Michael Covel: News & Info.

From Ben Stein:

I’m 61, and have many friends who are roughly the same age. In fact, most of my friends range in age from 50 to around 65. Some of them are far happier and more self-confident than others. Some of them have plans to go places, play golf, take photos of exotic lands. That’s some of them. The others are in fear, afraid to leave their houses, afraid to think of growing old — just plain afraid. I can think of two major differences between the ones who are successful and the ones who are not. The first difference is that the confident group did not disable themselves by drug use or excessive alcohol use. It’s an amazing thing, but it’s true: The men and women I know who have spent a lot of time smoking pot have, by and large, thrown their lives away in the pursuit of feeling no pain. There are exceptions, but typically they can barely get out of bed, let alone pursue a career aggressively or save in a disciplined way. Basic, long-term sobriety seems to me a precondition for a successful life, and certainly a precondition — in most cases — for a life of prudence as far as money is concerned. The man or woman lost in marijuana-induced bliss cannot and will not be able to evaluate investment options and pick the best ones — it’s that simple. One of the many blessings of sobriety is to be able to invest sensibly.

I will be in Tokyo and Hong Kong in December. If you are with a hedge fund and or investment bank and would like to speak in person either on or off the record for a new book I am working on, drop me an email in the next 2 weeks. I am specifically looking for non-US perspectives.

Take a quick read of Christopher Cox’ Testimony Concerning the Regulation of Hedge Funds. Now consider excerpts from Bloomberg News on November 11, 2006:

NEW YORK — The Securities and Exchange Commission will propose rules next month raising asset requirements for investing in hedge funds after Amaranth Advisors LLC lost $6.5 billion on bad natural gas trades…Senate Finance Committee Chairman Charles Grassley has asked Cox and Treasury Secretary Henry Paulson to figure out ways to boost transparency in the $1.3 trillion hedge-fund industry, which is largely unregulated. Grassley said in a letter Oct. 16 that “hedge-fund investments could put the retirement security of American workers in jeopardy.”

Let me get this straight. Amaranth blows up so we need new laws? I am for transparency, but how about some transparency for the true intentions of politicians too? Grassley is worried about pension fund money in hedge funds, but not pension fund money in mutual funds? What those can’t go down? Of course they can go down and do (i.e. dot com bubble)!

My gut tells me there is a story behind the story here. How much lobbying money is being pushed into Congress from big mutual fund firms seeking to protect their monopoly on keeping retirement assets locked up in ‘long only’ investing strategies? I bet it is a huge dollar figure. The government’s effort to keep the average Joe away from alternate investing strategies is not so noble in my opinion.

Feedback in today:

Hi. I very much enjoyed reading Trend Following. I’m currently trying to learn more about trading and aim to build an expertise in it. In the meantime, I have a question for you. Based on your gut/common sense / experience does the following trader sound legitimate to you? There is a trader who is via an “investment club” offering/giving monthly returns of around 7-11% to investors. He is trading foreign currencies (beyond that I don’t have more information). Investors get statements, however there is no other information shared with them on the accounts/financials of the operation. The operation is registered offshore in Panama (he was doing his trading from Jamaica, and I understand he is now living / working from the US. He recently bought a plane I hear). He seems to have opened up the ‘investment club’ in the last 2 or so years. As far as I know he is subject to no regulator (or rather has not subjected his operations to any, i.e. the ‘investment club’ and offshore arrangement were designed to avoid regulators). I find the steady consistent monthly returns a red flag (seems like a guaranteed return that is unlikely given the fluctuations a trading profit). Am I being arrogant/too cynical. In other words -based on the brief sketch I have given you - do you think this guy’s returns are legit? Regards, Monique

Christopher Cox might want to shine his flashlight here instead of making reputable hedge funds jump through more inane hoops.

Today across the wires:

Nov. 10 (Bloomberg) — U.S. Securities and Exchange Commission Chairman Christopher Cox said the agency will propose rules next month making it harder to invest in hedge funds. “We’re going to make it very clear that hedge funds are risky investments that are not for mom and pop by fencing it off with higher standards to accrediting investors,” Cox said in an interview today.

This is an idiotic statement. So there is now one definition of “risk” applicable to all types of hedge funds? What is it?

I would like to know if Mr. Cox thinks being down over 50% for six years buying and holding the NASDAQ was risky? How in the world did a bunch of politicians come to think they know what is right for people’s portfolios?

Some people seem to be excited that a change in politics will benefit their portfolios. I say nonsense. Regardless of who is in power in DC you need a plan that tells you what to do every day with your portfolio. If you are excited that you will make more money with a new Speaker of the House or if you believe you would have made more money with the old Speaker of the House - I say both of you would be off.

In my opinion articles like this (PDF) are much more important to your chances of getting rich than placing your hopes on the back of politicians.

The book Trend Following brings forward the passion. Here is a review seen recently:

After reading 100 pages I still have yet to see a definition of trend following. Tries to add props by invoking great trend followers. This book really pissed me off, website is the same, lauds trend following, rips everything else. What the F**K is it?

I can’t tell whether reviews like this are serious (i.e. not just competitive business reviews) or whether the reader really doesn’t “see” it. I do know from literally thousands of reader emails, that the book does answer this question for many. That said, I wish it answered it for all!

3rd video clip from September presentation in Hong Kong.

Pictures of event below.

I had the opportunity to meet Mark Shore last spring in New York City at a presentation. His paper on ‘Skew’ (PDF) will be of interest to many readers.

I was forwarded this excerpt, which apparently first appeared on Victor Niederhoffer’s site from a contributor. It is Sabermetrician Bill James speaking, from his 1981 Baseball Abstract, on the difference between sports writing and sabermetrics:

1. Sports writing draws on the available evidence, and forces conclusions by selecting and arranging that evidence so that it points in the direction desired. Sabermetrics introduces new evidence, previously unknown data derived from original source material.

3. Sportswriters characteristically begin their analysis with a position on an issue; sabermetrics begins with the issue itself. The most over-used form in journalism is the diatribe, the endless impassioned and quasi-logical pitches for the cause of the day–Mike Norris for the Cy Young Award, Rickey Henderson for MVP, Gil Hodges for the Hall of Fame, everybody for lower salaries and let’s all line up against the DH. Sports writing “analysis” is largely an adversary process, with the most successful sportswriter being the one who is the most effective advocate of his position. I personally, of course, have positions which I advocate occasionally, but sabermetrics by its nature is unemotional, non-committal. The sportswriter attempts to be a good lawyer; the sabermetrician, a fair judge.

James objective decision making process dovetails nicely with the objective decision making of his current boss trend following trader John W. Henry.