Monday, August 30, 2010

One of my top 10 worst trading days

Things are really starting to heat up in the markets. I don't have the screening tools I'd like as I'm in between jobs, but I've begun to start making some serious purchases in names I've been following for a few years.

Damn its stressful. I feel like I'm eating too much and my hair is shedding. I really need to get these habits under control otherwise I'm going to end up looking like jabba the hutt. Even when you have the conviction that you're right, the sheer volatility is nauseating. Welcome to the world of small-cap investing. Welcome to the world of opportunity. Tread carefully.

Today I bought some stock in an education materials company, RLRN. It fits as one of my typical plays (rock solid balance sheet, significant cash flows, strong insider ownership, recurring revenues, understandable business, diversified customer base, buying into extreme selling pressure) but I paid up for it (10x FCF vs. my normal 6x) mostly because of some timing constraints I'm currently facing. In retrospect I shouldn't have rushed it. Really dumb.

In the first hour the stock dropped significantly and by the end of the day it had closed ~13% down on no news. This decline equates to roughly half of one month's salary pre-tax.

While Mike Tyson would say, "everybody's got plans until they get hit," my plan is to triple the bet closer to $5-6 when I'm looking at a 50% drop from my purchase price. I just need the stomach to pull the trigger (and obviously quadruple check my assumptions and any news updates that would bust my thesis).

YTD Return: Flat.
% Invested: 12%
% Short: 4%

Wednesday, August 25, 2010

Marriage License. Gosh Darn, It Really Is About The Money

So earlier today Jess and I bought our marriage license for $90. We ordered it online and picked up at the court house in Beverly Hills. The whole time, Jess kept asking me if something was wrong cause she could detect I wasn't able to focus on the present excitement. No there's nothing wrong, and yes I'm very excited about marriage, but gosh darn, I can't get my mind off the market. My current puzzle is trying to figure out why my return this past month was only flat while also trying to dissuade a close family member from selling his large stake in GE stock.

As I've discussed in the past, my responsibilities as an investor has increased significantly over the last few months and its been incredibly challenging and rewarding. One the one hand, I'm wooping the market, on the other, its very, very challenging. My initial fund (less capital) was up ~6.5% through July this year. So from January 2008 through July 2010 (the total period of my initial fund), I was up 134%. During this same period the S&P 500 was down ~20% (an estimate which includes dividends). While this was a great run, it could have been much better had I also invested unallocated resources. As John Wooden would say, it wasn't a success because I didn't strive to reach my full potential.

Starting July I took on a greater role. I've made two moves that have worked favorably. First I quadrupled my short position (mostly to offset new purchases), and I also bought a spinoff (VPG at ~$11) which subsequently rallied 30-40% in a matter of a few weeks. VPG is doubly enjoyable as I also told a few people that I was buying it at $11 when it was still an opportunity for them to tag along (whether they did is I'm sure another story). Yet, despite two good bets, I'm only flat from July through today. So what am I doing wrong?

I know its a lousy ending to the post, but I still don't have a concrete answer. My initial takeaway is that I'm not making big enough bets to really make a difference (I'm only 15% invested including a 4% short stake) despite buying stock in 8 companies. Largely I think I need to get over the fact that I'm concerned the market could retest its March 2009 lows, which would create all the companies I'm currently buying 30% cheaper. Wouldn't you save most of your buying power for the lower prices, or do you just say, I know it's cheap here and I'm willing to buy 30-50% of a full position with the risk that I could have a huge paper loss in the months ahead? Tough choices. Do I potentially miss the upside (my VPG position could have been double its size easily) for an uncertain downturn?

Regarding GE, who the hell creates a marketing campaign suggesting that they're willing to make bad loans? That's just on top of the fact that if they're loan portfolio declines more than 10% the company is insolvent. Poor GE pensioners / employees, they would never know what hit them.

One of GE's recent ads below, and unlike the ad suggests, it is simply about the money.

Tuesday, August 24, 2010

Family Grillfest Toast

A toast from this past weekend at a delightful family grillfest:

Over this past year if you opened a newspaper or surfed a news portal, you were bombarded with unfortunate events. They ranged from devastating earthquakes to a record oil spill. The near term doesn't look that much brighter with rising crime, debt and taxes. Millions of unemployed face stiff competition for limited openings as our government faces tough choices to prevent its own insolvency.

Yet, despite this global adversity, which will inevitably impact all of us in some form, we have all been blessed with a record year:

Mr. & Mrs. Banrock are having a child, my brother and his fiance are getting married, and Jess and I are getting married.

Despite the adversity of the times, it is this merger and growth of our families that remains our true wealth.

It is a wealth that can not be taxed, spent or polluted.
It is a wealth that remains unadulterated whether we are employed or jobless, rich or poor, lost of found.
It is a wealth that grows or wanes based on the bonds we form and the love we share.
It is a wealth we must remember when confronted with the challenges of our lives and the noise of our generation.
It is a wealth I hope we all continue to grow in the years ahead.

It is this wealth that I toast to. To children, parents, wives, husbands, brothers and sisters. Or, just family, happy and healthy.

Thursday, August 12, 2010

My Dreams, Why I Buy Stocks

I like buying stocks because it fits my nature as a social outsider / observer. I like buying stocks because I can make boatloads of money off of opportunities that everyone has (in the sense that it's publicly traded) but few have the temperament to execute on. I like buying stocks because it's scalable (unlike in poker where you can get pocket aces but no one calls your all in) and I can do it the rest of my life and actually get better each year (unlike nearly any physical sport). I like buying stocks because it forces me to learn about the world, the people running it, and the quiet unnoticed forces that influence billions of lives.

And should I be successful and make millions, what do I want to do with it?

I want to be a force for good. Yeah it's tacky, but honestly, I think giving money even if it's just $300K a year to poor people either in my direct community or abroad can make a freak'n huge difference. The other day Jess met a family of 6 (5 kids) that were living in a van down by my dry-cleaners. Imagine if I could give them an apartment to live in for a few years what difference that could make? Apartments in Hollywood can go as low as $12K a year. That’s 25 homeless families in rent-free homes per year. $300K goes even further in countries where people are living on less than $2 per day (i.e. I could feed 150K people for 1 day or 400 people for one year).

If I can amass $10mn the possibilities for good are endless. I can probably compound at 5% after-tax with little difficulty thereafter (assuming lumpy returns) or roughly $500K a year. Spend $200K on my family (if that), and the rest goes to improving the world. Maybe these are delusions of grandeur, but they are my dreams.

Marriage, Babies and a New Job

Jeezus our wedding is stressful and I'm not evening planning it. While Jess and I wanted to have a small, do-it-ourself wedding, Her Mother, who I love and adore, insisted on throwing an extravaganza. Up to 200 people and thousands of dollars for cakes, flowers, dresses, invitations, and food. Jeez, I don't even know 200 people.

It doesn't help that Her Mother doesn't have time to throw a wedding so the bulk of the responsibilities fall on Jess. And so Jess gets stressed out because she's building our home while also developing her graphic design business. So as more wedding work flows her way, a bottleneck occurs with current projects. Right now, for example, our kitchen is partially painted while the contents of the kitchen have been spread throughout the apartment. That said,the invitations got out this week. The kitchen has been and will be like this for the rest of the month which is partially a result of a recent vacation we took and one we are about to take.

There's also the human element. My parents, who's wedding consisted of less than 10 people and walking out of a dim sum restaurant, see the hoopla for the wedding and feel the pressures of keeping up with the "Joneses" to step it up for the rehearsal dinner. Now instead of subway sandwiches at the beach (something Jess and I advocated) where renting out a restaurant for the evening.

But these stressers are nothing compared to what Jess is experiencing. Her parents are divorced and some parts of the wedding have seemed like walking a mine field. The bio-dad wasn't there for Jess as a teenager, but Jess still wants to make him feel welcomed without offending her step-dad who is one of the coolest persons I've ever met. So bio-dad invited, but the mom walks Jess down the isle. Father daughter dance probably goes to step-dad, but not sure how that's going to work. I really don't care if bio-dad is offended by Jess' decision, he doesn't have to come if he can't behave like an adult.

In the grand scheme of things, these are all very minor frustrations from what they could have been.

While I recognize that it's slightly sacrilegious to discuss ex-girlfriends when thinking about wedding plans, I don't think I could have handled in-laws that would view me as damning their daughter to hell on top of everything else. I resented Diana for a long time for the ease in which she ended our relationship over religion, but in retrospect, she made the right decision for both of us, even if I wasn't emotionally prepared to accept it.


Wow, there's a lot going on right now and I even have the month off.

I'm getting married. My brother is getting married and Jess' brother is getting married. In all honesty it's kind of annoying how everyone is getting married at the same time as it feels like too much is being pact into one short period. I guess that just how life shakes out sometimes.

In the new additions to the family section, my asian-brother-from-another-mother is having his first baby and my private equity mentor is having his first baby. So exciting. I wonder what parenting thoughts are going through their heads? I wonder when Jess and I are going to have kids? It always makes me so excited when good people have children. It's like the inversion of the abortion / crime correlation chapter in Freakonomics.

Did I forget anyone?

My old college roomate finished his first year in med school and is going to move in with his girlfriend. Another friend from middle school and high school, Chris, just finished his second year at UCLA law and was offered a job at a law firm nearby. I'm actually proud of Chris. I've told him since middle school that he was a smart but lazy bastard and just needed to apply himself. After barely passing highschool he finally got the drift and is rocking out in law school. It really is amazing watching good people develop / grow up.

Anything else?

I quit my job last month after a terrible bonus. They gave me a 75% haircut from what I expected following a terrible 2nd quarter for the firm. Luckily I had a backup job already lined up with a hedge fund in Los Angeles. David Mamet once wrote, "I never tie my shoes without a backup plan." People laugh when I quote Mamet, but I believe him. I quit within 5 minutes of my bonus funding the next day.

While it doesn't hurt that the pay is 30-50% better, I'm more excited about the prospect that this new venture will be more inline with the life goal of spending my working day buying cheap stocks.