Ask me anything about finance/investing

This site taught me how to play poker for free. I'd like to give something back. I'm an equity analyst for a hedge fund. My job is to try and come up with better valuations for publicly traded companies than the market can. In the course of coming up with these valuations I get the chance to meet with the management teams of all sorts of companies, as well as pretty much every stripe of investment professional there is. Beyond that, my professional network includes people doing just about every type of financial analysis on both the buy and the sell side.

I feel like a lot of you have questions about both how to invest your own money, and how more complicated parts of the financial system and economy work. If you guys have any questions about any of these topics, or want advice (*) on how to invest your own money, or if you want tips on how to get into this line of work, I'll do my best to answer them or if I don't know the answer I'll ask someone who does.



*I legally don't think I can give really specific advice, but I can be helpful.

If you were given 25k how would you plan to invest it? If you were given 100k would your plans change at all?

Assume you are fairly young.

On January 04 2010 20:14 Bigbobm wrote: If you were given 25k how would you plan to invest it? If you were given 100k would your plans change at all?

The important thing isn't really the amount of money, but the liquidity and risk constraints. So if I had money that I didn't have to touch for 40 years for retirement, it would probably almost entirely in equity funds with an emphasis on emerging markets (and the developed world ex US, most US investors invest way too much in the US). If I had 25k that I needed to buy a car in 3 months, then you can't get too creative really and I'd look for a short term instrument experiencing technical pressure (something about the market structure makes investors uneasy, but the fundamentals are sound) much like what happened to municipal bonds last year. If you give me a time horizon I can probably get more specific.

I'll also say that anybody who is not a millionaire multiple times over shouldn't really be focusing on investing in individual assets. I'm always shocked when poker players who build bankrolls to sustain variance ignore the same logic and invest their winnings in individual pieces of real estate for example. If you want a house to live in with your family that's fine, but bankroll management is important in investing too.

What school qualifications do you have and/or what subjects did you take etc. The more detail the merrier.

Thanks.

what strategies do you favor for valuing equities? I understand you get the ability to visit companies and get an IRL look at how they run, but could you focus on what methods you use outside of this privelege? how do you spell privelige?

Do you use technical analysis at all?

OK, I'll take up your kind offer thanks.

About 25k to invest. I wish to do it as ethically as I can (basically no arms, I'm not going to be too pussy about anything else, though it helps). I don't really want advice on investing it myself as I have my own skills in what I do and I am happy to pay for someone else's in what they do, and I don't have the time, but down what avenues should I go to get this done in the best way? My attitude to risk on this amount is surprisingly low even though I am young, because I want it as a kind of "rainy day" fund.

I apologise if my ignorance in these matters make my questions irrelevant or senseless. Thanks again!

On January 04 2010 20:23 Funktion wrote: What school qualifications do you have and/or what subjects did you take etc. The more detail the merrier. Thanks.

Sure.

I went to Johns Hopkins University, graduated in 4 years with a degree in Political Science.
I took the following relevant classes:

Financial Accounting
Management Econ
Corporate Finance
Stat I (taught myself a bit of stat II)
Intl Finance
Micro

I wish I had taken econometrics and recommend it to everyone who wants to do anything in finance. By far the most useful course was management econ, because the professor didn't just teach formulas (common in finance/accounting) but helped you build an analytical toolbox of sorts to figure real questions; For example many classes will ask you what is the DDM value of X firm, but they won't really help you determine if that's an appropriate analytical technique. I also interned at a mutual fund and a venture capital company. There is no substitute for industry experience. You almost need to learn a new language.

On January 04 2010 20:23 Night2o1 wrote: what strategies do you favor for valuing equities? I understand you get the ability to visit companies and get an IRL look at how they run, but could you focus on what methods you use outside of this privelege? how do you spell privelige? Do you use technical analysis at all?

I don't use technical analysis at all. I've yet to see compelling statistical evidence that demonstrates that people who are good at it are anything but the right tail of variance. There are exceptions to this but they rely on distinct informational or technological advantages (Renaissance Technologies does this as I understand it), and aren't really traditional technical strategies.

I personally favor looking for undervalued identifiable assets or easily predictable cash flows. Luckily for me, most smart analysts are looking for the next hot growth stock with uncertain cash flows, so I can pick through flawed companies looking for hard assets that once the capital structure is dissected, can actually be bought for cheap by buying the equity. It's usually a lot of work in excel figuring out when and why cash comes into the company and leaves, but at the end a simple Discount Cash Flow Analysis can get you a discrete valuation for the company if you've done your legwork right. Spending a lot of time testing and tweaking your assumptions about cost and revenue growth is important too, and that's where meeting the companies comes in.

The privilege (thank you google chrome auto spellcheck ) of meeting with management is usually best used trying to get at whatever you can't understand from the financial statements. This can mean very different things for many different companies. With a biotech company, I may spend an entire meeting writing the process by which their newest drug works, without understanding it, just so I can show my notes to contacts in the medical world. With a oil service company, I may spend a good bit of time trying to ascertain which customers they can depend on to renew options, and which they can't. It really differs from company to company but it's definitely the most fun part of my job. FWIW I've met with a few internet poker companies and have had really cool conversations about where they think online poker is going. Unfortunately I can't TR that here.

EDIT: misread the question. What methods do I use outside of meeting companies? I spend a lot of time reading financial statements, reading newspapers, and talking to people. With all of that information I try to build a mental database of everything that's going on in the world and look for inconsistencies. Maybe the growth rate that's suggested from Company X's EV/EBITDA multiple is 1% in perpetuity, but I've noticed that this company's customers having trouble keeping inventory in stock. I might then deduce that company X is going to have either a pricing or volume push past 1% in the near term, and depending on the cost structure, might deserve a higher valuation.

CLiffs: I read everything and anything and try to construct a logical system in my head for where money is flowing, then I compare this to financial modelling I and others have done based on financial statement analysis. Discrepancies between the two systems usually mean value.

On January 04 2010 20:25 Oly wrote: OK, I'll take up your kind offer thanks. About 25k to invest. I wish to do it as ethically as I can (basically no arms, I'm not going to be too pussy about anything else, though it helps). I don't really want advice on investing it myself as I have my own skills in what I do and I am happy to pay for someone else's in what they do, and I don't have the time, but down what avenues should I go to get this done in the best way? My attitude to risk on this amount is surprisingly low even though I am young, because I want it as a kind of "rainy day" fund. I apologise if my ignorance in these matters make my questions irrelevant or senseless. Thanks again!

No problem. What you're looking for are so-called "socially conscious mutual funds". These funds are just like other funds except they don't invest in certain companies (defense, tobacco and sometimes booze and gambling I think). I can't link you to specific ones (google socially conscious fund and many come up), but generally look for ones with a high sharpe ratio over a 5 or 10 year period (will be available in any prospectus), and a low annualized standard deviation of return (though you will sacrifice expected return for less risk, so be honest with how much volatility you can sustain, the tradeoff between risk and return looks something like this in expected form:+ Show Spoiler +

). Always of course look for funds with the lowest expense ratio, and make sure you're not paying any loads (fees). Be aware that you will be paying a higher expense ratio for the socially conscious mandate, so your realized returns will be lower than a similarly managed fund.

Cheers, great stuff thanks.

What kind of skills and career experiences do you look for in potential hires?

On January 04 2010 20:39 Sicks Macks wrote: Show nested quote + On January 04 2010 20:23 Night2o1 wrote: what strategies do you favor for valuing equities? I understand you get the ability to visit companies and get an IRL look at how they run, but could you focus on what methods you use outside of this privelege? how do you spell privelige? Do you use technical analysis at all? I don't use technical analysis at all. I've yet to see compelling statistical evidence that demonstrates that people who are good at it are anything but the right tail of variance. There are exceptions to this but they rely on distinct informational or technological advantages (Renaissance Technologies does this as I understand it), and aren't really traditional technical strategies. I personally favor looking for undervalued identifiable assets or easily predictable cash flows. Luckily for me, most smart analysts are looking for the next hot growth stock with uncertain cash flows, so I can pick through flawed companies looking for hard assets that once the capital structure is dissected, can actually be bought for cheap by buying the equity. It's usually a lot of work in excel figuring out when and why cash comes into the company and leaves, but at the end a simple Discount Cash Flow Analysis can get you a discrete valuation for the company if you've done your legwork right. Spending a lot of time testing and tweaking your assumptions about cost and revenue growth is important too, and that's where meeting the companies comes in. The privilege (thank you google chrome auto spellcheck ) of meeting with management is usually best used trying to get at whatever you can't understand from the financial statements. This can mean very different things for many different companies. With a biotech company, I may spend an entire meeting writing the process by which their newest drug works, without understanding it, just so I can show my notes to contacts in the medical world. With a oil service company, I may spend a good bit of time trying to ascertain which customers they can depend on to renew options, and which they can't. It really differs from company to company but it's definitely the most fun part of my job. FWIW I've met with a few internet poker companies and have had really cool conversations about where they think online poker is going. Unfortunately I can't TR that here. EDIT: misread the question. What methods do I use outside of meeting companies? I spend a lot of time reading financial statements, reading newspapers, and talking to people. With all of that information I try to build a mental database of everything that's going on in the world and look for inconsistencies. Maybe the growth rate that's suggested from Company X's EV/EBITDA multiple is 1% in perpetuity, but I've noticed that this company's customers having trouble keeping inventory in stock. I might then deduce that company X is going to have either a pricing or volume push past 1% in the near term, and depending on the cost structure, might deserve a higher valuation. CLiffs: I read everything and anything and try to construct a logical system in my head for where money is flowing, then I compare this to financial modelling I and others have done based on financial statement analysis. Discrepancies between the two systems usually mean value.

You sound a lot like Joe Ponzio, Warren Buffet and other similar business investors, I'm glad to hear that and theirs is the path that I look to follow. I know how to do a DCF (or I could easily look it up for a refresher) and I have a small knowledge of some other value-oriented methods of valuation so I figure its the experience and general knowledge that I should be working on.. sounds like what you're saying to me at least?

I understand some hedge funds mess with more complicated financial instruments (which I basically know zip about), I'm curious to know what types of investments your company makes and even more so what part you specifically are involved in(so I have a better idea of where your speciality is). What I mean is do you look outside of stocks, towards bonds or commodities, etc? Do you do short-term purchases or shorts, etc?

what fund do you work at?

On January 04 2010 20:29 Sicks Macks wrote: I also interned at a mutual fund and a venture capital company. There is no substitute for industry experience. You almost need to learn a new language.

Thanks a lot that was really helpful info. At what time/stage did you do your internships?

If we can't be bothered to look deeply into our financial investment decisions, who should we have do it for us?

If we can be bothered and decide to do a little bit of analyzing on our own (read a few books, talk to people, spend ~10 hours a week on it), how would you suggest we begin this path?

What kind of ROI can we expect in each scenario over the next 20 years?

On January 04 2010 21:29 Pacifist wrote: What kind of skills and career experiences do you look for in potential hires?

I mean to be honest high finance is pretty clubby about giving out interviews (school really matters here, then gpa, etc). Once you're in an interview for a role like mine, people need to think that you are:

A) smart
B) have a unique thought process
C) can easily explain your thoughts and conclusions to others
D) can quickly process new information

One of the best interview questions I ever got was a classic test of all 4: "Cars cost $20,000, Tuxedos cost $500, they both rent for $100 a day. Why isn't every car rental owner buying a tuxedo rental store instead? List every reason". I missed this one pretty badly, but the explanation really helped me learn how to quickly think at a structural level about industries I've never participated in.

As far as career background goes, it doesn't really matter. Anyone can learn accounting. The above stuff is tougher.

On January 04 2010 21:41 Night2o1 wrote: You sound a lot like Joe Ponzio, Warren Buffet and other similar business investors, I'm glad to hear that and theirs is the path that I look to follow. I know how to do a DCF (or I could easily look it up for a refresher) and I have a small knowledge of some other value-oriented methods of valuation so I figure its the experience and general knowledge that I should be working on.. sounds like what you're saying to me at least? I understand some hedge funds mess with more complicated financial instruments (which I basically know zip about), I'm curious to know what types of investments your company makes and even more so what part you specifically are involved in(so I have a better idea of where your speciality is). What I mean is do you look outside of stocks, towards bonds or commodities, etc? Do you do short-term purchases or shorts, etc?

Thanks, Warren Buffet is my original favorite investor. The best thing to do if you really want to get into understanding stocks is to sit down in excel with a company's 10-K and 10-Q disclosures (available on their investor relations website) and build a simple model that explains what happens to their different accounts when certain things happen. Pick a company with one product or service so it's simple. Say Chipotle for example (CMG, I don't cover them). Try to get a feel from their press releases what it costs to open a store, what costs are variable, which are fixed etc. Then you can project traffic/store count/cost inflation in the out years and see what happens to things like cash flow and EPS. You could of course use this to see if CMG is over or undervalued, but it's most useful just to see where you feel you need more information to be exact. It's in thinking about ways to refine your models and process that you get the experience to find genuine edges in investing (hint: they're rarer than in tough poker line-ups and people are more delusional about them than in PLO)

As far as hedge funds go, we're very vanilla. We invest both long and short, but we have a long term focus (As most value investors do). Many of my friends work for crazier hedge funds. The only "nutty" thing we do is invest in very small, illiquid companies.

Question: Which of the following investment scenarios do you preffer and why with these assumptions:
- money to invest: $250k
- liquidity: high
- time horizon: 3-5 years
- risk acceptance: low

Scenario 1: Investing into shares/commodities or similar funds.
Scenario 2: Buyin 1-2 real estate properties, renting them and selling them in a couple years.

On January 04 2010 21:43 TenBagger wrote: what fund do you work at?

Don't feel comfortable saying. I've posted enough silly stuff over my time here that I'd rather keep IRL separate.

On January 04 2010 21:45 Funktion wrote: Show nested quote + On January 04 2010 20:29 Sicks Macks wrote: I also interned at a mutual fund and a venture capital company. There is no substitute for industry experience. You almost need to learn a new language. Thanks a lot that was really helpful info. At what time/stage did you do your internships?

Summer between junior and senior year. I had a tougher time than many getting my first job because of it. I'd recommend soph-junior summer.

On January 04 2010 21:57 Sicks Macks wrote: Show nested quote + On January 04 2010 21:43 TenBagger wrote: what fund do you work at? Don't feel comfortable saying. I've posted enough silly stuff over my time here that I'd rather keep IRL separate.

fair enough.

sounds like you are primarily involved in fundamental value. what other strategies does your fund utilize? are you located in NYC?

On January 04 2010 21:45 Smuft wrote: If we can't be bothered to look deeply into our financial investment decisions, who should we have do it for us? If we can be bothered and decide to do a little bit of analyzing on our own (read a few books, talk to people, spend ~10 hours a week on it), how would you suggest we begin this path? What kind of ROI can we expect in each scenario over the next 20 years?

Your expected ROI is almost going to be exactly proportional to your risk tolerance (this is called beta), the excess returns over what you would expect for your risk appetite (alpha) is the stuff that being better than everyone else gets you. That said this alpha is a really small part of your total experienced return, so almost everyone who has less than 50m or so to invest is better off paying someone else to chase alpha for them, or better yet accepting that alpha is really tough too find and just investing in really low cost index funds. I would recommend investing in really low cost index funds. It's much easier to beat the average investors return by finding a low expense ratio than by picking a genius out a room full of very smart fund managers who may have gotten lucky.

The most important decisions you need to make are about when you need your money, and constructing your portfolio accordingly. Again, if you post a specific time horizon I'd be happy to suggest some asset classes you may want to look into.

On January 04 2010 22:03 TenBagger wrote: Show nested quote + On January 04 2010 21:57 Sicks Macks wrote:   On January 04 2010 21:43 TenBagger wrote: what fund do you work at? Don't feel comfortable saying. I've posted enough silly stuff over my time here that I'd rather keep IRL separate. fair enough. sounds like you are primarily involved in fundamental value. what other strategies does your fund utilize? are you located in NYC?

I'm Boston-based, my fund is strict fundamental value. I work with a bit of the NYC sell-side though. You?

On January 04 2010 21:57 Joe wrote: Question: Which of the following investment scenarios do you preffer and why with these assumptions: - money to invest: $250k - liquidity: high - time horizon: 3-5 years - risk acceptance: low Scenario 1: Investing into shares/commodities or similar funds. Scenario 2: Buyin 1-2 real estate properties, renting them and selling them in a couple years.

If your risk acceptance is low then it's not even a question: Scenario 1. Buying 1-2 real estate properties, in addition to being a headache is an incredibly concentrated bet on a specific local real estate market.

I'm actually going to be starting a banking job in July once I finish school. Having worked with the sell side, what in your opinion are the most important skills to have for someone on the sell side? Another unrelated question, is it common for bankers to go into hedge funds? If so, how does that process compare with the process of going into private equity?

just curious what are normal % of profit for low -moderate and high risk investments.

On January 04 2010 22:14 Pacifist wrote: I'm actually going to be starting a banking job in July once I finish school. Having worked with the sell side, what in your opinion are the most important skills to have for someone on the sell side? Another unrelated question, is it common for bankers to go into hedge funds? If so, how does that process compare with the process of going into private equity?

Most important skill anywhere on the sell side is work ethic. Whether IB or sales those people work long hard hours. I don't know your specific job so I can't really say more, but it's tough (but rewarding) work. IB ---> PE is a much more typical path than IB ---> HF because PE recruits pretty exclusively from IB (and consulting) because it's still so deal-driven (I for example, bet I could not get a job in PE right now, because I don't have a deal background). Nothing precludes you from going IB ---> HF, but I don't know tons of people with that background.

On January 04 2010 22:20 Baal wrote: just curious what are normal % of profit for low -moderate and high risk investments.

I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit.

individual assets , like individual stocks, will actually have higher risk than this relationship would suggest, but that risk is eliminated in a diversified portfolio.

Specific hedging strategies can further mess with all this. For example Long Petrobras/Short a Global integrated Index and Short the Real can remove the currency and oil price (And integrated oil sentiment) risks from PBR's stock.

On January 04 2010 22:36 Sicks Macks wrote: I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit.

I'm a first year stats student who spent the better part of my summer reading everything I could find on everything I could think of, a fair chunk of which ended up being related in some way to Finance. I know still know very little overall (taking macro/micro next semester), but I'm pretty sure your numbers are spot on. 8% deviation and like 6-9% for stocks I remember being burned into my head from reading it so many times.




My question is, what kinds of index funds would you recommend for most of the people you're replying to? (small amounts of cash like 25k have been thrown around a couple times) You mentioned emerging markets, so would the best choice be, for example, an indian/chinese index, or should one instead play it safe with a "global" portfolio split between multiple indexes.

Specific fund names would be great here. Just want to get another opinion.

Fwiw, my plan up until now was to throw a couple k into the largest EFT I could find (I'm in Canada), close my eyes and check in it in 5 years.

On January 04 2010 22:51 SemPeR wrote: Show nested quote + On January 04 2010 22:36 Sicks Macks wrote: I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit. I'm a first year stats student who spent the better part of my summer reading everything I could find on everything I could think of, a fair chunk of which ended up being related in some way to Finance. I know still know very little overall (taking macro/micro next semester), but I'm pretty sure your numbers are spot on. 8% deviation and like 6-9% for stocks I remember being burned into my head from reading it so many times. My question is, what kinds of index funds would you recommend for most of the people you're replying to? (small amounts of cash like 25k have been thrown around a couple times) You mentioned emerging markets, so would the best choice be, for example, an indian/chinese index, or should one instead play it safe with a "global" portfolio split between multiple indexes. Specific fund names would be great here. Just want to get another opinion. Fwiw, my plan up until now was to throw a couple k into the largest EFT I could find (I'm in Canada), close my eyes and check in it in 5 years.

I really would recommend diversification unless you intend to make a specific bet. Something like VEIEX for emerging markets or VHGEX for everything. I guess these aren't available in Canada, but find a mutual fund or ETF that tracks indexes such as the MSCI EM index, MSCI AC World, MSCI AC World ex US, or FTSE All World then find the one with the lowest expense ratio.

How can I invest small amounts like 1k in high risk ventures?

Do you use statistical distributions and models at all? What's useful?

What's the cheapest/best value way for me to exchange money across countries?

On January 04 2010 23:32 genjix wrote: How can I invest small amounts like 1k in high risk ventures? Do you use statistical distributions and models at all? What's useful? What's the cheapest/best value way for me to exchange money across countries?

1k in high risk ventures? hmm, you can pretty specific ETFs that are juiced up naturally because of the industry/country they track. Stuff like oil services, india, shit like that. They also have internally leveraged ETF's like 3x S&P 500 or 3x short S&P 500. Wouldn't really recommend it.

I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge.

I don't know a good answer to the last question, nor do I think I can give a better answer than anyone else, sorry

On January 04 2010 23:41 Sicks Macks wrote: I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge.

Why is data mining a bad idea? I've had it in my mind now that I can discover some new Poker concepts by data mining large random hand samples.

I'm interested in programming (mathematical) simulation games or building statistical models to somehow help improve my game but so far haven't seen anywhere blindingly applicable.

Maybe Prospect theory input into some model/function to derive an estimate that fits with the data (as you described above). Machine learning seems quite popular but I feel a bit sketchy using it since it can give dodgy estimates when all the given points fit.

Hey man! I am looking to getting a job in finance. I just graduated this December from college (Gonzaga, its a decent school and good business program I'd say) and I have no internship/work experience because I opted to play poker and be a summer league swim coach instead. My cumulative gpa was a 3.4 (although way higher in business and finance classes, like a 3.7), but I basically have nothing to put on my resume. I didn't do any business clubs or anything. Yet, I feel I am smarter than most kids in my finance classes at my college and have successful poker as my background so I think I should be able to get into this profession. Again, I know literally nothing about finance other than the classes I took and have not even kept a keen eye to current events etc due to it not really feeling relevant to my life (in the past).

Do you have any advice for a 23 year old kid like me? Should I look for any possible job even if it extremely low level, and try to build up from there? Are there internships I can do ? I just decided I wanted to get a job instead of poker full time and am literally clueless. I definitely don't want to be cold calling or sales, I'm not good at that type of stuff.

I really want to figure out the next few years of my life, but I don't want to be hasty and make a long term life -ev decision (such as selling myself short and joining a finance company for less pay that also would not give me skills that would be beneficial to translate into a better career with a different company).

I've also been thinking about not even going into finance because it seems like it would be a stressful job that would get a person to be preoccupied with money even outside of work, which doesn't really fit me.

More questions:
Did you ever use algorithms or computer models? And were the algorithms procedural? Do you ever use complex system theory or chaos theory? Maybe by introducing small errors into your dataset or factors?

On January 05 2010 00:03 genjix wrote: Show nested quote + On January 04 2010 23:41 Sicks Macks wrote: I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge. Why is data mining a bad idea? I've had it in my mind now that I can discover some new Poker concepts by data mining large random hand samples. I'm interested in programming (mathematical) simulation games or building statistical models to somehow help improve my game but so far haven't seen anywhere blindingly applicable. Maybe Prospect theory input into some model/function to derive an estimate that fits with the data (as you described above). Machine learning seems quite popular but I feel a bit sketchy using it since it can give dodgy estimates when all the given points fit.

This is getting out of my area of expertise, but essentially quantitative analysis of stocks involves an essentially limitless set of factors and a limited historical sample. Phantom correlations can and do occur even if top-level financial data-mining. The most successful quants use sample-analysis to test hypotheses based in sound theoretical analysis, rather than as the first step.

lol ic sample-size

sorry if im throwing this off topic- not my intention. but do you build computer models with procedural algorithms? i hear all the time in circles im in about the wonders of chaotic system theory in finance so i'm curious as to whether how much of that is hot air from academia or whether real financers use it.

like poker players and game theorists.

On January 05 2010 00:04 Big_Rob_48 wrote: Hey man! I am looking to getting a job in finance. I just graduated this December from college (Gonzaga, its a decent school and good business program I'd say) and I have no internship/work experience because I opted to play poker and be a summer league swim coach instead. My cumulative gpa was a 3.4 (although way higher in business and finance classes, like a 3.7), but I basically have nothing to put on my resume. I didn't do any business clubs or anything. Yet, I feel I am smarter than most kids in my finance classes at my college and have successful poker as my background so I think I should be able to get into this profession. Again, I know literally nothing about finance other than the classes I took and have not even kept a keen eye to current events etc due to it not really feeling relevant to my life (in the past). Do you have any advice for a 23 year old kid like me? Should I look for any possible job even if it extremely low level, and try to build up from there? Are there internships I can do ? I just decided I wanted to get a job instead of poker full time and am literally clueless. I definitely don't want to be cold calling or sales, I'm not good at that type of stuff. I really want to figure out the next few years of my life, but I don't want to be hasty and make a long term life -ev decision (such as selling myself short and joining a finance company for less pay that also would not give me skills that would be beneficial to translate into a better career with a different company). I've also been thinking about not even going into finance because it seems like it would be a stressful job that would get a person to be preoccupied with money even outside of work, which doesn't really fit me.

Hmmm, you're in a tough spot because while Gonzaga is a very school I don't think it has a very strong alumni network in finance outside of Seattle (just a guess). If you do want to try the finance route, you're going to need to get caught up on what's happening, and maybe even do some in-depth of a company (say it's for your own portfolio) just so you have something to really go into depth on in an interview in spots where other kids would be talking about a project they did at an internship.

There are a few routes here. You can really tap into your personal network to ask if anyone knows anybody that can get you an interview at a top flight out of undergrad program (I think even then it's going to be tough without a 4.0 or a near-Ivy degree these days). Similarly you can apply to an analytical role in a less prestigious area of banking or asset management. In either case you're going to have to rely on the networks you have to get in the door, and then make sure you can articulate your thought process (And how your thought process is more valuable than other applicants) really well. This is where having a specific piece of complex financial analysis you've done would be really great.

The other thing you can do is get a job in finance where you work directly with VP's+. Once you get there, work hard, and make sure you take on projects that allow you to differentiate yourself. Befriend the higher management and let them know what you want to do and why you want to do it. This roudnabout process is sometimes helpful for the really smart people who have a slim resume, because it's difficult to really leap past your resume in an interview, but a few months in the workplace might work.

Buy side is better than sell-side as far as life EV is concerned.

On January 05 2010 00:06 genjix wrote: More questions: Did you ever use algorithms or computer models? And were the algorithms procedural? Do you ever use complex system theory or chaos theory? Maybe by introducing small errors into your dataset or factors?

I do use algorithms and larger computer models which I wrote. The rest of your question refers to things I leave to the experts. I rely on sell-side quants for the more complex stuff. Tbh I wish I understood the computer programming and statistical programming aspect better but it's just not my background.

On January 05 2010 00:21 genjix wrote: lol ic sample-size sorry if im throwing this off topic- not my intention. but do you build computer models with procedural algorithms? i hear all the time in circles im in about the wonders of chaotic system theory in finance so i'm curious as to whether how much of that is hot air from academia or whether real financers use it. like poker players and game theorists.

People do procedural modeling. Incredibly interesting stuff but it's all greek to me.

EDIT: Procedural modeling means something different than I thought. If it's a useful modeling technique be sure that prop desks at GS and friends have tried it.

this is prob an awesome opportunity to get info but i don't know two shits about this stuff enough to even as an intelligent question

gonna favorite this thread and come back to it when i have time to read it in full.


if i wanted one, how easy would it be for me to find a job in a hedge fund? i have a double major in math/comp sci, was in a math phd program before leaving for poker, im well known in poker and seems like the hedge fund guys love poker player mindsets.

i dont have any experience in finance stuff and never took classes in it but i do run one of the premier backing businesses in the world which is high risk high reward type investments.

do you think id have a good shot at getting a solid starting job if i ever needed it? i dont think id ever want to put in those kind of hours into it but if it ever came down to it i guess id like to have a backup plan and one where you can make a good amount of money is a good place to start


and as a 2nd question, what kind of hours did you put in when you started and how many years were you putting in really long hours?

On January 05 2010 21:31 Daut wrote: if i wanted one, how easy would it be for me to find a job in a hedge fund? i have a double major in math/comp sci, was in a math phd program before leaving for poker, im well known in poker and seems like the hedge fund guys love poker player mindsets. i dont have any experience in finance stuff and never took classes in it but i do run one of the premier backing businesses in the world which is high risk high reward type investments. do you think id have a good shot at getting a solid starting job if i ever needed it? i dont think id ever want to put in those kind of hours into it but if it ever came down to it i guess id like to have a backup plan and one where you can make a good amount of money is a good place to start

It's going to be tough to find a job at most hedge funds for a few reasons. First, hedge funds are usually the second step in a finance career after working for a larger fund complex or a bank. Most of them aren't equipped to bring people up to speed on financial stuff even if they're great at math/programming (I'll get to the exceptions). As such, the recruiting process generally works one of two ways: You know someone, or you're in an analyst program elsewhere and get recruited through a headhunter. In short, to even get an interview at most places, you're going to have to know someone, and even then I really think they're going to be skeptical about bringing someone up to speed on accounting/the financial system/financial products, the places just aren't run like that. Slightly better would be to apply to structured analyst programs run by large fund complexes like Fidelity or Capital Group or large investment banks, even then it will be tough just because everyone else is going to be 4.0 Ivy and trained for this stuff. That said there are small subsets of asset management that look explicitly for brilliant math/comp sci/stat minds and would probably go nuts for a guy like you. These jobs require no knowledge of how the financial system works really, it's all numbers. As such, your best bet would be either a really quanty hedge fund complex like DE Shaw (probably better than google as far as work environment, actively recruits non-traditonal backgrounds) or Renaissance Technologies (hedge fund, don't let the name fool you) or the algorithmic trading desks at any I-bank. There are probably many lesser known funds that recruit like this, but I don't come from a math background so I just know of the biggies. Still, other than at Shaw, Ren, and the IBs, even getting someone to see a resume is going to be tough.

On January 05 2010 21:31 Daut wrote: and as a 2nd question, what kind of hours did you put in when you started and how many years were you putting in really long hours?

I got very lucky in two ways: that I came up on the buy-side (professional investors, as opposed to people who create securities and structure transactions, known as the sell-side). The buy-side is notoriously more relaxed, because you're on your boss's schedule, not your client's. I also came up in Boston, where the money management community is largely off-shoots of Fidelity, Harvard Management, Putnam, Wellington, etc. With the exception of Wellington, all are very relaxed, weekends are almost always yours.

So I don't think I've ever averaged more than 60 hours a week since I started, and even that seems high. Of course when something needs to get done I've pulled 8am-4am runs, but I was often just given the next day off. We're nothing like I-bankers, it's much friendlier, and while people work very hard, there is a big emphasis on work-life balance.

To add though: I've made a point of always being available in my career to the people I work for, something that isn't uncommon in finance. I occasionally will pop in the office to check something at 11pm when I'm out drinking and I have told a very nice Rhino girl that I had to go because I needed to run a oil-price scenario through my model on my laptop at the B (she didn't want to come with, ).

Because the value of Yuan is rising so rapidly, a friend of mine who does currency exchange has advised me to convert U.S. dollars to Yuan in hopes of converting it back later for a profit. Do you know anything about this?

On January 05 2010 23:01 Jas0n wrote: Because the value of Yuan is rising so rapidly, a friend of mine who does currency exchange has advised me to convert U.S. dollars to Yuan in hopes of converting it back later for a profit. Do you know anything about this?

This is silly. That the Yuan has risen in the past has no indication on whether it will rise in the future. Currency markets are incredibly liquid and closely watched, new information is quickly incorporated into pricing, so I would guess the chance the Yuan continues to rise against the dollar at about 50/50. Maybe there's a strong analytical reason to buy it, but it's certainly not that it has been rising recently. In fact I am skeptical of anyone who claims to have an edge on the currency markets, they're essentially the finance equivalent of a 5bb SNG with the cards turned face up.

Lol, nice analogy, I will keep that info in mind

On January 05 2010 23:10 Jas0n wrote: Lol, nice analogy, I will keep that info in mind

yeah I mean capital markets have all the positive-variance-attributed-to-skill and everyone-knows-exactly-what-they're-doing aspects as poker, except times 4 billion.

what strategy do you use when trading the stock market?

On January 05 2010 23:07 Sicks Macks wrote: Show nested quote + On January 05 2010 23:01 Jas0n wrote: Because the value of Yuan is rising so rapidly, a friend of mine who does currency exchange has advised me to convert U.S. dollars to Yuan in hopes of converting it back later for a profit. Do you know anything about this? This is silly. That the Yuan has risen in the past has no indication on whether it will rise in the future. Currency markets are incredibly liquid and closely watched, new information is quickly incorporated into pricing, so I would guess the chance the Yuan continues to rise against the dollar at about 50/50. Maybe there's a strong analytical reason to buy it, but it's certainly not that it has been rising recently. In fact I am skeptical of anyone who claims to have an edge on the currency markets, they're essentially the finance equivalent of a 5bb SNG with the cards turned face up.

Funny how when I said the same thing in a previous thread, no one believed me.

On January 06 2010 00:01 TenBagger wrote: Show nested quote + On January 05 2010 23:07 Sicks Macks wrote:   On January 05 2010 23:01 Jas0n wrote: Because the value of Yuan is rising so rapidly, a friend of mine who does currency exchange has advised me to convert U.S. dollars to Yuan in hopes of converting it back later for a profit. Do you know anything about this? This is silly. That the Yuan has risen in the past has no indication on whether it will rise in the future. Currency markets are incredibly liquid and closely watched, new information is quickly incorporated into pricing, so I would guess the chance the Yuan continues to rise against the dollar at about 50/50. Maybe there's a strong analytical reason to buy it, but it's certainly not that it has been rising recently. In fact I am skeptical of anyone who claims to have an edge on the currency markets, they're essentially the finance equivalent of a 5bb SNG with the cards turned face up. Funny how when I said the same thing in a previous thread, no one believed me.

Maybe you needed a poker analogy, lol

On January 06 2010 00:01 DvoBoardRider wrote: what strategy do you use when trading the stock market?

he already said his strategy is fundamental value.

oh ok... too lazy to read the whole trade. sorry about that.

thanks.

Great thread Macks, thanks for the help.

What do you think lies ahead in 2010 and beyond in the wake of the GFC? Are we already making the same mistakes again by taking on so much extra debt to bail out certain companies that maybe should have been left to fold?

What emerging funds represent the best value in your opinion? I've heard a lot about China in particular, but really wouldn't know where to start investing there.

My portfolio is all in the ASX currently, but I'm keen to branch outwards, particularly to a place like China that isn't as overanalysed as the established markets.

Cheers.

How long does it take before you can turn down a 160 million pound salary?

http://www.thisismoney.co.uk/markets/...in_article_id=440710&in_page_id=3

On January 06 2010 03:04 PandaSaurus wrote: Great thread Macks, thanks for the help.

np, it's been fun to write.

On January 06 2010 03:04 PandaSaurus wrote: What do you think lies ahead in 2010 and beyond in the wake of the GFC? Are we already making the same mistakes again by taking on so much extra debt to bail out certain companies that maybe should have been left to fold?

I don't think I have any specific skill for predicting macro trends. As I've mentioned before, I think the long term trend towards greater wealth and productive capacity around the world due to increasing productivity of both labor and capital remains intact. Instinctively, I do think quite a bit of moral hazard was created with the bailouts, but frankly I don't think the amount of debt issued has reached a point of saturation until it starts reflecting in the rates sovereign debt investors demand. I think in some emerging countries we've reached that point, in the developed world we really haven't. Hopefully, primary participants in the capital markets have learned their lesson about who to finance (yes to productive assets, no to 3rd mortgages to build hot tubs in Dubai vacation homes), but I'm a little too cynical about people to really believe that. There will always be greed, there will always be bubbles, but generally thinks work out ok in the end.

On January 06 2010 03:04 PandaSaurus wrote: What emerging funds represent the best value in your opinion? I've heard a lot about China in particular, but really wouldn't know where to start investing there. My portfolio is all in the ASX currently, but I'm keen to branch outwards, particularly to a place like China that isn't as overanalysed as the established markets. Cheers.

Not to sound like a broken record here, but diversification really is key. When investing in emerging markets you are taking implicit political risks that simply don't exist with developed market investing. I would recommend buying a broad index that tracks all of the MSCI EM to spread this risk around. Specifically I would be uncomfortable concentrating my portfolio on China for a number of reasons:

1) China isn't really under analyzed relative to other emerging markets. Most everyone has a significant research presence there.
2) China is really really corrupt in many ways, and the corporate economy depends on government more than elsewhere. This isn't uniquely Chinese, but it does mean that very unpredictable things can happen with companies, adding another layer of risk.
3) The structure of the Chinese stock market leads to weird things. Specifically there are (this is off memory, haven't covered mainland ever myself) 4 types of share classes, some of which foreigners can invest in, some of which only Chinese can invest in. Furthermore, the Chinese can't easily invest elsewhere. The restriction of capital both in and out of the country distorts prices and makes the market far more speculative than most others. As someone who believes that a true edge on the market comes from finding fundamental value, rather than predicting tulip crazes, I think this is a bad thing.

On January 06 2010 03:34 Babs wrote: How long does it take before you can turn down a 160 million pound salary? http://www.thisismoney.co.uk/markets/...in_article_id=440710&in_page_id=3

im in the uk, can i buy us shares? i have a modest $10k to invest in some shares and im not fussed if its high risk and high potential return or a stable share. Is there any company you would recomend? Do you have any knowledge of the uk banking crisis, and if so what are your estimates on the future of shares such as rbs, lloyds and barclays?

sicks macks,

would you recommend people here learn charting and technical analysis and let the ppl here trade stocks/futures/forex on their own?

i think it's the way to go.

then maybe in the future we'll have www.liquidtraders.net

in case some of you are interested in trend trading and TA i recommend these books: http://www.amazon.com/exec/obidos/ASIN/0061241717/trendfollowin-20

http://www.amazon.com/American-Hedge-Fund-Million-Operator/dp/0979549701

also check out these sites. http://www.timothysykes.com/ and www.turtletrader.com

they are like coaching sites for trading.

Is there such thing as millionaires that can make a living doing nothing but investing their money in the markets? Are they common? Do people try it and fail?

On January 06 2010 06:18 Ket wrote: Is there such thing as millionaires that can make a living doing nothing but investing their money in the markets? Are they common? Do people try it and fail?

dude... a LOT of people are asking the same thing about poker.

i'm sure a good poker player like you can make the transition to trading if you put you heart into it.

Thanks for the compliment. Right now as far as investing and making money goes, poker is all I know. For the time being I find it to be a very good investment but think it might be foolish to rely on it for life, and that I'd definitely be wise to diversify and learn other investing skills at some point. What I'm trying to get an idea of for myself is, what's best between:

- learning about the financial world and learning to trade and invest in financial instruments
- learning about business and starting/investing in various businesses
- learning about real estate and investing in real estate
- is there some other good option?

trade and invest in financial instruments, business and starting/investing in various businesses and real estate and investing in real estate have one thing in common with poker. and that's risk. trading stocks, futures or forex, setting up your own business, etc. is also a gamble. you aren't really sure what's gonna fall on the 'flop, turn and river', but you can control your bet sizing, manage your money well and really learn to be skillful enough to have an edge and only go all in when you have the odds to win.

dude... you already know this. the question is 'what do you want to do?'

but if you really aren't sure. i recommend you read 'the complete turtle trader' http://www.amazon.com/exec/obidos/ASIN/0061241717/trendfollowin-20

richard dennis is like one of the laggiest traders during his time. a very good book about him and his group of traders.

Any comments on energy (oil, uranium etc) as a sector to invest in? What's more important? Resources in the ground, production etc?

On January 06 2010 06:11 DvoBoardRider wrote: sicks macks, would you recommend people here learn charting and technical analysis and let the ppl here trade stocks/futures/forex on their own?

I would specifically recommend against this. Success stories among chartists and technical analysts working for themselves occur in almost the exact proportion that a normal distribution would expect, or if anything, less. As I've mentioned before in this thread, I think you probably need about $50mm, natural talent, and no better use of your time before it starts to make sense to trade & research on your own. Even if this is the case, I think other investment strategies with higher time and talent barriers to entry lead to more genuine sucesses relative to technicals. I think a lot of people get blinded by the high returns possible in some sectors, and attribute skill to the people who achieve them. Some ridiculous percentage (read 95%+) of your realized gains in the long run will be a direct function of the risks you take, not the skills you have, so introducing security selection as a part of anyone on here's investment process is not going to materially change their expected return, but it is going to take a lot of time and introduce a whole lot of risk. I'll get to the other questions in a bit, but I thought it was very important to disagree publicly here as quickly as possible.

On January 06 2010 05:56 Robinson47 wrote: im in the uk, can i buy us shares? i have a modest $10k to invest in some shares and im not fussed if its high risk and high potential return or a stable share. Is there any company you would recomend? Do you have any knowledge of the uk banking crisis, and if so what are your estimates on the future of shares such as rbs, lloyds and barclays?

You can buy US shares, but I'm not sure of the exact process. Ask your brokerage firm if you can, and if you can't through them, you probably can through someone else. Again, I'd recommend buying any individual companies in general without the capacity to conduct extensive research yourself, and legally I can't suggest any. Sorry, that's one area I can't really even get into. I know a lot about the UK banking crisis, but again I can't really say much because it's an area I actively cover. I will generally say that companies that survive the crisis with a profit culture intact will find a much gentler competitive market than before (some already have), pricing and volumes will rise accordingly relative to normalized levels. It's important to note which company's have a capital structure that allows shareholders to participate most actively in these profits. One other note, global investment banks are really black-box operations. You can do incredibly rigorous analysis, have full access to management and still get just part of the picture. The head of research at a very large hedge fund (not mine), once told me: "you can do all the work you want on these guys, no one really knows what's going on until they tell us what they made".

On January 06 2010 06:18 Ket wrote: Is there such thing as millionaires that can make a living doing nothing but investing their money in the markets? Are they common? Do people try it and fail?

Yes lots of people do nothing but run their own money. Many hedge funds have only 1-10 investors. This is pretty common, among everyone from tested asset managers to older rich people who just have nothing else to do. I'm sure some people lose it all, but remember, unlike poker (a negative EV game on average, with significant opportunities to set your own place on the distribution), investing inherently has a positive expected value (though it's much harder to set your own place on the distribution). Most people who "fail" at investing their own money still make money, it's just that they spent a lot of time and didn't outperform an index of similarly-risked securities.

On January 06 2010 06:32 Ket wrote: Thanks for the compliment. Right now as far as investing and making money goes, poker is all I know. For the time being I find it to be a very good investment but think it might be foolish to rely on it for life, and that I'd definitely be wise to diversify and learn other investing skills at some point. What I'm trying to get an idea of for myself is, what's best between: - learning about the financial world and learning to trade and invest in financial instruments - learning about business and starting/investing in various businesses - learning about real estate and investing in real estate - is there some other good option?

I think learning about business and investing go together. People who teach you how to "trade" are usually trying to teach you something variance-filled and gimmicky. I'd suggest trying to approach things broadly and seeing what interests you. Remember, investing doesn't have to occupy a ton of your time, and isn't mutually exclusive from poker. Something as simple as having a well-diversified portfolio of ETFs or mutual funds can grow the money you've already made another 8% a year or so over the long run.

On January 06 2010 08:14 DustySwedeDude wrote: Any comments on energy (oil, uranium etc) as a sector to invest in? What's more important? Resources in the ground, production etc?

Energy is a sector I cover very closely so I can't get too deep here for legal/ethical reasons. Energy is like any other industry, there is a supply chain and understanding where the pressures on the supply chain can occur is key to understanding where to invest.

For example, oil gets in your car like this:

Upstream (Integrateds and E&Ps contract with seismic companies, drilling companies, other wellhead service companies to drill oil)
|
|
|
|
Midstream (Tanker co's, terminal co's all move oil from where it's drilled to where it's consumed)
|
|
|
|
Downstream (Refiners and integrateds turn oil into gasoline, service station networks and integrateds sell it you)

An easy strategy here is to look for bottlenecks in the process that may develop in the future from geographical or structural shifts in demand and supply. The companies that straddle those bottlenecks generally gain pricing power and increased earnings. Again, I cover the sector so I can't get more specific, but hopefully this helps give you a framework of one way to think about it.

I'd also recommend only investing in natural resource linked stocks that you believe are cheap at current commodity prices, many of the things I said about the forex markets being a high variance perfect information solved game apply to commodity markets as well, so I'd avoid making direct or indirect bets on commodity price movements.

Also just in general, many investors in any type of investment focus a ton on what they're getting, but not very much on what they're paying for it. Any company, piece of real estate, block of wood is a good investment at the right price, and a bad investment at the wrong one.

Jim Rodgers is ________

fill in the blank

On January 06 2010 12:17 YoBaNaNaBoY wrote: Jim Rodgers is relatively unknown to me (a quick perusal of Wikipedia reminds me who he is, but I don't really have anything interesting to say about him) fill in the blank

2 solid replies, ty SicksMacks

Thanks a lot, I think I was on the right track but there was a fair but of new stuff. Really helpful

If forex is a solved game, do you know of any employed forex investors who have accepted this and spend 1hr a day randomly picking trades for their company and the rest doing coke and whores?

On January 06 2010 14:39 Oly wrote: If forex is a solved game, do you know of any employed forex investors who have accepted this and spend 1hr a day randomly picking trades for their company and the rest doing coke and whores?

well I guess the difference is that it's not really a game. There is still money to be made in arbitrage trades between forward and spot rates (need quicker execution than is available to any of us to do this), and there are plenty of non-speculative reasons to trade forex (investors and companies alike need to hedge out forex risk inherent in their other investments or operations, and international commerce itself demands frequent forex trading). I was more saying that it's a game of perfect information and is also pretty solved, so speculative trading is going to be neutral EV - transaction costs.

I do know buy-side traders who don't do a ton other than hit up sell-side people for restaurant and club dates (sell-side depends on them for business) and then route trades based on who gives them the best night plan. As for ducking out during the day for an 8-ball and a quickie, I must not run in the right crowds.

To add, I think most of the people who are just "clicking buttons" so to speak, really think they have a valuable process. They'll say things like "people don't understand the importance of the fiscal deficit like I do", or "no one fully appreciates the BRIC growth like I do"; but you know what? People do, it's priced in, and your intuition doesn't give you an edge.

What do you mean intuition doesn't give you an edge ? You're saying that people who have shortened stocks pre to subprime crisis didn't have an edge against those who were going long ? Also, those who were going long @ the beggining of last year didn't use simple logic which gave them "the edge" ?

If you're saying that everything is priced in how come you make any money ?

Also, saying that there are no trends in currency exchange is silly



Would you say that in Q3'08 it was a 50/50 wheter it was going down or up ?
- btw PLN is polish zloty

On January 06 2010 14:53 Sicks Macks wrote: Show nested quote + On January 06 2010 14:39 Oly wrote: If forex is a solved game, do you know of any employed forex investors who have accepted this and spend 1hr a day randomly picking trades for their company and the rest doing coke and whores? To add, I think most of the people who are just "clicking buttons" so to speak, really think they have a valuable process. They'll say things like "people don't understand the importance of the fiscal deficit like I do", or "no one fully appreciates the BRIC growth like I do"; but you know what? People do, it's priced in, and your intuition doesn't give you an edge.

Cool, exactly like poker fish lol.

On January 06 2010 17:44 Qyvs! wrote: What do you mean intuition doesn't give you an edge ?

I'm saying everyone thinks their intuition is an edge, 0.00001% are right, and variance is too large to ever test for this in a career. I prefer finding solid, mathematical mis-pricings.

On January 06 2010 17:44 Qyvs! wrote: You're saying that people who have shortened stocks pre to subprime crisis didn't have an edge against those who were going long ?

Yep. Results orient-aments. Because their process lead them to the correct conclusion in one case does not mean that their analytical mindset is a predictably profitable tool relative to the market.

On January 06 2010 17:44 Qyvs! wrote: If you're saying that everything is priced in how come you make any money ?

I refuse to take big positions, or spend a lot of time on any market or security that has been analyzed to death by smart people. My personal favorite stocks are distressed firms that other people have abandoned coverage of due to bankruptcy risk, plummeting market cap, or some other reason. Whenever I find an asset that I think is significantly over or under priced I spend a good deal of time trying to figure out why other financial professionals haven't come to this conclusion. Unless I can convince myself there is a reason they haven't performed a similar analysis, or that their process would lead them to a demonstrably incorrect conclusion, I assume I've missed something. I don't pretend to be able to get a repeatable edge on stocks like GE or MSFT.

On January 06 2010 17:44 Qyvs! wrote: Also, saying that there are no trends in currency exchange is silly

They certainly develop, it doesn't mean momentum investing is profitable. It is very easy to pick out peaks and troughs in retrospect.

On January 06 2010 17:44 Qyvs! wrote: Would you say that in Q3'08 it was a 50/50 wheter it was going down or up ?

Yes, and so would people who are far more well-versed in currency trading than you or I, hence the pricing at the time.

On January 06 2010 17:44 Qyvs! wrote: - btw PLN is polish zloty

tak, wiem!

double posting, whoops

And if the currency of a top20 gdp country is overvalued or undervalued by more than 30% of its 10y+ historical value it still doesn't mean a thing ? still 50/50 ?

Have you ever been investing on your own ?

On January 06 2010 20:16 Qyvs! wrote: And if the currency of a top20 gdp country is overvalued or undervalued by more than 30% of its 10y+ historical value it still doesn't mean a thing ? still 50/50 ? Have you ever been investing on your own ?

Do remember the dynamic external situation that was driving the polish economy/currency in the time period mentioned? Again, given the information known at the time of the trades I don't think anyone here could reasonably expect to beat the market. You're welcome to disagree with me.

Yes I used to invest on my own. Ethics restricts it now because I don't want to create a conflict of interests with the fund's investors.

Given the information known you don't expect anyone to beat the market @ that time ?
I've been personally investing for more than 7 years now stocks, bonds, currencies, real-estate and that was the best opportunity to invest money during that period of 7 years. I wish I had so much confidence as you do.

On January 06 2010 20:25 Sicks Macks wrote: I don't think anyone here could reasonably expect to beat the market.

is subtly (but significantly) different from:

On January 06 2010 20:43 Qyvs! wrote: Given the information known you don't expect anyone to beat the market @ that time ?

rephrased, it's not that I don't expect strategies to emerge that do beat the market, but given that you couldn't reasonably differentiate said strategies at the time of investment, it's essentially random.

How do you like finance?

I have my BBA and am going to start my CFA later this year. I'm looking at the sort of think your doing, I find it very interesting.

Any advise or info you think would be useful for me starting out in the industry?

"2000s was a decade from hell."
"No 2000s was a decade from sin, this decade is the decade from hell"
LOL

No wonder the crisis was born in the u.s
You're talking like you have 20years+ experience in the industry, while you received degree in political science and are 24 y/o with little experience =/ you're getting brainwashed dude.

Keyensian Predicts Soviets Economic Powerhouse:

Paul Samuelson is a Keyensian hero. MR had a very interesting write up on his old predictions. A brief wiki:

Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist. He was the first American to win the Nobel Prize in Economics. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory."1] Economic historian Randall E. Parker calls him the "Father of Modern Economics",[2] and The New York Times considered him to be the "foremost academic economist of the 20th century."3]

He was author of the largest-selling economics textbook of all time: Economics: An Introductory Analysis, first published in 1948. It was the first such book to explain the principles of Keynesian economics and how to think about economics, and is now in its 19th edition, having sold nearly 4 million copies in 40 languages. James Poterba, former head of MIT's Department of Economics, noted that by his book, Samuelson "leaves an immense legacy, as a researcher and a teacher, as one of the giants on whose shoulders every contemporary economist stands."1] In 1996 he was awarded the National Medal of Science, considered America's top science honor, where President Bill Clinton commended Samuelson for his "fundamental contributions to economic science" for over 60 years.[1]

He entered the University of Chicago at age 16, during the depths of the Great Depression, and received his PhD in economics from Harvard. After graduating, he became an assistant professor of economics at Massachusetts Institute of Technology (MIT) when he was 25 years of age and a full professor at age 32. In 1966, he was named Institute Professor, MIT's highest faculty honor.[1] He spent his career at MIT where he was instrumental in turning its Department of Economics into a world-renowned institution by attracting other noted economists to join the faculty, including Robert M. Solow, Paul Krugman, Franco Modigliani, Robert C. Merton and Joseph E. Stiglitz, all of whom went on to win Nobel Prizes.

He served as an advisor to Presidents John F. Kennedy and Lyndon B. Johnson, and was a consultant to the United States Treasury, the Bureau of the Budget and the President's Council of Economic Advisers. Samuelson wrote a weekly column for Newsweek magazine along with fellow Chicago School economist Milton Friedman, where they represented opposing sides: Samuelson took the liberal, Keynesian perspective, and Friedman represented the conservative, monetarist perspective.[4] Samuelson died on December 13, 2009, at the age of 94.

Now on to the post:

http://www.marginalrevolution.com/

Soviet Growth & American Textbooks
Alex Tabarrok

In the 1961 edition of his famous textbook of economic principles, Paul Samuelson wrote that GNP in the Soviet Union was about half that in the United States but the Soviet Union was growing faster. As a result, one could comfortably forecast that Soviet GNP would exceed that of the United States by as early as 1984 or perhaps by as late as 1997 and in any event Soviet GNP would greatly catch-up to U.S. GNP. A poor forecast--but it gets worse because in subsequent editions Samuelson presented the same analysis again and again except the overtaking time was always pushed further into the future so by 1980 the dates were 2002 to 2012. In subsequent editions,



Samuelson provided no acknowledgment of his past failure to predict and little commentary beyond remarks about "bad weather" in the Soviet Union (see Levy and Peart for more details).

Among libertarians, this story has long been the subject of much informal amusement. But more recently my colleague David Levy and co-author Sandra Peart have discovered that the story is much more interesting and important than many people, including myself, had ever realized.

First, an even more off-course analysis can also be found in another mega-selling textbook, McConnell's Economics (still a huge seller today). Like Samuelson, McConnell estimated Soviet GNP as half that of the United States in 1963 but he showed that the Soviets were investing a much larger share of GNP and thus growing at rates "two to three times" higher than the U.S. Indeed, through at least ten (!) editions, the Soviets continued to grow faster than the U.S. and yet in McConnell's 1990 edition Soviet GNP was still half that of the United States!

A second case of being blinded by "liberal" ideology? If so, Levy and Peart throw another curve-ball because the very liberal even "leftist" texts of the time, notably those by Lorie Tarshis and Robert Heilbroner did not make the Samuelson-McConnell mistake.

Tarshis and Heilbroner were more liberal than Samuelson and McConnell but offered a more nuanced, descriptive and tentative account of the Soviet economy. Why? Levy and Peart argue that they were saved from error not by skepticism about the Soviet Union per se but rather by skepticism about the power of simple economic theories to fully describe the world in the absence of rich institutional detail.

To make their predictions, Samuelson and McConnell relied heavily on the production possibilities frontier (PPF), the idea that the fundamental tradeoff for any society was between "guns and butter." Thus, in the 1948 edition Samuelson wrote:

The Russians having no unemployment before the war, were already on their Production-possibilities curve. They had no choice but to substitute war goods for civilian production-with consequent privation.

Note that Samuelson assumes all countries and economic systems are efficient (the Russians are "on" the curve) only the choice of guns versus butter differs. When the war ended, the fundamental tradeoff became one between investment and consumption and since the Soviets invested a greater share of GNP they would naturally consume less but grow faster. Moreover, since the Soviet's had solved the unemployment problem they were, if anything, more efficient than the U.S. (here we see the Keynesian influence).

Levy and Peart conclude that although ideology may have played a role what arguably made a bigger difference was the blindness imposed by chosen tools. As they write:

We are all constrained by means of models: we gain insight in one dimension by blinding ourselves to events in other dimensions. Competition among models may be necessary to insure that the benefits of the models exceeds their cost.

(Applications to the financial crisis are apposite.)

Addendum: Bryan Caplan also comments. As Bryan notes, a very good economist can use PPFs and still get the story right.

I have some gold lying around, should I sell or hold on to it a bit longer ?
Visited couple of gold forums and most expect it to rise even more, but they are goldnuts anyway so I dunno ...

On January 07 2010 01:52 brandlor wrote: How do you like finance? I have my BBA and am going to start my CFA later this year. I'm looking at the sort of think your doing, I find it very interesting. Any advise or info you think would be useful for me starting out in the industry?

I love it. I've a already given advice to a few people ITT, and without knowing more about you or what you're applying for I can't really add much. Best of luck.

On January 07 2010 03:47 Qyvs! wrote: No wonder the crisis was born in the u.s You're talking like you have 20years+ experience in the industry, while you received degree in political science and are 24 y/o with little experience =/ you're getting brainwashed dude.

haha, ok.

On January 07 2010 05:40 anarki wrote: I have some gold lying around, should I sell or hold on to it a bit longer ? Visited couple of gold forums and most expect it to rise even more, but they are goldnuts anyway so I dunno ...

I inherently don't like investing in non-productive assets that don't give income. So ummm, I don't like gold. I think there are more productive inflation hedges, and it's an inherently speculative market.

On January 07 2010 08:56 Sicks Macks wrote: Show nested quote + On January 07 2010 01:52 brandlor wrote: How do you like finance? I have my BBA and am going to start my CFA later this year. I'm looking at the sort of think your doing, I find it very interesting. Any advise or info you think would be useful for me starting out in the industry? I love it. I've a already given advice to a few people ITT, and without knowing more about you or what you're applying for I can't really add much. Best of luck.

I kinda figured that was the case but I was rushed for time and didn't get a chance to get through the whole thread. I thought it was a good opportunity to ask some questions about that sort of industry.

Ill get through the whole thread and might re-post another question.

Thanks

"If I give you $10k, can you double it for me??"

On January 07 2010 12:20 Oxy wrote: "If I give you $10k, can you double it for me??"

LOL'ed IRL

On January 07 2010 03:47 Qyvs! wrote: No wonder the crisis was born in the u.s You're talking like you have 20years+ experience in the industry, while you received degree in political science and are 24 y/o with little experience =/ you're getting brainwashed dude.

What the hell is wrong with you? I sincerely hope that you get banned for that comment.

Sicks Macks has gone out of his way to provide content of value and he's been extremely mannered in all of his posts, not to mention that everything he has said has been 100% spot on IMO. And just because you disagree with him you make personal and national insults?

-I'm currently on my first year on top3 business school of my country, i'm 19 and don't need to rely on myself for next 4 years; how would you recomend (is there any difference?) a foreigner (I live in Chile) to start learning about finance and business?. I consider myself quite knowledgeable at economics but clueless in regards to finance stuff.

On January 07 2010 13:38 TenBagger wrote: Show nested quote + On January 07 2010 03:47 Qyvs! wrote: No wonder the crisis was born in the u.s You're talking like you have 20years+ experience in the industry, while you received degree in political science and are 24 y/o with little experience =/ you're getting brainwashed dude. What the hell is wrong with you? I sincerely hope that you get banned for that comment. Sicks Macks has gone out of his way to provide content of value and he's been extremely mannered in all of his posts, not to mention that everything he has said has been 100% spot on IMO. And just because you disagree with him you make personal and national insults?

much appreciated.

On January 07 2010 13:40 GoTuNk wrote: -I'm currently on my first year on top3 business school of my country, i'm 19 and don't need to rely on myself for next 4 years; how would you recomend (is there any difference?) a foreigner (I live in Chile) to start learning about finance and business?. I consider myself quite knowledgeable at economics but clueless in regards to finance stuff.

hmmm, I actually don't know Chile that well, but an internship during the summers with your country's premier bank or asset managers never hurts. As for international resources, the CFA program is administered (and respected) globally and has a pretty great curriculum. I don't think they actually give you a charter until you get a qualifying job in financial analysis (may be wrong on that), but the curriculum itself is a great intro into the financial analysis. That said, if you're already in business school you'll learn plenty about finance if you take finance courses.

Ok, read the thread and your right, answered lots of useful questions.

Since I don't come from an Ivey league school although I come from one of the top Canadian business schools I will have to take the long way around. i currently work for the Canadian devisions of one the world largest banks so I can work my way up that way.

Like you said eirlier I can go through IB to get to PE or HF and such. What do you find is the usual age and exp level of these people?

Should I be looking 3-5 years to climb the latter ( i guess it depends how high were talking) or 10+? Or is it more of a 'Depends how smart you are and who you impress' answer?

(Sorry for any spelling mistakes. Our browsers are glichy and IT is trying to fix it)

cool thread Sicks macks, gonna read thorugh it all a cpl more times in detail later...


I have a couple different questions.

1) A good friend of mine keeps telling me to invest in gold / silver (like literally go buy amts of gold/silver and keep them at home), is this a good or bad idea?

2) I'm going back to school in the Fall and plan on studying Finance.. the reason being someday i'd like to work in some type of trading or hedge fund, but I literally have no clue where to start, and have taken the last year off school. Is Finance even the right degree? Who should I talk too, and what are some tips you can give to someone as clueless as me who is interested in learning about your trade?

ty.

On January 07 2010 15:29 brandlor wrote: Ok, read the thread and your right, answered lots of useful questions. Since I don't come from an Ivey league school although I come from one of the top Canadian business schools I will have to take the long way around. i currently work for the Canadian devisions of one the world largest banks so I can work my way up that way. Like you said eirlier I can go through IB to get to PE or HF and such. What do you find is the usual age and exp level of these people? Should I be looking 3-5 years to climb the latter ( i guess it depends how high were talking) or 10+? Or is it more of a 'Depends how smart you are and who you impress' answer? (Sorry for any spelling mistakes. Our browsers are glichy and IT is trying to fix it)

Generally people jump from investment banking at the natural breaking points. So at the end of their analyst run (3yrs I think?), or their associate run (I forget how long the typical associate is in for). As for how long it takes to climb the ladder, I don't really. It's really situational. If you come into an IB analyst program on most good desks you can do whatever you want in finance so long as you don't get fired. If you're on a less prominent desk, or in a middle or back-office role your career mobility is going to be dependent on you, and your firm's culture. Again, if you think you can handle a tougher role, make it known and work hard. People really tend to like vouching for impressive people.

Have you read American Psycho (or seen the movie)?

If you have, could rate 1 - 10 (1 being lowest and 10 being highest) to what degree your and your co-workers lifes resemble those of the characters of the book? I don't mean the murdering, but the COCAINE and the BITCHES along with general nihilism.

EDIT: most importantly do you ever compare business cards with your friends?

Thanks Sicks, much appreciated!

Lots of great info.

On January 07 2010 15:44 BigRed0000 wrote: 1) A good friend of mine keeps telling me to invest in gold / silver (like literally go buy amts of gold/silver and keep them at home), is this a good or bad idea?

It's an idea. Precious metals like these are thought to hold their absolute value throughout history and act as a natural inflation hedge. That said, they certainly don't always hold their dollar value, so if inflation is less than expected they will be disastrous investments. It's essentially an inflation bet in a pretty speculative market. I prefer investing in productive assets, so I personally hold no gold/silver ever. If you're worried inflation expectations are too low but want something less speculative, try a TIPS (Treasury Inflation Protected Securities) fund or something like that. That said if you are convinced that people are underestimating inflation in the coming years, gold and silver will be very profitable.

As for buying them and holding them at your home, this seems silly. You'll be risking theft, and likely paying a premium for the metal itself at retail. People who advocate this generally distrust the financial system as a whole; I personally use the WAFA theory. As in, if your exposure to gold through a gold fund at a prominent mutual fund company becomes worthless We're All Fucked Anyways, so don't worry about keeping any at home. The WAFA theory also describes why treasury securities are thought of as risk free.

Cliffs: Gold and silver are very speculative, when buying them understand that you are taking an active bet against current inflation expectations. Buy it through a fund if you do.

On January 07 2010 15:44 BigRed0000 wrote: 2) I'm going back to school in the Fall and plan on studying Finance.. the reason being someday i'd like to work in some type of trading or hedge fund, but I literally have no clue where to start, and have taken the last year off school. Is Finance even the right degree? Who should I talk too, and what are some tips you can give to someone as clueless as me who is interested in learning about your trade?

Well, actually most of the traders I know got their jobs by being on a prominent varsity sports team at Ivy League schools. Assuming you aren't doing that too:

Finance is probably the best major choice, but it isn't the only one. As long as you understand accounting, you can take pretty much anything. You need to try and build up and use your professional network or lean on your school's career center to get an internship. Make sure to join your school's investment club. Run a model portfolio (www.marketocracy.com is great for this). If you post again and mention some things you like or ways you like to approach problems I can suggest roles you might want to look at.

sick macks, have you ever heard of peter schiff?
do you think hes wrong about the US economy if so?
sorry for being so hostile before, i'll try to be reasonable

BigRed, i found that my econ classes were more useful to my investment knowlage that my fiance classes. I found that my finance was more focuses on working in daily banking. Lines of credit and loans more then investing.

I also took capital market courses that were very useful.

On January 07 2010 15:54 auffenpuffer wrote: Have you read American Psycho (or seen the movie)? If you have, could rate 1 - 10 (1 being lowest and 10 being highest) to what degree your and your co-workers lifes resemble those of the characters of the book? I don't mean the murdering, but the COCAINE and the BITCHES along with general nihilism.

American Psycho is pretty much my favorite movie (my next 5 are probably Pixar movies though, I'm a weird one).

Me and my friends are probably like a 7, I know some 10s, but I also know a lot of 2s in the business (finance is a lot less nepotistic than it was, so you get some really diligent teetotalers). You have to understand everyone has seen that and Wall Street, and so we'd all like to think we're in on the joke when we're being ridiculous. Furthermore, I live in Boston, I imagine if I was in NY I would score higher, just because the scene is much more intense there. Whereas they go out to Avenue or whatever on Saturday, we go skiing or hang out at the lake.

That said:
I do wear a tie to go out a decent amount
My friends and I grab $40 steaks for drunk munchies at midnight a good bit
8 of us are probably going to rent a 16k-a-week estate this year during the summer (nantucket will be a problem for a week)
All of my friends do at least pretty well for themselves with girls

But:
People do some coke, not tons, I don't do any
We don't go clubbing ever
In certain cities (READ: WASHINGTON DC), working at hedge fund is not a good thing with the womens
People are flashy with clothes, but not as openly with large status symbols like apartments and cars (this is a Boston thing I think)

On January 07 2010 16:07 woodbrave1 wrote: sick macks, have you ever heard of peter schiff? do you think hes wrong about the US economy if so? sorry for being so hostile before, i'll try to be reasonable

I have heard of him, but I really don't watch cable news. What he's saying about housing seems reasonable judging from the video you posted. I think he's ignoring price stickiness in explaining what's going on with pricing, and I don't understand why he's saying American's haven't started saving (they have recently afaik). In totality, I think what he describes about the US economy is a real threat (though not to the degree he describes), but not a certainty. That said, I'm really not a macro guy (and I cover Europe) so this is just an opinion.

ya see this is why i dont trust people who use big words and sound smart cause they retarded many times

if there was one resourse (or two) where someone could learn the "basics" of investing what would it be ? I understand that the best resource is probably someone who's working in a field and can sit down with you, but I mean a book, a website, etc.

Just watched Collapse let me know if you've seen it and what you think about it

This thread is crazy sick thanks

On January 09 2010 12:44 MaxUT wrote: if there was one resourse (or two) where someone could learn the "basics" of investing what would it be ? I understand that the best resource is probably someone who's working in a field and can sit down with you, but I mean a book, a website, etc. Just watched Collapse let me know if you've seen it and what you think about it This thread is crazy sick thanks

haven't seen collapse. I don't honestly know how you'd go about learning the basics of investing. I learned the basics from my my father, the logistics in school, and then I developed my own style by being around hundreds of smart investors in the workplace and piecing together what I thought worked. I asked a friend who also works in the field what he thought, and he recommended the book "One Up on Wall Street" by Peter Lynch (the famous Fidelity PM). He, too, though said there's probably something more well-rounded out there.

I think something like a corporate finance textbook (I used Fundamentals of Financial Management) might be best. Reading financial forums (don't use any so I don't know, maybe marketocracy.com) with an incredibly skeptical eye might help too. Just remember to pick apart everyone's arguments on why x is a good investment, in finding out why the 95% of investing advice is bullshit you discover a lot about how to come up with the 5% on your own.

boom

Sicks Macks, what do you think of Timothy Sykes?

*bump

sicks macks, what do you think of these guys? you think it is also a viable option to trade with your own account rather than giving your money to someone else?

here are some interviews from ttt.

http://thetechnicaltrader.net/?p=1932

http://thetechnicaltrader.net/?p=2197

http://thetechnicaltrader.net/?p=1989

http://thetechnicaltrader.net/?p=1972

http://thetechnicaltrader.net/?p=1912

i really think trading = poker in some aspects.

I hate to disappoint, but I really don't follow financial commentators that much. As I mentioned before I believe technical analysis is largely bunk.

In the book "the little book that beats the market", the author Joel Greenblatt pretends to have some mathematical formula that identifies undervalued stocks. He calls it the Magic formula (www.magicformulainvesting.com) and (http://www.formulainvesting.com). He has a website that shows what stocks are undervalued according to his formula.

He claims that his formula would have generated ~33%* growth on your dollar per year for the last ~30* years, where the stock market has shown a groth of ~12%* per year during the same period, on average. That was before the recent market crash.

After reading books like "formula investing", i don't believe beating the market is that easy. Or maybe it is? Tell me what you think about this book, if you haven't read it, do you think it's BS?


* I dont remember the exact numbers, but its very close.

PS. What you're doing is great.

On January 18 2010 13:28 GiYoM wrote: After reading books like "formula investing", i don't believe beating the market is that easy. Or maybe it is? Tell me what you think about this book, if you haven't read it, do you think it's BS?

I don't know the book, but I'm inclined to be very cynical. Asset managers that have repeatable processes that produce half of that excess return are handsomely paid to keep it quiet by their employers or investors. If he's selling it on the web or in a book it's probably not really repeatable... which isn't to say he didn't achieve those returns, but it's likely he tried a number of different strategies and picked the one that kept winning flips so to speak. Remember, investing has many orders of magnitude more variance about the mean (which is positive) relative to poker, so in a sample of tens of millions of people who don't know what the fuck they're doing, some will experience outlandish success due to nothing but luck.

On January 18 2010 13:28 GiYoM wrote: PS. What you're doing is great.

thanks

EDIT: a quick perusal of the site reveals that the guy seems reasonable. Using fundamental factor-based screening (what he's all about) is a great first step in finding good stocks to buy, but "successful screen based" strategies are too easily datamined, which, given the limitless number of fundamental factors, reveals false correlations.

If its not too much to ask :
How much $ u make @ year clean after taxes & etc only at your real job ? If you dont feel like answering specific maybe say if its under or over 100k ? I d understand if you dont want to answer at all

On January 18 2010 15:15 Spitfiree wrote: If its not too much to ask : How much $ u make @ year clean after taxes & etc only at your real job ? If you dont feel like answering specific maybe say if its under or over 100k ? I d understand if you dont want to answer at all

after taxes under 100k this year, likely over next year. I live in Massachusetts in the USA, my effective marginal tax rate is over 40%

trading is a zero sum game, and they say that 90% of traders LOSE money. imagine that.

how many % of poker players lose money again?

but i don't think it's that easy beating the markets. but there sure is money to be made in trading. you just need to work hard and try to be good at it.

read the interviews from http://thetechnicaltrader.net above. they're good reads.

Giyom, yeah, i think that book might be BS. i suggest reading michael covel's books. those are great.

Sicks Macks, it's sick generous of you to be doing this for us

Because I have literally zero experience in any form of personal investing whatsoever, I struggle to come up with relevant, concrete questions. But the one thing I worry about is fees. I presume that at the very least, 'they' will be looking to hide and fix in as many little fees as they can. Assuming that I am able to pick up on all of them, at what percent should alarm bells be going off? (I guess this would also depend on the amount of money I am investing, as well as the type and reputation of the manager I'm employing, but any kind of ballpark would be appreciated).

Thanks!

Sicks Macks,

you think the US markets will go up any further this year?

sicks macks,

iam owning like 350 vodafone.de stocks because iam working for them.
we got them as a present or smth i think because they use them for their taxes or what ever. so every year i get stocks in a value of 500€. You need to hold them 2 years and after that u can do what u want to do with them. august i guess is the month where i can sell them or do what i want. they ask you 2 month before if you want ot hold them and if you do not reply they will automatically sell it for you. so to say there are alot who just see the money but it isnt it rly -ev to sell them exactly at this time when everyone is selling because the equity price will sink alot? if so when do you think is a perfect time?

i can tell you that vodafone is making more winnings every year so i would assume to sell them when they release their quater numbers when they tell everyone how much they made? because when they did more than last year which like every year the equity price will raise?

lots of questions and i think i wrote it very confusing but i hope u get my point!

btw: iam a sick beginner in finance things. iam just a standard IT guy ;P
ty in advance

On January 20 2010 09:25 Uptown wrote: Sicks Macks, it's sick generous of you to be doing this for us Because I have literally zero experience in any form of personal investing whatsoever, I struggle to come up with relevant, concrete questions. But the one thing I worry about is fees. I presume that at the very least, 'they' will be looking to hide and fix in as many little fees as they can. Assuming that I am able to pick up on all of them, at what percent should alarm bells be going off? (I guess this would also depend on the amount of money I am investing, as well as the type and reputation of the manager I'm employing, but any kind of ballpark would be appreciated). Thanks!

Well there are a number of different fee structures for different services. If you're directing your own asset allocation among funds the only fees you're required to pay are management fees for the fund. Depending on the structure of the fund, these can be as low as 10 bps per year (basis points, 1% of 1%). Funds purchased through a broker will also charge a load (commission). Don't buy these, and don't use brokers who work off of commissions. Funds get more expensive if they are actively managed (invest at the manager's discretion, not based on the composition of an index, not necessarily a good thing because no one knows what they're doing), funds are also more expensive if they invest in less liquid or more complex securities such as REITs, emerging market equity, etc. Anything less than 1% (100bps) per year as an expense ratio is probably fine, but make sure to compare similar funds before you buy because expense ratios really make a difference.

If you're not directing your own asset allocation, you should expect to pay maybe another 1% or so (I really don't know actually) of assets per year to a financial advisor to manage your portfolio for you. Again, don't use financial advisors who work off of commissions (or sell funds with loads built into them), because their incentive is always to sell you new products, not protect your portfolio.

Let me know if you need clarification on any of that, I forget what's inside baseball and what's not sometimes.

On January 20 2010 11:20 DvoBoardRider wrote: Sicks Macks, you think the US markets will go up any further this year?

I'd say yes, only because the median year in equity investing has a positive return (and should be expected to), beyond that I don't have a valuable opinion, and I wouldn't think I could until I had done a lot of research on a majority of the market capitalization of the US.

On January 20 2010 14:35 keuner wrote: sicks macks, iam owning like 350 vodafone.de stocks because iam working for them. we got them as a present or smth i think because they use them for their taxes or what ever. so every year i get stocks in a value of 500€. You need to hold them 2 years and after that u can do what u want to do with them. august i guess is the month where i can sell them or do what i want. they ask you 2 month before if you want ot hold them and if you do not reply they will automatically sell it for you. so to say there are alot who just see the money but it isnt it rly -ev to sell them exactly at this time when everyone is selling because the equity price will sink alot? if so when do you think is a perfect time? i can tell you that vodafone is making more winnings every year so i would assume to sell them when they release their quater numbers when they tell everyone how much they made? because when they did more than last year which like every year the equity price will raise? lots of questions and i think i wrote it very confusing but i hope u get my point! btw: iam a sick beginner in finance things. iam just a standard IT guy ;P ty in advance

I would recommend that you sell them at some point. You're taking on a good bit of company-specific risk given that this is, I presume, the only stock you own. That said, you're describing a real technical phenomenon when you say you might not want to sell when everyone else is. Forced or suggested sales can often drive a company's stock price below it's fundamental value, and it will often return when the event is over. I'd suggest waiting a week after everyone else sells and then sell your shares. Other than that I wouldn't worry about timing. Individual stock price movements are for all intents and purposes random in the short term.

As for waiting for quarterly releases, remember that the market is constantly pricing in new information, so it doesn't matter how vodafone does relative to least year, it matters how well it does relative to expectations. Vodafone is a very well covered stock, and I'd imagine that it is pretty accurately priced at any given time (except the scenario we talked about before with employee stock sales). Again, don't stress over timing here.

when i got this stocks for my first time i talked to some colleagues and stuff and they said there are rly tiny stocks of some future projects i.e. a company whos trying to invent algea fuel. so they said they are at like 0.07€ and if you invest a good bunch and they get some high class contracts with some other companies then this stock will grow alot because its not worth atm? what you think about such stocks. they said that it is possible that this stock will be at 1-5€ in the next five years if they rly gets it working!

is this even possible to get equity price that huge?

On January 20 2010 15:46 keuner wrote: when i got this stocks for my first time i talked to some colleagues and stuff and they said there are rly tiny stocks of some future projects i.e. a company whos trying to invent algea fuel. so they said they are at like 0.07€ and if you invest a good bunch and they get some high class contracts with some other companies then this stock will grow alot because its not worth atm? what you think about such stocks. they said that it is possible that this stock will be at 1-5€ in the next five years if they rly gets it working! is this even possible to get equity price that huge?

they're talking about speculating in cheap stocks. It's definitely possible to find small stocks that go up 5 or 10 or more times your initial investment. That said, for every 1 that triples, 2 go to zero (not exactly obviously, but you get the idea). Both downside and upside risk are pretty accurately priced into stocks. If you research what sort of assets and cash flows you're actually buying when you buy the stock, then you can find real value, but if you're just buying the stock becausee you hope someone else will pay more for it later, you're just gambling.

As a side note, the nominal share price of a stock doesn't mean much at all. You're buying a piece of ownership of a company, so it's relevant how many pieces of ownership there are available. Berkshire Hathaway A shares cost over $100k each, but Exxon Mobil is a more valuable company despite its stock only costing $68 per share. Why? A Berkshire A share entitles you to more of the company than an Exxon share does.

Quality material.

Cliffnotes so far - please correct me if you disagree with my summary.

1. If you want a job in a related field, it's more about who you know, then how much you know or what your degree says.
2. Diversify. No really.
3. LOL technical analysis. (btw I personally think there's a place for it, partially from a self-fulfilling prophecy and psychology aspect - but as amateurs don't waste your time trying to create the next great stock model)
4. Past performance is not predictive of future performance. This is like saying you can win at roulette by tracking the numbers. (Past performance may be indicative of future performance, but it involves determining the sources that generated the performance and showing that it's a repeatable process with conditions that hold moving forward.)
5. In general, as amateur investors, stop trying to pick winners or the short term direction of the market. Also, see #2.

I may be putting these words in your mouth because you haven't said it explicitly, but I get the sense from your responses that you keep showing how you know more about a subject and yet feel you're not qualified to make a prediction so why would someone who knows less think they can do so.


Questions:

Do you or does your firm have any thoughts on long term secular market cycles? How would you feel about someone who changes long term allocations based on these while claiming to not be a market timer?

Your comments about gold and the Yuan, although directed mostly at the specific instruments themselves, led me to believe you're not particularly concerned about US inflation either. Is that correct? Do you not see significant risk for inflation above expectations that justifies an above average allocation to commodities or related investments?

Most pro sports bettors will tell you it's not about picking winners. It's about line-shopping, arbs, etc, etc. How do you feel about a fund manager that claims to be a pure bottom up stock picker?

On January 20 2010 17:03 Cray0ns wrote: Quality material. Cliffnotes so far - please correct me if you disagree with my summary. 1. If you want a job in a related field, it's more about who you know, then how much you know or what your degree says. 2. Diversify. No really. 3. LOL technical analysis. (btw I personally think there's a place for it, partially from a self-fulfilling prophecy and psychology aspect - but as amateurs don't waste your time trying to create the next great stock model) 4. Past performance is not predictive of future performance. This is like saying you can win at roulette by tracking the numbers. (Past performance may be indicative of future performance, but it involves determining the sources that generated the performance and showing that it's a repeatable process with conditions that hold moving forward.) 5. In general, as amateur investors, stop trying to pick winners or the short term direction of the market. Also, see #2.

1. This is definitely true for the first job unless you graduate from a top 20 school in the top few of your class (what we've been talking about ITT). This is much less true for the 2nd and 3rd job. The point is, no one who hasn't worked in finance can speak the language yet, regardless of their education, so first job applications focus on other things.
2. Lol, exactly.
3. Lol, exactly.
4. Lol, exactly.
5. Lol, exactly.

On January 20 2010 17:03 Cray0ns wrote: Questions: Do you or does your firm have any thoughts on long term secular market cycles? Your comments about gold and the Yuan, although directed mostly at the specific instruments themselves, led me to believe you're not particularly concerned about US inflation as well. Is that a true statement, or do you see significant risk for inflation above expectations and just prefer other forms or rather a more diversified approach to inflation protection.

I do and my firm does. Secular themes I'm bullish on include the expansion of financial instruments to more of the world's poor (mobile banking, microlending, etc, insurance, etc), the rescrambling of global shipping to account for more end-markets, and the biggie, globalization (but not decoupling, really). I use these opinions to inform my search for stocks, but at the end of the day I'm still looking for cash flows and assets on the cheap whether the stocks are exposed to a theme I like or not.

I think macro economists and fixed income investors can predict inflation better than I can, so I trust that the market prices are more accurate than my opinion. My gut tells me that inflation will be more of a problem in this decade than in the last, but my gut isn't worth much. I do prefer TIPS (which generate cash flow) or commodities that have productive economic use (oil) as inflation hedges relative to gold which I see as largely speculative. We invest in currencies to hedge out the FOREX risk inherent in overseas investing, but I do not think speculating on them is a good idea for reasons I outlined earlier.

On January 20 2010 17:03 Cray0ns wrote: Most pro sports bettors will tell you it's not about picking winners. It's about line-shopping, arbs, etc, etc. How do you feel about a fund manager that claims to be a pure bottom up stock picker?

This is what I try to do, so I can't be too negative. FWIW, arb spreads are hard to find, disappear in a second, and are razor thin in finance. I think the managers who do genuine arb for their clients are offering a better service than I am in theory, but usually they can't do enough of it and charge too much to do it.

I think bottom up stock picking is a genuine way to beat the market. There are simply too many stocks in this world, and too few financial professionals or qualified amateurs to accurately price everything. I think a lot of bottom-up guys live off of variance around a positive mean, and they're not providing a valuable service obviously; but given that I still find a stock or two every month that I can demonstrate mathematically is a cheaper way to buy asset x or annuity y even accounting for scenarios a,b,c,d, & e, I can attest to the market not being efficient in the least at the fringes.