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Short selling - risky and difficult, controversial, but probably a key part of long term alpha

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January 09, 2011 – Comments (26)

Short selling is certainly a difficult business, it is certainly controversial, and it is something that to date I have never done**...  But I also think that it is a key part of long term alpha.  I think that a significant chunk of outperformance by long-term successful hedgies is probably the result of generally successful short selling as part of a strategy.  This does two things, first it helps cushion the blow of a substantial market drop, resulting in lower draw-downs.  And second, it can put into your hands a big pile of cash at exactly the best possible time to have a pile of cash:  right after a market drop. 

(I have in real life shorted numerous levered ETFs, calls on the same, and so forth.  And one time I shorted naked calls on LVS and that did work out for me, but only because my timing was super-lucky, as LVS has shot straight moonward over the last 1.75 years)

Therefore, I am going to spend some time pondering short selling, and probably considering applying it to my real life money management.  For my own self-interest, mind, the fact of the matter is I am not a huge fan of short sellers, and in fact I find them annoying.  Being bearish and negative seems to empower people with this sense of intellectual superiority, which is annoying.  Short selling victories are heralded as strokes of epic genius in the press, which probably contributes to this, and is annoying.  Short sellers frequently get on youtube, and TV, and anywhere else they can to slander the companies they want to short and try to build fear.  Sometimes they even write books in an attempt to salvage a short gone bad.  All annoying.  And, most annoying of all by far, is that today, after a couple of significant bubbles and a decade in which short selling has certainly had some epic moments of glory, every other blogger on the internet is in a perpetual state of running around trying to find the next great bubble, which is extremely annoying.  And they run around trying to explain their activities as altruistic and helpful, which is of course silly, as they are not in any way trying to make the world a better place, they are trying to make money.  Silly is annoying, and so is dishonesty, I have no problem with them trying to make money.  

Beyond being annoying...  in all honesty I do not think that my mind is exactly wired ideally for short selling.  I think my mind is best wired for spotting cheap stocks for long ideas, and perhaps, really, if I have a skill, its my willingness to bet against a massive mountain of negativity (being "all in" in march 09, july 09, and july 10).  I do not expect that I will easily find myself a great short seller, and for a wide variety of reasons I will discuss below short selling is, frankly, a difficult business, and for those reasons I don't exactly plan on trying to make "the big short".  If I could simply attain a bit of a hedge I would be satisfied, as to date I have (often badly) underperformed the market on every downturn.  But, I have made up for this by grossly outperforming the market in the period just following the end of the downturn, presumably by doing a good job of picking stocks during the downturn.  

Exhibit A:  First, lets take a look at a couple of things that make short selling a difficult business:

1.  In theory, your potential profit is far less than going long, and your potential loss far greater.  You sell a share of AAPL short for $335, you can only make $335 if the stock goes to zero.  There is no limit to how much you can lose.  If AAPL goes to $11,970, you lose $11,635.  You could, in theory, make more than $335 shorting AAPL to zero, if you increased thenumber of shares you were short as the price fell.  But thats a bit of a seperate discussion.  

2.  It can, depending on how you do it, tie up a great deal of your capital due to margin requirements

3.  While being long can frequently come with negative carrying costs, perhaps substantially negative (i.e., dividends), being short can come with significant carrying costs.    These include the cost of borrowing shares (sometimes this can be big, sometimes low), the cost of paying dividends (if you are shorta stock that pays a dividend, you will have to pay the divi) and perhaps interest on a margin loan applied to being short, if applicable.  

These are some significant difficulties that you have to contend with. 

Exhibit B:  To highlight these difficulties, lets take a look at a couple of real life short funds and how they have done.  Its pretty scary

graph of the 10 year performance of Steve Leutholds Grizzly short fund.   Leuthold is a fantastic fellow and fund manager, and one of my very favorite commentators on the markets.  The Grizzly fund, I think, is a quant short, as in it shortsstocks according to a formula that they have contrived.  They do not spend hours a day looking for shorts and thinking them over, but presumably the overall formulas were carefully crafted.  But, GRZZX has grossly underperformed the inverse of the S&P over this time, indeed by about 70%!

Also scary is the performance of Comstock Funds.  These guys are very smart, and have quite a track record of calling bearish events ahead of time.  They called the onset of a massive secular bear market before the S&P even peaked in 2000, recessions, housing bubbles, deflationary panics and more.  But, they are so deeply permabearish that they fall into basically every trap of permabears.  Then the market was 1500 they said it was going way lower, maybe 50% lower, when it was 800 they said it could theoretically go to the 600s, when it hit the 600s they just stayed bearish.  Now this is not a dedicated short fund I don't think, but as they are so incredibly bearish I tend to doubt they have alot of long positions, and I think, THINK, I read somewhere that they went all in bearish sometime in the 90s.  They have underperformed the inverse of the S&P by 25 percent over the last 5 years .  OVer the last 15 years they have lostmore than 80%.  Since the market peak in 2000 they have lost 30%, despite the markets being well down over the same time and an epic array of shorting opportunities available including enron et al, the tech bubble, the housing bubble, and the 08 commodities bubble.  Since the market peak in 07 they are down double digits.  

These go to show that the difficulties of short selling are very real indeed.  It takes a very talented person to win consistently at that game.

To summarize this first part:

A)  the advantage of short selling is that, if done successfully, and well, it can increase alpha by reducing the drawdown in a portfolio during a market crash, and by providing you with cash to go long at exactly the time that you need it most:  after a big market crash

B)  the drawbacks are that it comes with various, and substnatial, headwinds that make succeeding at it over long periods of time exceptionally DIFFICULT.   Indeed, the goal of the rest of this thread is to try to highlight ways, if possible, to minimize the pain of being short and to maximize the odds of doing it well.  

I'll hit "post" now, and offer up the next set of thoughts on the first reply to this thread.  Please don't reply til its up.  

 

26 Comments – Post Your Own

#1) On January 09, 2011 at 1:58 AM, checklist34 (99.71) wrote:

Part C:  lets take a looks at reasons that I ahve seen people go short stocks, or, if you prefer, "types" of shorts

Reasons Checklist has ever gone short:  As I mentioned above, I have only gone "short" a stock once in my life, that being LVS being a fair number of naked calls, and the reason that I did it is because I was extremely pissed off about being enormously underwater on numerous other COVERED calls taht I had hold.  So I owned alot of shares and had badly underwater covered calls on them, and figured the momo had to pause, so I went short a number of additional calls.  It worked, but it wasn't necessarily smart and I wasn't technically just short the thing as I still owned alot of shares. 

I don't think anger-shorting because you are pissed off should really be put in the "how-to" guide.  I did, to my credit, have solid reason to believe that the stock HAD to pause pretty soon (which is all it takes to win on shorting a covered call, more on that later).  

Now for the part that may actually be useful:  Reasons people who are good short sellers or may know what they are doing short stocks:

1.  They think the market is going to drop, the "market timing" short.  If you read Real Money Silver, you can see Doug Kass do this all the time.  He tries very hard to actively trade in and out of the market based on how he feels it will move. 

This is by far too difficult of a game for me, unless I think the market is REALLY going to drop, like maybe in 2000.  

2.  The "thesis" short, they think a company or sector or entire market is headed towards a huge drop.  Chanos with Enron, many people with the housing bubble, etc.  The big, famous, headline shorts are usually "thesis" shorts, planning on a big drop.

This is what everybody is looking for now, everybody and their mom.  And their drunken cousin, every other blog anywhere.  Because the thesis shorts just had their best decade ever.  Chanos has another one of these on China.  

3.  The valuation short.  Whitney Tilson, recently, has said this about Netflix.  He doesn't thinkn its a bad company, he's just short based on valuation.  

The first time I ever discussed shorting a stock that wasn't a levered ETF with my advisor was AMZN, and my logic was valuation.  It was trading at its 50 pe or whatever, and that was making me annoyed (i get really annoyed when I see stocks with tech-bubble pes), so I figured I may just short that sucker for fun.  It was trading in the mid 90s at the time, and for 2 days it dropped and I wished I'd shorted it, called my advisor (who is still in mensa, btw) and said I was ready to do it, but then decided to sleep on it.  The next trading day taht sucker gapped into the 120sand I...

I remembered the comment of Keynes, I believe, himself:  "the market can stay irrational alot longer than you can stay solvent".  Its at 190 now, and I still get incredibly agitated every time I look at its valuation, but...

In general I think that shorting a stock on valuation alone is really, really a risky thing.  You need valuation plus an imminent catalyst.  Would I run, screaming "hot potato", yelling "sell, for the love of god sell.  sell sell sell" to the nearest keyboard if you gave me 10,000 shares of AMZN?  Absolutely, and pcln, nflx, gld, slv and everything else, I'd sell them so fast that I wouldn't even call you tothank you until they were sold.  

But would I short them, on valuation alone, when business is good?  I don't think so.  So many guys sit and trade with charts and stuff, and so many people are intrinsically drawn to momo, that once a stock really gets momoing its way up, it can go a long, long time. 

4.  The hedge short.   This is often done as a pair trade, or as a general hedge to offset a basket of long positions.  For example, one might go long MGM and short LVS if you think that MGM is cheaper and that the gambling scene in China isn't going to work out as well as the market thinks for LVS.  

Alternately, you could sit down and buy a very nice basket of stocks and then buy a pile of index puts to hedge them.  Buy 30 undervalued stocks you are confident in and maybe 1000 put ocntracts on IWM.  The bet there is that your long picks can outperform the market AND you get the luxury of those puts handing you a pile of cash if the market crashes.  And... you get the performance drag over time of a market that goes up more months, quarters, and years than it goes down leaving those puts frequently losing big money.  

5.  The arbitrage short.  Long Citi preferreds and short Citi common in early march 2009, or, alternately, at any other time in 2009 for the most part was a simple way to make free money that, for whatever reason, the market never really priced out.  I bet billions were made on this, including some by me!  yay!  So, wait, I think I lied when I said i'd only ever been short one stock, I had forgotten the C situation.  Should have just gone long the preferreds, oh well.

And I think that is about all of the categories of short that I can think of right now. 

PLEASE DON'T REPLY YET, IN MY NEXT POST i'LL TAKE A LOOK AT DIFFERENT WAYS OF GOING SHORT.  

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#2) On January 09, 2011 at 2:30 AM, checklist34 (99.71) wrote:

Part D:  different ways to go short

1.  Good old fashioned short selling.  To do this you borrow shares from somebody else (your broker does this for you, and you may find that a great many stocks are "automatic borrows" at your brokerage as in they will guarantee that you can borrow them.  Some they have to go looking for.).  Then someday you have to buy them back and give them back to the party you borrowed them from.  

To do this you may have to pay one time or ongoing fees or interest on the borrowed shares, and  you will have to pay the party you borrowed them from any dividends the company pays while you are short.  

Short selling involving options

2.  Short with a protective call.   Sparing you alot of math, and sparing me alot of digging around, this strategy may not make any sense.  Your risk is never lower than just buying a put at the same strike that you would have bought the protective call, your overall costs are higher than just buying the put, and just buying the put probably makes more sense.  The only way this could be advantageous is if margin rules allowed you to invest the spare cash from doing it this way.   Truth is, I don't really understand the rules of short selling at this point.  

I'll give an example.  Lets say you want to short sell AMZN, because looking at its PE makes you so mad that you can't even sleep at night, and you want to punish the people buying it up there.  So you sell a share of AMZN for $185.50, then buy a $200 july call for $12.65.  The most cash you can lose now is $27.15.  You win if the share drops below $172.85 or so, provided you hold the position until the call expires in July.  

If the share drops to 177 next week, you can probably still profit by covering the short and selling the call for more than $4.xx...  but bid/ask spreads ont he option and transaction fees may eat away at profits significantly.  

3.  Buy a put.  This accomplishes literally the same situation as 2. above, but is alot simpler and has lower transaction costs.  To recreate the situation above for AMZN, you'd just buy the $200 july put for about $26.85.  Now, assuming again that you sit on the position until the put expires,, you make moeny if AMZN is below 173.15.  The most you can lose is the cost of the put, 26.85

A downside of this is that you are long quite a bit of time.  If the stock trades flat and stays at 185, you will lsoe half yoru money.  That is also true for 2. above!!!  

If AMZN announces on Monday that they are suspending operations and spending all of the cash at the strip joint to reward executives for good performance and the stock drops to 50 cents, you will make $180, or about 7 times your money.  Thats good.

If you want to sell the put early, you always can, but as the stock drops the time value of the put will drop as well (because, in this case, it is getting farther and farther in the money).  

4.  Buy a put spread.   Doing this you buy one put, and you sell another put at a lower strike price.  The basic advantage of this is to reduce the cost of the put position (because you are selling one) and to reduce or eliminate your exposure to being long time. 

For our AMZN example above, you could buy that $200 put and sell a $180 put.  This costs you about eleven bucks, and the most you can make is $9, because the position can only be worth $20 (the difference in the strike prices).  But...  you win if AMZN is below $189, and time is on your side in this case.  Those are the upsides, the downside is that in our suspended operations example above, you don't make 7x your money, you make about 80%

5.  sell a naked call.   In this case, still using amazon, you could sell a call at really any strike, but in this case lets just say you sell the $200 call we talked about above.  

This is a significantly interesting trade.  The most money youc an make is 12.65, if amazon finishes at or below $200.  So you can't make 7x your money, or really very much money at all.  The most money you can lose is your entire rear-end, unlimited losses are possible.  

But...  you make money as long as the stock is below $212.65, a far higher ceiling than any of the other options available here.  Time is on your side in a big way, as you ar eshort $12.65 of time (meaning the amount you'll make (if short) or lose (if long) if the stock doesn't move at all).  Time was on our side in the put spread as well, but just a few dollars worth.  

So the downside is very limited potential profit and unlimited risk.  Theupside is a higher share price ceiling where youare profitable, and time being very much on your side.  

If AMZN corrects even slightly, or even if its momo just pauses significantly, the value of that call will drop like a stone.  I once sold calls on ASH when it was $29 and bought them back cheaper later on when it was $45, I got it completely wrong and still won.  These were covered calls.

I also once sold calls on ASH and had it run straight up and I wound up losing 3x what I had sold htem for...  Risky business, but one that gives you several ways to win instead of just one ...

6.  sell a call spread.   Here you would sell a call and then buy another call at a higher strike price.  In all honesty I am not sure I like this.  Because the potential profit is super low and the risk/reward is really not good.  Let me illustrate.

we sell our $200 call on amzn, but then we decide the only thing to do is go on a 7 month pot smoking binge and as such we should hedge.  so we buy the $220.  Well that costs $6.80 so now our max profit is less than six bucks, but we can still lose 13 bucks.  not great.

IT IS CLEAR THAT AN ENTIRE POST NEEDS TO BE DEDICATED TO THESE, IN FAR, FAR GREATER DETAIL.  I WILL DO THAT SOON.

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#3) On January 09, 2011 at 2:35 AM, checklist34 (99.71) wrote:

Last, here are some comments from one of histories great short sellers, Jim Chanos. They can be found here .  These, in essence, give some ideas on what kind of stocks you may want to short.

Some recurring themes in Short Selling:


Booms that go bust – define boom as anything fueled by debt in which the cash flows produced by the asset do not cover the cost of the debt. The Internet is not a boom since they didn’t have debt. The Telecom Bubble that went along with it was.

Consumer Fads – investors like to extrapolate strong growth well further into the future then they should. It’s also a great source of decoration for your office, he’s got a Cabbage Patch Kid next to a George Forman Grill next to a Nordic Trak.

Technological Obsolescence – Everyone thinks the old product will last longer than it actually does. Examples were Wang Word Processors (replaced by PCs), Record Stores (replaced by digital downloads). He says the internet is the cheapest way to distribute anything. However people are still renting DVDs by mail, which surprises him (Hint: likely short Netflix!). These businesses always look cheap but the cash flow goes down just as fast as the share price (think Kodak and film).

Structurally-Flawed Accounting – beware serial acquirers, they often write down the assets of the acquired firm in the stub period that no one sees. Ask management what the net assets of the firm were on their latest end of quarter and what they were when they were acquired. Most management won’t tell you this, some will, however. But by writing down inventory and A/R they can “spring load” results once the company is acquired. They’re supposed to adjust the purchase price but most don’t.


I would love in this, and a future thread I mustwrite about short selling, to hear comments from any and all, especially those who may have experience with short selling. 

Both on how you like to go about it, and how you look for companies, and how you try to discern when the right time to enter the position is.  

End note:  credit default swaps are a huge way that big, famous hedgies go short things.  In general, these aren't, I don't think, available to normal people and as such I idn't mention them above.  I don't know anything about them, or if I can even buy one, beyond what they are and how they work.

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#4) On January 09, 2011 at 2:41 AM, checklist34 (99.71) wrote:

ok, I am done.  Thanks for not posting until I finished my entire, and considerable, ramblings. 

I vow to short something this month, I just want to do the best I can to do this intelligently.  

I hope to sit down and come up with three more threads on this topic, covering this:

1.  a far more in depth commentary like the one in post 3 above.  I have traded tens of thousands (probably) of options contracts in the last 2 years and as such I think I can offer some pretty intelligent commentary on them.  

2.  a list of short ideas, not specific stocks, but just situations and why I would be interested in doing it, kind of like post 4 above, but maybe I can get lucky and find numerous commentaries on the art of shorting by experts

3.  maybe it would be possible to start a thread that would be ongoing where we all offer up ideas for stocks to short.  and then discuss.  Might be fun.  The CAPs game short thread.  

 

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#5) On January 09, 2011 at 2:52 AM, checklist34 (99.71) wrote:

I am BRAINDEAD.  I should be pyoonished considerably.

You can also, of course, go short by buying inverse ETFs.  This is without a doubt the most common, and easiest, way to do so.  I guess it didn't occur to me because ... well, I short those often, due to the decay intrinsic to so many of them, at least the levered ones.  

I can't believe I forgot that.  I will include it in my longer future thread on that topic.

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#6) On January 09, 2011 at 1:32 PM, Valyooo (99.42) wrote:

One thing I have learned about shorting is to never short a company based on valuation. Overhyped stocks stay overhyped for a lonnnnnng time (look at all those cloud stocks last year). There needs to be a catalyst that is going to scare people out of the stock, the valuation alone isn't going to deter people from growth.

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#7) On January 09, 2011 at 2:08 PM, Valyooo (99.42) wrote:

Oh, and also, the thing you said about short sellers thinking they are intellectually superior...SERIOUSLY THE MOST ANNOYING THING EVER. SO true.

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#8) On January 09, 2011 at 3:21 PM, MegaEurope (21.53) wrote:

Checklist, I suggest you download Options Oracle (http://www.samoasky.com/), a free program that helps find and analyze options strategies.  Very useful.

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#9) On January 09, 2011 at 5:23 PM, anchak (99.85) wrote:

On quant shorts - ie pooled stocks and doing a cohort short - Leveraged ETFs beat the pants out them  ie unless you have a themed fundamental short - like overlevered banks with risky mortgage assets  in circa 2008...

Levered ETFs are the best vehicle - however - you have to be able to time them - else - we all know the "best" ongoing strategy in CAPS don't we?

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#10) On January 09, 2011 at 5:24 PM, anchak (99.85) wrote:

BTW _ Inever got your email from Hans

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#11) On January 09, 2011 at 5:28 PM, JakilaTheHun (99.94) wrote:

Good blog, as always, checklist.

I've started shorting more lately, but I would say my long to short ratio is still something like 20 to 1 or 30 to 1.  

I prefer to buy puts, but sometimes, they can be rather expensive.  (see NFLX and MCP right now).  

I normally will only short if puts are unavailable or unattractive; and I believe the short would be a good hedge on my more bullish calls. I am short a few commodities miners right now; if the market gets bearish, they'll probably get  hit hard and it will help preserve my portfolio a bit.  They are overvalued enough, so that it's even possible for the market to remain bullish and for these stocks to move sidewards or down. 

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#12) On January 09, 2011 at 11:15 PM, checklist34 (99.71) wrote:

valy, do you remember how thick, how heavy, how overbearing the condescension from the bearish crowd was here 1.5-2 years ago?  Deep, insulting commentary, no punches pulled, not even a consideration that they could be wrong. 

It was said, honestly, and I remember by whom, that "bearish people are far smarter than the bulls, thats just a fact".  

Agreed on the valuation short.

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#13) On January 09, 2011 at 11:19 PM, checklist34 (99.71) wrote:

megaeurope, I will take a look, but I'll be honest and say that I doubt anything but a very sophisticated program would really be supremely helpful. 

I have traded probably tens of thousands of options contracts over the last two years, and to even try to share what I've seen and learned from those experiences would take pages of typing, although I am strongly considering trying.  The strange behavior of calls, for example.  I have, net, profited from selling covered calls and, to date, never one time lost money selling naked puts, but I have also seen enormous percentage losses on covered calls while learning a bit about stock momentum and how those little suckers (the calls) behave.  

Thanks for the tip, and I'll post back here with acknowledgements if it proves supremely helpful.  Just a bit skeptical.

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#14) On January 09, 2011 at 11:22 PM, checklist34 (99.71) wrote:

Anchak, I sent you an email earlier I think, after getting yours from Porte.  I hope it got there.

I am not convinced about inverse ETFs.  To win with them, say with buying a levered inverse ETF, your timing has to be reasonably good.  And, risking far less capital, if your timing was reasonably good index puts would win quite a bit bigger.  

Summer of 2010's fairly brutal correcation saw faz rise what?  50?  And you were back underwater on it FAR before the XLF returned to even near its previous highs due ot decay.  

Someindex puts on XLF bought when FAZ was at its april lows would have returned multiples of their cost.  

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#15) On January 09, 2011 at 11:31 PM, checklist34 (99.71) wrote:

jakilla, I have noted several times that for heavily shorted stocks, the puts become very expensive.  AIG for a time in 2009 was a dramatic example, where at the money puts were, if memory serves, nearly 3x the price of at hte money calls.  (these would usually be the same for a stock paying no dividend)

Similarly, I got long the casinos for fairly enormous discounts in early/mid 2009 by going long a call and short a put to create a synethetic long.  Typically, these should have been priced the same, but demand for the casinos was such that the puts could be sold for literally 10% or more of the share price more than the calls cost, creating an instant profit in the position, sort of.  

 

I am honestly quite trepid about shorting, as in no way is it childs play...  MCP looks like it has a heinously silly valuation.  What gives with that?  Price/sales of 282?  no expected earnings in fiscal 2011?  up 350% from its 52 week lows?  Sheesh

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#16) On January 10, 2011 at 1:20 AM, JakilaTheHun (99.94) wrote:

checklist,

MCP has become a bit ridiculous.  But the puts are so expensive, that I've decided not to buy any.  I'll have to play it on CAPS only.  

It's all based on speculation about China in regards to rare Earth metals, but I question how, even in a major supply squeeze, MCP's assets could be worth enough to justify the stock's current price.  It's probably worth $20 tops, and even that seems like a huge stretch to me.

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#17) On January 10, 2011 at 10:19 AM, anchak (99.85) wrote:

Checklist # 14 : I agree - but what I referred to was a comparison - between Individual Short Selling ( a pool of stocks) vs Holding Inverse Ultras - and YES - timing matters - which I mentioned also.

But that's true for Stocks too.

 

I have been doing some testing on the Index Puts to this regard -actually.

 

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#18) On January 10, 2011 at 8:47 PM, Valyooo (99.42) wrote:

Checklist, do you trade for a living?

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#19) On January 11, 2011 at 12:00 AM, checklist34 (99.71) wrote:

jakilla, yes those are expensive, wow.  30% of the share price for a 1-year-out put, thats WORSE THAN FAS, wow. 

it would take 3x the length of my average post, which is already so long it annoys everybody, but I have some observations about the behavior of options on high beta securities, particularily VXX and levered bear ETFs.  Its super exploitable.  

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#20) On January 11, 2011 at 12:01 AM, checklist34 (99.71) wrote:

anchak, that is super interesting.  so you are working on calculating what works best for hedging purposes?  levered inverses, index puts, or short a basket of quant stocks?

somethin like that?

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#21) On January 11, 2011 at 12:08 AM, checklist34 (99.71) wrote:

valy, yes, I do.  It goes like this, I was an entrepreneur my whole life until late 2008 when I sold all my businesses.  Then, after the big crash it occured to me that I was probably staring at a twice-in-a-lifetime opportunity so I looked for people to invest my money...

...to my considerable confusion, they were all bearish and terrified, shorting stuff and selling out and buying walmart and exxon at most.  So I decided to figure it out for myself, and did.  From jan 5 09 to today I am just under 5x my money, and excluding havin about 33% of my money managed by others from dec 08 to april 09, I would be more than 6x my money, so its worked out.

This leaves me in a strange position where I need not ever work again if I don't want to, including trading, just put it all in T, VZ, etc and forget it.  Hell, bank CD's and forget it.  

But I get extremely restless and unhappywhen I don't do anything.  In 2010 I was extremely hands off with the markets, really only acting a few times (two good, one bad), but lately I have been thinking about taking a more active role.  

I would love to start another business, I was very proud to have employed, and paid well, many employees.  But in truth its an incredible amount of work (I had 1 biz partner, and we each, no joke, worked 100+ hours a week for 5-6 years and 80+ for 10 years), an incredible amount of stress, and very thankless (society quite literally hates you for your efforts at times), and very lonely (think about it, work 106 hours/week for all of 2004 and what, exactly, kind of social life do you have?)

I have thought about many things, including fundin other businesses, but I am skeptical about the ability and interest and willingness of most people to put up the kind of hours and dedication it can take.  Very skeptical, it almost ruined us as people.  And for that reason I haven't done much of that kind of thing.  

overall, you could say I'm retired and this is a hobby, or you could say I'm a professional money manager, up to you.

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#22) On January 11, 2011 at 12:16 AM, checklist34 (99.71) wrote:

I love kids.  In fact, my only hobbies are booze and babysitting, lol.  I do more of the latter.  I've thought about starting some kind of kids foundation or charity, but I don't have any idea how to go about it. 

I have no interest in starting a "underpriveledged kids" foundation, because in the USA right now the underpriveledged have so many more priveledges than I ever had and that annoys me.  I would love to start a foundation for kids who lost their dads, but I'm concerned it would wind up being something trashy single moms (I have DEEP respect for non trashy single moms, and non trashy single dads) would use to dump their kids from time to time or get een more free stuff for their own bad decisions.  

I'm super anti socialist, and I mean SUPER, and that gives me pause on charitable activities, because I doubt its even legal to start a foundation for kids who lost their dads but exclude "kids whose moms are on crack and who banged another crackhead and have 8 kids to make a living off Checklists tax money because I HATE that aspect of society".  See what I mean?

Or for kids that got hurt somehow, like lost a limb.  I just love kids, their honesty and energy and how incredibly much smarter they are than anybody really understands, besides maria montessori, but she's dead.  

But I HATE socialism and reverse-discrimination and all of that, so I wonder if i'd wind up extremely angry if I got into the charity scene.  

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#23) On January 11, 2011 at 12:19 AM, checklist34 (99.71) wrote:

one of the neighbor kids once told my girlfriend she could/should date his uncle because his uncle had hair

"why does you like dating chetwist?"

"he's nice"

"yeah, him is nice, but him is got that bald head.  you could maybe date my uncle josh, him has hair and is nice"

haha!

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#24) On January 11, 2011 at 1:19 AM, Valyooo (99.42) wrote:

I feel the same way about the anti-socialism.  I would ask you for advice of how to get into trading for a living but it seems that your situation is unique.  I am a 21 year old, in my last semester of college (thank the god i dont believe in) studying economics, and i spend most of my freetime learning about how to trade/invest.  I made 228% return in 2009, and lost a lot last year...still, I am up a very nice % return though, better than the market.  I first bought stock of LMT when I was 6.  I am addicted to the stock market.  The only problem is my incredibly low amount of capital requires me to take on more risk (for instance, i cant really average down my investments, because my commissions would eat me alive) and i need to use options for some of my trades (for instance, if i have observed a pattern that consistently would produce a 1% gain, and my commissions are 1% of my trades, i make nothing, but with options i am juiced up).

"but I have some observations about the behavior of options on high beta securities, particularily VXX and levered bear ETFs.  Its super exploitable.   "  If you ever have the time/desire to write a long post about that, i would be extremely happy to read it.  In my opinion (not trying to be a kiss ass) you are a top 5 player on CAPS, so I would definitely appreciate an expansion of your thoughts on that topic.

BTW, booze and babysitting- haha, do you enjoy those 2 activities at the same time?

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#25) On January 12, 2011 at 1:10 AM, checklist34 (99.71) wrote:

valy,

    don't take so much risk that you lose the capital that you have, unless you can replace it.  ...  

     Being young is advantageous, I think, for operating in the markets.  Old guys get super conservative, even bearish, after being burned a couple times, and they lose the belief that they can be the grand master of return-getting.  Young people still believe, which is a huge advantage, if a downside is willingness to subject themselves to more risk.  I guess at 35 I'm not so old...  young enough to have put 100% of my money into the market in 09 and more or less kept it there, aside from raising cash, etc.  

      I would guess being young is a challenge for, for example, raising capital to start a hedge fund.  Maybe a good path to take would be to get a job, save as much cash to add to your account as you can, work on a strategy, make sure you don't blow yourself up, and keep a track record of your returns?  Maybe that could help you find some folks willing to invest with you someday?

      I hear what you are saying, this is the most wildly (potentially) profitable biz adn the easiest path to mega money for so, so many.  But its also one where it takes money to make money.  Kind of cruel, that.

       It remains true that if one wants wealth, starting a business is ... both the hardest, riskiest, most costly in terms of life quality...  but still the only way to get rich young, unless you're a great singer or inherit money or a great athlete, but lets face it, those are very, very few and most of them are only transiently wealthy...  not permanently.

        I would love to share my thoughts on exploitable optiosn behavior, sharing my ideas is one of my favorite things on earth.  Get me talking sometime in person about my ideas and try to get me to shut up.  I have some ... trepidation about publicly listing them, however, for various reasons.  I think it over all the time, lol

      don't mix booze and babysitting, lol

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#26) On January 12, 2011 at 2:41 AM, Valyooo (99.42) wrote:

Well, if you would, I can give you my email address (or even buy you a beer if you live anywhere close to me) and you could tell me so that you dont reveal your strategies to the whole world. I completely understand if you don't want to, as keeping strategies to yourself is important sometimes.  I would repay you if I could, do research for you, show you some of my own ideas, etc, or if down the line I make money off of it, kick some back to you.  Just sayin, but I won't take offense if you decline.

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