Monday, October 16, 2006

Honorary veterinarian for a day

My veterinarian-student girlfriend, Crystal, and I were walking up to my apartment this morning when we both heard a scratching sound coming from a pinched closed gutter pipe running down the side of a nearby building. At first I didn't think anything about it, but it came unmistakably from the gutter pipe a second time. Crystal said, "that sounds like a squirrel trapped in the gutter." It sounded that way to me too, so we quickly devised a plan to free it from certain doom in that diabolical pipe. It gives me claustrophobia just thinking about it. The poor animal may have been in there all night, or perhaps days.

I grabbed my toolbox while telling Crystal where to find a pair of gloves for protection in case the animal became aggressive while we tried to free it. Our plan was to pull the bottom of the gutter open with my biggest pair of plyers.

Unfortunately we were forced to change our plan on two accounts. First, opening the bottom of the gutter would drop the animal right into a second drainpipe that went straight down into the ground, and second, the plyers were bending the pipe in ways that could have crushed the trapped animal. We used tape from my toolbox and a nearby piece of plastic to cover the hole in the ground below the pipe, but our makeshift lid crowded around the gutter that we needed to somehow manipulate open.

Crystal observed that the gutter was old and flimsy, so I asked her if she thought tinsnips would cut it. She said yes, they probably would. It was slow going, I was standing next to the building holding the pipe while she made small clips out of the bottom of the pipe. It was very noisy and traumatic for the animal inside, which we found out when it crapped on my tinsnips! It was bird poo, which was a relief because birds don't bite like squirrels might.

After quite a bit of careful cutting, Crystal was able to see feathers, and then a dangling leg on the left side of the gutter. We could hear it shifting itself inside the gutter. At that time we thought it was a good idea to cut away on the right side of the pipe to make sure we didn't accidentally maim the bird. Minutes later we paused to re-evaluate the next place to cut when a big red head poked out of the pipe and started looking around! We backed away and the bird wiggled out of the pipe, which we had cut in such a way that there were no jagged edges.

That bird jumped around on the ground for a minute, and then flew up to a bush to join a few other birds, and they all flew off. I don't know if those other birds were watching us save their mate, or just hanging out on some branches, but I felt pretty amazing when I saw our rescued bird take flight.

Crystal and I have been together for almost 5 years, and the whole time she's had her focus on becoming a vet but I never really knew what gave her the drive. Today was the first time I got to feel the gratification that comes with making a life-saving intervention for an animal, and I feel like I know Crystal a little bit better because of it. She wants to have the knowledge and position to do this kind of thing every day. I will never have that knowledge, but today was my chance to do it in a small way. I was so proud of what we did that she agreed it would be okay that I could be an honorary veterinarian for a day!

Wednesday, October 11, 2006

Watch lists, ads, and vendors

Jimmy, over at Trend Following with CANSLIM wrote a piece on trader watch lists that reflects my own opinion about bloggers posting stock watch lists. He says, "I sometimes find watch lists funny... Most people who post up lists will point out all the great stocks they posted up. 'If you bought X stock when I posted it, you would have a XXX% gain!' They don't mention the losses, 'If you bought X stock when I posted it, you would have had a margin call!'" Interestingly, a few people with ads on their sites are getting pretty defensive in the comments section of Jimmy's post.

There's nothing wrong with having ads, but realize that as soon as you put them on your site, you're more than just a trader, you're also vendor. Ads can make a site look more authentic, but they can also be a red flag. I know enough to filter out the good content from the bad, but there are a lot of impressionable people who visit our blogs and websites that don't.

I wonder if traders look at the ads on their own sites? Most of the ads I've seen on trading and finance related sites link to pyramid schemes or aggressive vendors that could be a mismatch for the reader, or worse, outright fraud. I would never dream of posting a link in the body of one of my blog posts to just about any ad destination I've ever seen based on the merit of its content. I don't believe in protecting people from themselves, but when they come to me to learn in good faith, I'm not going to point them in the wrong direction.

There's a relevant discussion going on over at Trader Mike's blog. Michelle says:
  • Other criticism directed at trading blogs is they do not say anything these critics do not already know, that you can get valuable information only if you are willing to pay, and if these bloggers were good at what they do, they wouldn’t be blogging. Apparently these critics have not considered perhaps the reason why a trading blogger writes is because he has something to write that has merit to someone, and he has a generous spirit, but nothing to sell — he is already making a good living.
I would disagree with the statement that blogs with ads aren't selling anything. Regardless of whether or not there are ads on a blog, I do feel that most highly read blogs add value because inevitably there will be readers who are being introduced to the content for the first time.

In the comments over at Jimmy's blog, No Doodahs points out a trader's cost of not being some kind of vendor:
  • If a "good trader" could make 40% annual and needs to take 10% off the top to pay for living expenses, or that same trader could make 40% annually and defray those expenses by having adverts and/or selling merchandise, which is smarter? Which will get that "good trader" retired faster? By the way, 10 years of 40% gives you equity that is twice as much as 10 years at 30%.
I guess my counterpoint is that if our hypothetical trader cares about the difference between having $7mil and $14mil at some fixed point in the far-away future, he would be better off managing accounts and collecting the fees and performance incentives over that time period.

About a year ago an old friend of mine had heard that I was knowledgable about trading. He called me up and started asking me very basic questions about options. I knew he was beating around the bush, and sure enough I found out what this was about. He asked if I would go with him to an Optionetics seminar, mentioning that he had 2 tickets. I told him not to even bother with it, that it was crap. He argued that he had went to the same seminar a few days ago and was interested. He wanted me to tag along and look for anything suspicious and share my general opinion about it. I agreed since it was only an hour long and I didn't have anything else planned that evening.

A few days later I arrived at the seminar. The hotel conference room was full of probably 30 people, with at least half looking like they had been invited in off the street to fill up seats. My friend warned me that the guy giving the seminar was a slick salesman, and as soon as I got a look at him I almost laughed at how slick he looked. As he pointed at slides and moved around on the stage, he kept rousing the audience and asking us rhetorical questions to invoke a peer pressure crowd response. It was obvious that many people in the crowd had practice with this sort of thing on Sunday mornings, and that slick guy worked it. He stopped looking at me when he would rally his audience because I wasn't joining the hype, and my friend was probably too embarassed to get into it like he probably would have if I wasn't there.

The worst part that sticks out in my mind was when this slick guy told everybody that people who bought stock were suckers. He claimed they had a 1 in 3 chance to make money because stocks could, A) go up, B) go down, or C) stay flat. These uninformed masses were just giving away their money because they only profited when stocks went up. If you took the optionetics course he was selling, you would learn how to make money no matter what stocks did.

This premise is completely false. I've won free lunches and all kinds of change from people by playing a similar game. It works like this: after buying in for a 3:1 jackpot payout, the buyer flips a coin and I flip a coin. The jackpot pays out if both coins land heads-up. There are 3 possible outcomes to this game, let's look at them for a $1 buyin:
  • Two heads land. I keep the buyin and give the $3 jackpot, so -$2 for me.
  • One lands heads and one lands tails. I keep the buyin, so +$1 for me.
  • Two tails land. I keep the buyin, so +$1 for me.
When negotiating the game, it should be pitched this way so as to represent a game of pure chance with 3:1 payout on 3 possible outcomes. However, the probability of the outcome with one coin landing heads and the other one tails is actually twice high as the probability of the other two outcomes, giving me an edge. People who buy US stocks usually have a similar edge: the market's natural upward drift. Unless, of course, they trade too frequently thus reducing portfolio correlation to market direction and large transaction costs to crowd out the edge, or fail to diversify enough for the edge to materialize.

So anyway, after the seminar, I spoke with my friend about all kinds of reasons I thought it was crap. But he still wanted to do it. Even after what I told him, he asked me to reduce the cost of the course by signing up with him and getting a two person discount! Unbelievable. I said, no way, and to watch me go verify these suspicions with the slick guy who gave the seminar.

I waited my turn to speak with him, and the first thing he asked me was, "So are you going to sign up today?" He was kind of smiling. As soon as I asked my first question, he stopped smiling. I asked him about the hedge fund he mentioned that was run by Optionetics founder, George Fontanillis. I pointed out that the hedge fund could potentially be on the other side of a lot of the trades recommended in the course, and how could I be sure that wasn't going to happen. You know what he told me? "I'm not even supposed to mention the hedge fund. That's all I'm saying." He was threatened, and my friend could see it by the way this slick guy was frowning at me. I wasn't going to let him off that easily though. I kept grilling him until he just stopped responding to my questions.

There's more to the story, but we'll leave it at that. The point of that story was to show that there are harmful vendors out there who are selling it as hard as they can to whoever they can. There are also curious and well-intentioned people like my friend, who didn't know enough to see that what was being sold at the seminar was just hopes and dreams. That kind of mistake can cost an aspiring trader years to make up for.