Monday, December 28, 2009

Aaaah Snap....

In finance they have a saying, "you're either quick or you're dead."

In poker, the winner usually has some combination of favorable luck and excellent snap judgment ability.

Snap judgments are also critical in countless other tasks - Gladwell practically wrote a whole book about it. Yet, in life, people call me "judgemental" or say that I "generalize" as if it's a bad thing.


People generalize, because their generalizations are generally correct. Why are snap judgments about life (and people) a bad thing, when it's a critical skill set to almost everything else you do?

Saturday, December 19, 2009

Holiday Season

Just finished a wonderful 8 nights of Channukah with Jess and my folks. Lot of oily latkes and cheesy gifts. While I asked my folks not to get me anything this year, my parents bought me an Enervive machine after Mom saw an infomercial on HSN. The purchase reflects many aspects of my life. My parents are very loving, and even if they know I'm not really looking for anything (other than free time) my family still likes to try new and silly things. The Enervive is a battery powered machine with two paddles you place on a tense part of your body (lower back) that sends electric pulses that cause you muscles to involuntarily spasm, yet relax at the same time. Needless to say, after several glasses of wine, we we're all laughing around the table thinking about this goofy contraption and pretending like you could hook it up to your head to turn on electrical appliances. It was fun, and I'm glad Jess understands how my family works and is also eager to join it.

So while Jess and I are enjoying the holiday cheer,(it's hard not to given that the winter flavors at starbucks are back), recently I've been wondering as I look to extended family and colleagues, why can the holiday season bring out the worst in people? While I don't have a grand thesis on it, I think the heart of the issue comes from the idea of spending money you don't have on gifts that may not be appreciated.

But then again, I think back to the enervive, and while fortunately my parents can afford a silly toy and I don't think that my Mom meant for it be appreciated as a party gag, maybe the real issue is that gift giving forces people together. And you if can't appreciate your family and friends, it doesn't matter what toys you find under the Christmas tree this year.

Saturday, December 05, 2009

Poker, Investing and Market Follow Up

1. One of the many parallels between poker and investing is the rhythm in betting. For example, in poker I'm constantly adjusting my style to the position, or where I sit relative to the dealer. For example, if I'm first to bet, I'm less likely to play aggressively given that I'm uncertain on how the other players feel about their cards. In short, it's foolish to make a strong bluff, when any one of the nine players ahead of you could have stellar cards. That's the point of playing position, you're constantly monitoring the flow of information from other players. Maybe Mr. Alligator Blood quickly called the bet from the drunken roommate, so maybe I shouldn't raise pre-flop.

In investing, similar to knowing your position in poker, you must know where you are relative to the general market. The more bullish the crowd, the more bearish get. It is for this reason that after a 60% rally, I don't go "guns blazing" into any investment. I currently sit with a 5% short on the market, 5% long Berkshire, and 90% cash.

Another similarity between poker and investing is the discovery process of the fulcrum security. For example, during a contentious bankruptcy usually there's a valuation fight where creditors argue for how much debt the underlying company can support. This is a critical process because it frequently determines which lender gets the post-reorganization equity, and which lender gets nothing. The lower you are in the company's debt structure, the less likely you get a pay day.

In poker, I like to think of the fulcrum security as the minimum bet necessary to cause the other players around the table to question what they have with the goal of having them fold. What's fun about this is that it's a constantly evolving discovery process. While usually I think the fulcrum bet is somewhere between 5 to 10% of the initial buy-in, it can vary based on how long the game has been playing, the amount of alcohol consumed, the familiarity of the players and countless other factors.

Anywho, those are just my random musings on cards vs. investing, and that said there are many differences between the two that need to be appreciated and will be discussed in the future. Until then one of may favorite quotes that captures the difference is from a recent Bloomberg article: “In poker, people are used to not sitting back and waiting for the fat pitch...they’re used to skirting the edge of ruin and they learn the tools of how to do that.”

2. To follow up on my last post on shorting the market, I've settled on not betting. While I have strong conviction that we are due for a near-term pull-back, the risk return profile (like pot-odds) totally isn't worth it. For example, how much can I profit from betting against the market? In all likelihood the range is from 10-30%. Given that I almost never buy stocks with only a 30% upside, why should I make an exception for shorting the market? The answer is that I shouldn't. Despite the frustration of sitting on the sidelines (much like the frustration of mucking a lot of bad hands), a full chip stack is worth a lot more when everyone else is panicking.

Thursday, December 03, 2009

Leaving Money on the Table

I'm very very tempted to quadruple my short position on the Russell 2000 almost purely on my read of the tape. While I think the U.S. markets have topped, betting on their fluctuations is more of a parlor game employing speculative dark arts versus the analytical operations I wish to continue conducting as a value investor (buying great companies on the cheap).


Sunday, November 29, 2009

Exogenous Event / Random Musings

Is the default of $80-90bn in dubai debt the exogenous event that starts the reverberations that finally sends world markets into a 20-30% tail-spin?

Saturday, November 14, 2009

Cracks in the Sidewalk

I've been reflecting on growing up a lot recently. As a kid, the movie version of being an adult always seemed so simple. Get a job, have a family, parent children, eat, laugh, watch tv, and go to sleep. While this definitely captures the framework of growing up, there's an essence that is missing. So far, my limited exposure to adulthood is like the Jim Croce song, Time in a Bottle. To paraphrase, you spend your life figuring out what you want, only to realize you don't have the time to do it all. In other words, life is about the intangible sacrifices and enjoying the things that you do get.

That's not to say my life isn't exceptionally rich with friendship, family and experiences, because it is. But in the process of living life, there are infinite little sacrifices, like microscopic cracks in the sidewalk, that largely go unnoticed each day as you're walking through life. They can be silly things like watching a TV program you have no desire to see but are coerced into watching, to lingering internal debates about past relationships and what could have been.

It also comes in the form of career choices. Is this job really part of my life plans? Like the chill that comes with an autumnal sunset, are my life dreams actually attainable? Will I really be self-employed when I turn 35? What if I haven't saved enough and I have a family that depends on me? What about working from Singapore? Would I really want to leave my aging parents and family behind?

It's also a little strange to wonder, when I have children will I want them to read this blog? Should they know about my insecurities and past mistakes? How would it make them feel knowing that their Dad once loved another? Or do you retire the blog, and just accept it as it is. Another sacrifice in life, another crack in the sidewalk.

The Market

The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.


Sunday, August 30, 2009

Munger's Life Advice

If it's any reflection of the impact Charlie Munger has had on my life, last night I dreamed that I talked with him as an undergraduate student at UCLA debating whether deficit spending would resolve the current global recession.

While it's an answer to a completely different question that I may have posted already, I reflect on Munger's life advice so often that I felt it was worth re-posting:

How to Get Rich

We get these questions a lot from the enterprising young. It's a very intelligent question: you look at some old guy who's rich and you ask, "how can I become like you, except faster?" [Laugher] My answer is that I did it slowly, inch by inch, taking losses mentally when they occurred. If you want to do it with fast rapidity, then you're talking to the wrong man, but I know my way works.

If you don't just want to play tiddlywinks, I say welcome to the pool. Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. You may not need Zsa Zsa Gabor or a Lamborghini or a lot of other things you think you need now. Slug it out one inch at a time, day by day, at the end of the day -- if you live long enough -- most people get what they deserve.

It's so simple. What's the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts. [Laughter] It's the same with the responsibilities in life.

Wednesday, August 12, 2009

Fat People

I don't normally laugh at fat people phrases, but this one takes the cake:

"Can someone tell me when obesity transitioned itself from carnival curiosity to something we see everyday and pretend to not notice?"

Sunday, June 07, 2009

Why You Need to Read the Notes

So here's why you need to read the notes before you buy any stock. As I'm sitting and reading MicroStrategy's (MSTR) 2008 annual report I'm impressed by the Company, its product (an online platform to help companies track and analyze all recorded transactions - which is a trend with strong tailwinds) and I'm flipping through the notes to see if there's any red flags. By the time I'm in the mid-50's, (and keep in mind there are only 70+ pages) I come to the section on commitments and contingencies where the report says the following:

"On January 31, 2007, we entered into an agreement to purchase a corporate aircraft for delivery in mid-2009, which we expect to begin operating during the 2009 calendar year. The aggregate purchase price for the aircraft is $46.1 million, payable in installments on various dates related to the completion of manufacturing of the aircraft and the delivery of the aircraft. "


Saturday, May 16, 2009

The Great Devotions

In Jamie Dimon's 2008 Chairman's letter to JP Morgan shareholders he praises how our government has acted to address the ongoing global financial meltdown. While the actions of our government were not perfect, intervention was critical. He later quotes the following from President T. Roosevelt:

“It is not the critic who counts; not the man who points
out how the strong man stumbles, or where the doer of
deeds could have done them better. The credit belongs
to the man who is actually in the arena, whose face is
marred by dust and sweat and blood; who strives
valiantly; who errs, who comes short again and again,
because there is no effort without error and shortcoming;
but who does actually strive to do the deeds; who
knows great enthusiasms, the great devotions; who
spends himself in a worthy cause; who at the best
knows in the end the triumph of high achievement, and
who at the worst, if he fails, at least fails while daring
greatly, so that his place shall never be with those cold
and timid souls who neither know victory nor defeat.”

I like the speech very much as it is similar to the "it's better to have loved and lost" quote but applied to life.

For those interested in understanding how and why the meltdown occurred, consider reading the annual letter starting on page 14 with the section titled: Fundamental Causes and Contributions to the Financial Crisis. The letter in its entirety can be found below:

Thursday, April 16, 2009

I Dreamed a Dream

Susan's got nothing on her:

Sunday, April 12, 2009

Indepence of Solitude

It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.

- Emerson

Wednesday, February 04, 2009

And there She Was...

Standing in my room. Over a year since I last spoke to Her, and longer since I was in Her presence. We talk but nothing is said. Those feelings from our breakup go rushing through my chest. She's right here. I'm looking at Her, Her face, Her freckles, Her hair. I smell Her scent.

I wake up.

My head is pounding and I'm in a cold sweat. It's 3:15 AM, 15 minutes before my clock alarm. Another day where I'm reminded of what was and what could have been. Do I miss Her, or just the ideals she meant to me? Youth, freedom and exploration, puppy superbowls and unconditional love. Either way, like the dream, she's gone.

The alarm buzzes.

I stumble towards the bathroom trying not to wake Jess. I whisper to Jess that I love her, and in 10 minutes the dream has passed, my hair is slicked to the side, and I'm zooming 74 mph, on cruise control, heading to Commerce.

It's 4:02AM as I park in the empty lot. I'm the first into work, the way I like it, and my desk is covered with reports. By 4:30PM I've had 4 packets of microwaveable oatmeal, 5 cups of water, 9 ice cubes, and 2 cups of carrot ginger soup. I'm trying to lose weight. That said, my real appetite is in researching companies. I've looked at 4 banks, 1 brokerage and 1 non-residential construction company. Nothing can be more interesting and I'm completely devoted.

I heard a story today that a man 10-15 years my senior is looking to change jobs. He was offered a job at a top firm with a base $1MM in cash.... He turned it down. Welcome to the aquarium.

As I drive home, I start floating back to reality. Is this Million Dollar Man happy with his life? Does he go home and greet his wife and children with joy? Doesn't he know that a happy life is not unconditional wealth, but unconditional love?

In that moment, I realize that I've lost something.

I think back to Diana. I'm looking at her. Her hair, Her face, Her dimples but something has faded. As I try to recollect her every last detail, I realize it's hopeless. Her scent is gone, and the dream has vanished.

Thursday, January 22, 2009


A song that means so much to so many and a quote that blows it all away.

"I never went to high school reunions. My thing is, Out of sight, out of mind. That's my attitude toward life. I don't believe in yesterday, by the way. I'm only interested in what I'm doing now. You can never go home. It doesn't exist."

- John Lennon (January 1981)

Sunday, January 18, 2009


Complacency is a luxury for which no man can afford. If you think you can, you'll probably wake up a year later overweight, over-leveraged and unhappy. Of course it's only human to become complacent, as logic doesn't reach it's natural conclusion immediately, and lot of dumb people can look real smart for a long time.

In the course of a recession / depression the first wave of trauma will naturally hit the population that was most complacent. Or as Warren Buffett might say, when the tide goes out, you see who's been swimming naked. And indeed there has been a lot of skinny dipping lately.

The "men of mind" around the world, have become the "men of money." CEO's ranging from the top investment banks to automobile manufacturers shifted their focus from long-term innovation to short-term performance bonuses while maintaining a blinds eye for the inevitable near-term failure.

But the high and mighty corporate executive and investment banker aren't the only classes to fall from grace. Many homeowners we're equally complacent. At the peak of the housing bubble in 2006/2007 it is said that at least 30%+ of all home purchases were for speculation. Predatory lending my ass. Unfortunately the home price elevator hit a ceiling and we must all now bear the consequences. It will not be as, Ayn Rand might suggest, a Great Atlas, or a group of society's most industrious that will save us. In time, as logic works its way, we as a society face many risks including trillion dollar deficits, currency debasement, a potentially rapid inflation, higher taxes and ultimately civil unrest.

That said, I'm optimistic in spots. As Keanu Reeve's discovers in The Day the Earth Stood Still, we humans change at the precipice of disaster. While our society will not go unscathed from the excess and complaceny of the last few years, we will survive, and we will prosper until ultimately, we do it all again.

Saturday, January 10, 2009

Relgious Truths

I read something today that helped me understand the different religions around the world:

Religious Truths:

Taoism: Shit Happens.

Confucianism: Confucius say, "Shit Happens"

Buddhism: If shit happens, it is not really shit.

Zen-Buddhism: What is the sound of shit happening?

Hinduism: This shit has happened before.

Islam: If shit happen it is the Will of Allah.

Protestantism: Let shit happen to someone else.

Catholicism: If shit happens, you deserved it.

Judaism: Why does shit always happen to us?