering to what investors want

    There’s an interesting paper by Alon Kalay and Mathias Kronlund (both of U of Chicago’s Booth School of Business) entitled The Market Reaction to Stock Split Announcements: Tests of Information, Liquidity, and Catering Hypotheses (2010).

    This paper veers from the current trend among researchers that stock splits were a form of catering – corporate boards splitting (or not) was dependent upon what they think investors are looking for (high/low prices).  [See Baker et al Catering through Nominal Share Prices (2009)]  This theory held that boards were constantly monitoring investor appetite for low or high priced firms and essentially managed their own stock prices, pushing and pulling to cater to investor demand.  Here, not splitting Apple stock would signal that corporations believe there is a premium valuation to be had by keeping the stock price high (perhaps a la Buffett).

    That wouldn’t tell us much about where Apple’s stock will trade in the future but it does say that Apple believes it can receive a higher valuation by keeping its nominal stock price high.

    On the other hand

    Kalay and Kronlund don’t buy the catering hypothesis and instead hypothesize that there is informational value in stock splits.  Not unlike why insider buy or sell their own firms’ stocks, decisions by corporations aren’t driven by marketing purposes (trying to find more buyers of their stock) but by fundamental reasons.  In the informational theory, stock splits “are often coupled with the manager’s belief that the firm is doing well.”

    Meaning, a manager is more likely to split a firm’s stock when he or she is optimistic about the firm’s future performance.  This theory does leave the door open that manager catering is behind the split but it contends that the abnormal returns from post-split are driven by a higher earnings expectation in the future (when compared to non-splitting firms).  So, I’m inferring here that not splitting the stock is signaling that management doesn’t see unexpected (to the public) earnings in the near future.

    So, do we back up the truck and buy $AAPL with both hands or should we infer management doesn’t see unexpected higher growth down the pike?

    photo courtesy of prw_silvan

    3

  • Tradestream Radio #2: hedge fund replication, insider trading, more

    Posted on December 1, 2010 at 12:20 pm UTC

    This week’s episode of Tradestreaming Radio is up and ready for listen. Let me know what you think and if you have ideas for future shows. You can listen below, find the transcript below or download directly to you iPod/iPhone via iTunes — search for Tradestream or go here.

    This episode includes

    • the huge insider trading probe into many of the largest US hedge funds
    • research networks (expert networks) and how they play a role in the investing process
    • interview with hedge fund replication research provider, AlphaClone CEO and founder
    • Ivory Tower Report: Smart investors think like economists (is that a good thing?)
    • Trend Watch: Seeking Alpha continues to grow and introduces its own investing app store

    Transcript Continue Reading »

    0

  • Insider Trading Dashboard: Everything you need to know

    Posted on November 28, 2010 at 12:56 pm UTC

    With the daily news of hedge funds being raided and expert networks being investigated, I wanted to put together a resource sheet for those looking to delve a bit further into the insider trading game.

    Research

    Decoding Insider Trading (Cohen): This new paper looks at a methodology to isolate insider traders acting on good information from noisy trades.  By looking at individual trades — versus looking at all insider activity — investors can mimic better-performing trades, boosting performance of insider trading strategies.

    Law and Economics of Insider Trading: A Comprehesive Primer (Bainbridge) 84 pages of insider trading awesomeness.  This 2001 paper deals with everything from the origins of current laws prohibiting insider trading to defining an insider to making a case for and against regulating insider trading. For a smaller, more concise paper on insider trading, see Bainbridge’s Insider Trading: An Overview

    Stock Market Anomalies: What can we learn from repurchases and insider trading (Core, Guay, Richardson, Verdi)

    How Informative are Analyst Recommendations and Insider Trading (Hsieh, Ng, and Wang) Evidence points to insider trading and analyst recommendations giving conflicting signals.  This paper documents that and provides theory why this may be the case.

    What Insiders Know about Future Earnings and How They Use It: Evidence from Insider Trades (Ke, Huddart, Petroni) Insiders do trade on this stuff up to 2 years before public release.

    Do Insider Trades Reflect Superior Knowledge About Future Cash Flow Realizations (Piotroski, Roulstone) Short answer: yes.

    Insider Trade Disclosure, Market Efficiency, and Liquidity (Buffa): Policy implications after finding that informational efficiency and liquidity are lower in more transparent markets

    Institutional Investors and Insider Trading Profitability (Markarian, Bricker) Insider profits are inversely related to presence of institutional ownership.  Hedge funds/mutual funds may provide monitoring effect.

    MSM (Mainstream Media) on Insider Trading

    WSJ on Insider Trading (sub. req’d)

    Bloomberg.com: Insider Trading

    Google fastflip on Insider Trading

    Tradestreaming on Insider Trading

    Dealbreaker’s Insider Trading Fest(ivus)

    NYT on Insider Trading

    Dealbook on Insider Trading

    Books on Insider Trading Strategies

    Investment Intelligence from Insider Trading: If this book is the bible of insider trading strategies and research, its author, Professor Seyhun is Moses.  Great research into strategies for following insiders.

    Profit from Legal Insider Trading: Invest Today on Tomorrow’s News

    The Vital Few vs. the Trivial Many : Invest with the Insiders, Not the Masses

    Videos on Insider Trading

    3

About Tradestreaming

Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor.  I believe it will help you … Continue Reading