While I do not act as a fund manager for clients, I am a full-time entrepreneur who takes on healthy risks daily. My career earnings have come from business ventures, real estate, investing with traders and trading.

I caught a review of TurtleTrader recently from Larry Williams. In part it said:

“Long story to this website; mostly negative, vile stuff about people that is not correct, and sets themselves out as the savior…Where is their heart? This is not how good thinking people treat others. There are many ways to make a good cup of market soup.. some like it hot, some like it cold, some like it in the pot, nine days old.”

Controversial, tough, opinionated, passionate is my goal. I would be curious as to the exact “vile” parts of my websites. I do thank Larry for taking the time to give free press.

One of the more interesting aspects of the Turtles involved the differing religions of those involved in the process. From a relapsed Catholic to Christian to Jewish to a Jehovah’s Witness – the Turtles and everyone involved in the process were a melting pot of personalities and beliefs all unified under Dennis’ will. Is there any one religion that worked out better? There is no evidence to draw any conclusion there.

I met with an old pro trader yesterday in his NYC office. He runs one of the largest clearing firms on the NYMEX. He has his unique way of doing things and clearly is not a trend follower. That said, his concern about knowing how to take losses properly echoed the wisdom of Wall Street’s great trend traders. His most interesting comment was about the word “despite”. He loved to see the word. For example, if you see the talking heads saying, “Despite bad news Apple stock went higher”, he would view that as an opportunity to go long even more. Conversely, if he saw “despite good news, Apple went lower”, he would go short. He wasn’t trying to preach fundamentals or “news” reading, but just wanted to pass along his insights from the last 20 years. Sure, it was short and simple wisdom, but then again most good Wall Street wisdom is that way, the hard part as he reminded me is the execution.

An excerpt from a recent Rich Dad Poor Dad column by Robert Kiyosaki:

So how can I say that the market is crashing even if it continues to go up? To see the true crash, educated investors need to compare apples to oranges, not apples to apples. When you compare the Dow to the Dow, or the S&P 500 to the S&P 500, that’s comparing apples to apples. The Dow at 12,000 appears better than the Dow at 9,000, just as an apple at $1 a pound looks better than at $1.50 a pound, even though it’s still the same apple. All that’s happened is the price per pound of the apple has gone up — the apple hasn’t changed. Years ago, my rich dad taught me to be a comparison shopper, especially when it comes to investments. He said, “You need to understand value more than price. Just because the price of something goes up doesn’t necessarily mean the value has gone up.” He also told me, “If prices go up without a corresponding increase in value, it means the value of the asset has actually gone down.” This holds true for all assets, including stocks, bonds, and real estate. For example, when the price of a house goes up it doesn’t mean that the house is more valuable. And prices going up may mean that something else is going down in value. In today’s global markets, what’s going down is the purchasing power of the U.S. dollar.

He is right: price going up doesn’t mean value is going up. But does it matter? If you have a strategy predicated on riding price increases (long for profit) and riding price decreases (short for profit), why then does it matter if you are able to discern the elusive “value” or not?

If you live in the Washington, DC Metro area and would like to be interviewed (on film) about the subjects I write about, drop me a line. I have found that question and answer formats work much better than standing in front of the camera preaching, hence my desire to get others involved.

From ‘Professional Adviser’ comes an article titled ‘Taking a Bet?’. An excerpt:

“A traditional investor invests on the basis of expectation and hope. The expectation is that they will enjoy the market return (Beta) and the hope is that their manager will produce something on top of that (Alpha). The problem is that Beta is now commoditised, and can be accessed for as little as 0.2% annually. Consider this in the context of a typical active long only manager where 90% of returns are derived from market exposure (Beta). That means the client is paying 1% annual management fees yet receives only 10% potential Alpha. That translates into an overpayment of Beta of somewhere in the order of four and half times.”

Without the jargon this means what? Billions are being paid in fees to mutual funds to deliver something that is basically free now. Article (PDF).

A study (PDF) from State Street about hedge funds.

Wouldn’t you just like to be able assemble all the “why” comments over the last month from the talking heads to explain this chart? That chart can’t be explained. All you can do is accept it as is.

I caught this headline blurb from the AP:

U.S. hedge funds that once managed $35 billion shut down last year as more big firms ran into trouble, according to a survey released on Monday by industry publication Absolute Return. At least 83 U.S. hedge funds shut in 2006. The largest was the $9.1 billion multistrategy fund run by Amaranth Advisors LLC, which ranks as the biggest hedge fund collapse in history, Absolute Return said. Also among the folded funds: Archeus Capital Management’s Animi Master Fund, which oversaw $2.65 billion at its peak; another run by Sagamore Hill Capital, which once held about $2.6 billion; and Saranac Capital’s Citigroup Multistrategy Arbitrage/Saranac Arbitrage fund, which topped out at $2.2 billion. Five other funds that once managed at least $1 billion also shut last year. That’s a big change from 2005, when none of the hedge funds that folded ever had $1 billion in assets, Absolute Return noted. Still, most of the hedge funds that shut down last year were small: Almost half of those funds never reached $50 million in assets. That suggests the $1.4 trillion industry is evolving into a business dominated by the bigger firms, Absolute Return said.

If the style of trading is not defined, if the manager is not noted, then aggregate statistics for hedge fund losses serve little purpose other than giving naive reporters something “fun” to write about for that day.

Heather Flick writes at Trader Daily:

Hated by many and understood by few, most hedge funds today are not even, literally, hedged. This is an industry in need of an extreme makeover…The name “hedged fund” was coined by A.W. Jones, a late-blooming Australian immigrant who in his 40s developed a strategy for eliminating market risk by taking complementary positions. Selling some stocks short while buying others long, he built his portfolio to have equal total value, rendering market-wide moves in either direction a wash. He hedged his bets based on stock picking rather than market direction, thereby creating a win/win situation. Today’s hedge funds are private-investment pools open to a limited number of accredited (savvy, rich) participants. These pools can invest in almost anything, which encourages creative management strategies unavailable to other, more regulated funds. That’s basically it. Although governed by the rules of private offerings, partnerships and LLCs, the term “hedge fund” actually has no legal definition.

That is a nice primer. It adds to a comment of mine from before.

The following comment is not meant to pass along a fundamental view about what direction you should take trading certain mortgage lenders. Rather it is a nice logical view from Ben Stein on the true economic impact of the troubled lenders we have all been hearing about:

Today, the reason is supposedly terror in the subprime mortgage market. To put this as frankly as possible, this is just nonsense. Even if subprime delinquencies and defaults are up, they’re a tiny portion of total mortgages. Suppose 13 percent of subprime mortgages are in default. Subprime itself is less than 15 percent of total mortgage debt, so that means that roughly 2 percent of mortgage debt is delinquent or in default. Yes, that’s more than it used to be, and is a disaster for the subprime mortgage companies. But when a mortgage defaults, the lender takes back the house or condo, sells it, and usually recovers about 75 percent of the loan value or more. That means the real loss would be about 25 percent of 2 percent, or 1/2 of 1 percent. In the context of a market as huge as the nation’s mortgage market, that’s not a lot. A few companies will go bankrupt, and someone will make a killing buying their bonds and portfolios at a huge discount as they turn out to be worth a lot more than people thought in March 2007. But it won’t mean a lot to a roughly $14 trillion economy, of which the subprime mortgage market is a tiny blip.