Why Not Just Wear A Picture Of Hitler?

As I was browsing through all the high quality, moderately priced items at my local Target the other day, I happened to walk by one of the store’s “associates.”  Actually, a 19 year old kid, wearing the pre-requisite red shirt that Target employee’s are required to wear as a de facto uniform.  The problem was, this one had a large photo of Che Guevara on it.  You know the one……

Now I was annoyed.  And it wasn’t just the fact that this look has become so hip, that it is not hip.  I mean if he just had the run of the mill psycho like Ted Bundy or Charles Manson on his shirt, I would have just written it off to shock value.   But I knew this kid was wearing it, like most out there do, as some sort of bold statement of rebellion and revolution.  Missing of course the point that Che was a murderer, both literally and figuratively.  He oversaw the execution of thousands of Cubans, and personally took part in some of them himself.

In addition, he was a hypocrite and a failure.  He claimed to despise money, yet lived in one of the richest and most private areas of Havana.  He served as minister of the economy and promptly ruined the Central Bank.  Then once his usefulness to Castro was extinguished, he tried and failed in creating revolutions in Algiers, the Congo, Tanzania, and Bolivia.  It was there that he was finally captured, shouting, “Do not shoot! I am Che Guevara and worth more to you alive than dead.”

The ultimate irony is that he was in fact summarily murdered himself, in the same style as his victims.  No trial, and no mercy.

Hmmm….not looking quite as cool…….!!!

So, back to the kid at Target.  I walked past him, without saying anything.  However, as I thought about it more, I realized that his shirt would be repulsive to someone of Cuban heritage, and should be to the rest of us as well.  I decided to see the store manager, and complain.  An hour later I came back by the store (obviously, I have a lot of time on my hands), and spied the offending associate, but with his shirt turned inside out.

For a moment I felt triumphant, then old, knowing that I had stifled some youthful rebellion that I loved to exude myself when I was that age.  But as I thought about it more, I realized that I never would have done it with a Che T-shirt, nor a Mao or Ho Chi Minh one.  I felt that I did the right thing, and it inspired me to create my own T-shirt.

Note: Originally this linked to my Zazzle gallery.  However I was informed by Zazzle, that this photo violated copyright laws.  It turns out that the family of Alberto Korda (the photographer) has asserted copyright protection for this photo, even though Korda himself was a lifelong supporter of the “Revolution”, and allowed it to be public domain, never asserting any claims for royalties.  It seems as if the Capitalist acorns have fallen far from the Communist tree.

I may be old(er), but I still have that rebellious streak in me…..just in a more intelligent way.

Demonstrators in Latin America, demanding their right to elect someone who will torture and murder them!

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The Importance Of A Trading Methodology, or What Not To Do In Vegas After Getting Shitty Drunk

Back in 2008, in one of the more active chat rooms that I frequented, I came across an interesting character that went by the name of “Trader1”.  Despite having perhaps the most unoriginal screen name in history, he seemed to be a nice guy and was always chatting about the markets and the trades he was making.

His trading method was simple – buy on the dips.

This was something he would announce from time to time, calling out, “I’m buying more XYZ on this dip”, or “this dip is a great place to buy more XYZ.”

He bought a lot of stocks on the dip like CFC, LEH, and BSC.  Don’t try and look these symbols up because the companies don’t exist anymore.

Trader1 eventually disappeared from the chat room and I suspect that the call out he makes most now is, “would you like fries with that?”

The reason Trader1 didn’t succeed was that he did not have a sound methodology.  He may have thought that buying on the dip was a sound method based on his success in the past, but he made the same mistake that many others make – he used outcome bias to validate his method.

Now that your eyes are rolling back in your head, let me explain what I mean.

Say you go to Las Vegas, and you and your buddies go out and get shitty-drunk. Maybe you drink one of those margaritas in giant plastic Eiffel Tower mug, or maybe you split a brewzooka, it really doesn’t matter.

Now that you’re fully lit, you take everything you own – your car, your house, your life savings, your autographed picture of Patrick Swayze from Roadhouse – everything, and put it all on red at the roulette wheel.

Even if you hit red, it was still a terrible bet because though you won, the methodology you used – everything on red – was flawed.  Eventually, it will fail (actually 50% of the time), and when it does, the downside is so large that you’d be wiped out and no longer able to play the game.

He’s Dalton. He’s the Cooler DAMMIT….!!!

Trader1 fooled himself into thinking that his method worked because in the two years that he had been trading, the market had, in fact, rebounded after every dip.

The problem was that Trader1’s method did not have any contingency in case the market didn’t rebound.  It was based on a consistent one-sided outcome, something that never happens in the real world, and certainly not in trading.

The most obvious way Trader1 could have improved his methodology would have been to incorporate a stop-loss rule.  In addition, he could have had a target rule, one that would take some or all of the profit when a position hits a certain level.

But perhaps the best way he could have improved his trading was to create a rules-based methodology.  If his trading was not initially profitable, he could refine his rules until he found a method that was consistently profitable and then evaluated the success of his trading – not based on outcome – but on adherence to his trading rules.

You can read more about flawed methodologies and fooling yourself into thinking your system works by reading Fooled by Randomness and The Black Swan.

Buy the dips working…..
Now…..not so much!


How to Explain Short Selling to Your Mother!

OldShortSeller-200x200Occasionally, at a social function or while scrounging through a dumpster in back of Arby’s, I’m asked the question “What do you do for a living?”   Sometimes I’ll just say that I work in an ice cream shop or huck a handful of soggy curly fries at them.  But if pressed, I will cop to the fact that I work in the stock market.

This revelation usually prompts looks ranging from excitement to Schadenfreude, depending of course on what phase the market is currently in.  If it happens to be in a downtrend they’ll usually give me the pity look, adding something akin to “Wow, things must be pretty tough, huh?”  I, of course, respond that I am doing fine because you can make money when the stock market moves down by…..

SHORTING…..!!!! (insert glazed look in conversationalist’s eyes).

My mother actually thinks that I am doing something illegal when I tell her I can make money if a stock goes down. She’s convinced that it must be some evil endeavor created by a Satan/Hitler/Beiber-type troika.  Personally I’ve never had an issue with the concept of shorting, which is probably why I trade.  But for others who don’t quite understand the concept I have developed a simple way to explain it.  It goes like this;

A share of stock is a standardized instrument just like a book or a DVD, meaning every share of IBM is the same as every other share of IBM, just like every DVD of Harry Potter and the Deathly Hallows from Amazon is the same as every other copy.

So let’s say your best friend just bought a brand new copy of Harry Potter and brought it over to show you.  The first thing you should do is ask yourself why you have a 13yr old as your best friend, but after that let’s say you immediately ask to borrow the DVD.  At some point you will have to return it to your friend — I mean, not really since you can probably beat up a 13yr old — but assuming you’re a decent person you’ll eventually give it back.

Now let’s say that you take the copy you borrowed and sell it.  Maybe you sell it on Ebay, maybe at a garage sale, maybe to an individual, it doesn’t matter where, but you get $25.00 when you do. However, you still owe your friend one copy of Harry Potter, so you order a copy on-line from a discount DVD liquidator that only costs you $19.95.

When the DVD arrives you return it to your friend, keeping the difference between what you sold it for ($25.00), and what you bought it back for ($19.95).  You have thus made money by selling something you did not own and then buying it back (and replacing it) for less that you sold it for.

Short selling is the same concept; you just replace a share of stock in XYZ company for the copy of the Harry Potter DVD.

In the above example, the venue where you sell the DVD  could be anywhere, but with stocks it is the open market.  If you were unable to buy the DVD back for the $25.00 or less that you sold it for you would have had to cover the difference out of your own pocket and thus lose money.  Or just tell your friend you lost the DVD and “What the fuck you gonna do about it punk?”  The same would go for the stock example as well (minus the “punk” part).

If someone doesn’t understand the concept of short selling after this explanation, then they never will. 

Cocaine, Tequila Shots, and Trading. Three things to avoid while driving.

I bought my first stock one week after I turned eighteen.  I walked into a Dean Whitter office at my local Sears, and bought 300 shares of Altos Corporation.  They did something with computers, I think.  I knew their stock was going to go crazy because some guy on the local cable access show said it would.

Over the next 20 years I continued to trade stocks, while at the same time building a successful business in a non-financial related field.  In 2004 I decided to sell my company and trade full time.   I loved trading, and had been consistently profitable in the previous two decades, so the transition would be easy I figured.  I was wrong.

One day I was on my way to my mother-in-law’s house to drop off my then infant daughter.  My mother-in-law would watch her during the day while my wife was at work, and I built my trading empire.  I was winking at my daughter, listening to the radio, and smugly thinking about how good I had it.  I was a “trader”, and was enjoying everything that came with that regal title.

You know what I mean.  Roll out of bed a few minutes before the open, if you wanted.  Trade for a couple hours, if you wanted.  Take off in the middle of the day, if you wanted.  What freedom!  Woe unto those chained to a desk, working their 9 to 5 Dilbert-esque jobs.  I had it made.

Unfortunately I had no idea what was about to happen to my perfect world.

I had been building a very large position in CELL, some company that did something with old cell phones in Latin America, I think.  This stock was ready to explode.  I knew that because some guy on the Yahoo Message boards had been telling everybody for a few weeks now.  Now when I say a “very large” position, what I mean is outsized, as in double the size of my trading account.  I mean that is what margin is for, right?

CELL was going to announce their stellar earnings after the bell, and I was giddy with thoughts of the things I was going to buy with my profits.  As I drove I used my cell phone to check up on the current price.  It was still early morning so I didn’t expect to see much movement.   Every minute or two I would hit “refresh” to see what was happening (this was pre-smart phones).  It went like this;

Refresh:   CELL 31.79 +.15  +.50%                                                                       

Refresh:  CELL 31.82 +.18  +.53%

Refresh:  CELL 31.75 +.11 +.47%

Refresh:  CELL 28.79 -2.85  -9.33%                             


Refresh:  CELL 27.84 -3.80  -12.18%

Bad tick right…???

Refresh:  CELL  26.98 -4.68  -14.83%

This is not funny..!!!

“Wow I am killing it with this modern technology…!”

The mother of all douche chills hit me as I realized I was exactly equidistant between my house and my mother-in-law’s, and had no way to find out what was going on, let alone get out of the trade.

You see,  the large, well known retail broker I was checking prices from with my phone was “un-cool”.  I had opened an account there with a token $100 so I could have access to mobile data.  My trading account was with another “cooler” broker.  They were too cool to have mobile access.  And I was too cool to have their phone number or my account number programmed into my phone.

Hell, my mother-in-law didn’t even have a computer, so there was no relief when I got to her house.

The upshot is that for some reason, CELL’s earnings came out 4 hours too early.  Were they leaked or was it a mistake, really at that point it just didn’t matter, as my account was already down 30%.  Fortunately, I held my position for the inevitable bounce that never came, and peeled off another 10% in the next couple days.

“We want the right to buy crappy used cell phones. Viva Che’….!”

The most disturbing thing about this whole incident was not the money I lost.  It was the shattering of the illusion that I had any idea of what I was doing.  In my head I was still trading part-time, like I had all those years that I owned my business.  Only now I no longer had that business (income) to fall back on.  This was it.  I had gone out on the high-wire with no safety net, and took a near fatal fall.  Would I be able to pick myself up and recover?  Could I make it trading? Because, for some reason that thought had never entered my mind, as I assumed that I would be profitable from day one forward.  It was a scary place to be, and one I was not comfortable being in.

Anyway, I think they sold used cell phones in Latin America.