Michael Covel’s Official Site

A comment from trader Larry Hite:

“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, “Should I take another hit on this Blackjack hand?” and “Should I get out of the way of that speeding and wildly careening bus?” Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets - large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. “Should I tie my shoes?” Seems to offer no big risk, nor any big reward. While others, such as the aforementioned - speeding and wildly careening bus - would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”

From a reader:

Why are you giving Buffett such a hard time? He’s making a 20 yr bet on stock indexes with his derivatives and he has a drawdown in one quarter? A quarter when US markets got pounded. Whats the big deal?

I responded:

What do I say? He of course is a great trader. The point is that he positions himself as a buy hold value guy, but actually trades complex derivatives left and right. His acolytes surely don’t. I was very clear about this. You read what you wanted to see.

He responded:

Philosophically he is a buy and hold value guy. But he just accomplishes some of that by trading derivatives. Instead of buying a bunch of stocks he’s selling puts, what’s wrong or inconsistent with that? He’s still basically long the market. I agree that the mechanics of what he does are more complex than his folksy image would lead one to believe, but he’s still not contradicting his basic philosophy.

I responded:

Yes, it is a contradiction and to say it is just ‘puts’ is nonsensical. You don’t accomplish buy and hold by trading complex derivatives. Come on, do you really mean that?

I had the opportunity to interview Boone Pickens in person about 18 months ago. A nice recent interview (video) with him from Bloomberg.

Sometimes it feels like an uphill battle to fight against the drumbeat of fundamental predictions and gurus predicting this or that after the fact, but then I am reminded (article) why I like to take the vantage I do. That Yahoo article will be read by tens of thousands, but how many will pause and realize at immediate first thought that it is useless?

From the AP:

NEW YORK (AP) — Oil rose above $126 a barrel for the first time Friday, bringing its advance this week to nearly $10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member. Gas prices, meanwhile, rose above an average $3.67 a gallon at the pump, following oil’s recent path higher.

How high will it go? Any one who says they know is not exactly truthful. Why is it going up exactly? Ditto.

An excerpt I like from this article:

“When I need investing inspiration, I turn to “The Great One” — but I don’t mean Warren Buffett, Peter Lynch, or Benjamin Graham. And I definitely don’t mean Jim Cramer. You’ve probably heard The Great One’s name dozens of times, but you may not know just how wise he is. Nonetheless, he’s said some very smart things. For instance … “You miss 100% of the shots you never take” That’s but one of the many pearls of wisdom The Great One has dropped over the years. And while it might seem obvious, or even trite, it’s a truth we often take for granted. Just think of the person you never asked to the dance, or the job you never applied for, or the novel you never finished … or the stock you never purchased. It happens to all of us. We get nervous, or doubtful, or busy, or … you name it. And that might end up costing us the person of our dreams, or the job we’ve always wanted, or our only shot at fame. But in the case of investing, it will definitely cost us a fortune.”

A reminder that never goes out of style.

Did they just figure out markets rarely ever match the pure fundamentals?

An interesting piece from the Freakonomics blog.

A question and answer from a recent Trader Monthly interview with David Harding:

Q: Do you have strong opinions about the differences between money managers educated in mathematics versus those with liberal-arts degrees?

David Harding: Investment management has been, for years, run by arts graduates. That has been the tradition. We’re on the cusp now of it being run by science graduates. For a long time in the investment-banking business in England, you needed to go to one of the top WASPy, blue-chip institutions to find your way into the money world. This was equivalent to your Ivy League in the U.S. But George Soros went to England after the war, looked around after getting a job in banking and asked, “Who are these f—wits?” before heading to America. In America, he found a small number of clever people in finance, and that’s why he started a hedge fund there. I don’t know if America is better overall than England, necessarily, but it certainly is more meritocratic.