Frustruation Squared

Don't get me wrong, it's a good frustration, but its still frustration squared.

On the one hand I can't find very many stocks that trade under 8x FCF (I really only like to buy at 6x or under) but at the same time holding cash is not generating any returns.

Ugh.

The squared part comes from the fact that Ben Bernanke is doing everything in his power to reflate all assets by printing more dollars(while deflating the power of the U.S. dollar). I can't buy gold because it's against my discipline to buy non-cash producing assets, but its a little painful watching it go up everyday when it seems so obvious. It also doesn't help to watch my short position eating away at me. Bernanke's also buying long-term debt to keep the market interest rates artificially low. And he can buy as much as he wants because he can print as much money as he wants. Argh. I'm not finding cheap stocks, the recovery seems like a headfake, and junk bonds are yielding miniscule yields over risk-free treasuries.

What's an investor to do?

I think this is why investing is so freak'n hard. You need to have the discipline not to fuck things up. Not to want to buy just because Bernanke says that he's not going to let the economy double dip. Good luck pal, there are some forces beyond your control. I have to stick to my guns, my game plan, my strategy.

Wait, wait, wait, wait. Strike.

People panic. Mood's swing. Optimism fades to fear. In the next 3-5 years there will be opportunities for me to buy large positions in stocks trading at 6x FCF. Until then I just need to sit and wait.

You can't control the debt markets forever Bernanke, eventually they will control you.

"In 2009, hedge funds generated about 3% of trading volume in U.S. government bonds. This year, that share jumped to roughly 20%, according to consulting firm Greenwich Associates."

The sharks are sitting at the table. They will pounce when they're ready.

YTD: +1% (up 10% on the net ~10% long exposure established throughout July and August - but should I have put on more exposure / larger positions?).

Running on all Cylinders

It's my 4th week at the new job and while its still too early to call the "honeymoon" phase over, from what I can tell, I'm loving it. At times its almost too good as I've been very tempted to work on the projects from home. Maybe this is just the puppy love that accompanies any new relationship, but it's exhilarating. It's a different "exhilarating" then my prior investment banking work which generally was closer to "relief" that I could get the job done vs. the actual excitement of the work. The reason why I'm writing this post is because of the "hedonic treadmill" that we all run-on in life. I'm aware that like any other good thing, I don't want to take it for granted. In short, it would be a serious mistake if I woke up 6 months to 2 years from now and wasn't incredibly grateful for my current circumstances at work given what I could be doing.

Things to appreciate about the new job:

Waking up later helps me get more sleep. I used to wake up at 3:30 most mornings, now I get to wake up at 4:40. That's huge.

Shorter commute - Approximately 10-15 minutes vs. 20 - 40 minutes.

Constantly Feed - Breakfast and Lunch on the house everyday vs. rarely, if ever, treated at the old job. I also don't have to wait on any group orders.

No headaches (yet) - During my last month at the old job I literally got a headache nearly every day. It seemed like a physiological response that I needed to get out of there.

Better pay - 30%+ higher with the opportunity to hit my life targets in the next 10 years.

Better resources - Access to Bloomberg, sell-side research, transcripts, financial times, factset, wall st. Journal, Barron's, pretty much anything I could possibly need.

Calm and Patient Boss(es) - While I'm sure I will someday have a valuation disagreement with my boss, he is very considerate (as is most of the people I have met at the firm) and listens to what I have to say. That's not to say that everything will be rainbows and sunshine, but it's certainly not thunderheads on the horizon. At my old job I would be asked complex questions and would be cut off 5 seconds into a response. I would get yelled at for nothing. In comparison, my first week at the new firm, the founder had a meeting with the new guys (me and one other new hire) for lunch to get a chance to talk with us and ask questions.

Stimulating Work - This is my favorite part and I must never let myself take it for granted. Even if there are periods of pay fluctuation that are disappointing, this is by far one of the most important components to my professional happiness (2nd only to doing my best). Don't forget it.

Isocrates Quote

"Democracy destroys itself because it abuses its rights to freedom and equality. Because it teaches its citizens to consider audacity as a right, lawlessness as a freedom, abrasive speech as equality, and anarchy as progress."

My Dad's Office Quote

My Dad had the following hand-written quote (written by himself) framed in his office when he was a practicing physician:

"Creative thinking will also be blocked quite successfully by such factors as mental and physical exhaustion, petty irritations, noise, worry over domestic or financial matters, depression, anger or working under pressure. The Scientist must learn to design his whole way of life in such a manner as to protect himself against such sterilizing influences or he will not be able to succeed in his work, no matter how great his special talents may be."

- Hans Selye (a Dr. that studied the symptoms and coined the word we now commonly know as "stress")

I'm not sure 100% why, but it makes me proud that it's now sitting on my desk at home.

The Hunger

In that brief interlude between vacation and starting the new job, I felt the hunger.

It was a need to work. The feeling of getting work done. Completing assignments, tackling new ideas. Sure I can do investing on my own, but I needed to feel the demand. A boss requesting items. A "to-do" list. Yellow pads and stacks of paper. Time management, priorities and deadlines. Fear and greed. The heat. The discipline. The hunger.

I must remember this need when in the years to come, I don't feel like I need a firm to work for and should branch out on my own. Before I commit, I must ask myself if I can sustain this hunger on my own.

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%

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.

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.

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.

Disney

"Keep Moving Forward."

In times of extreme uncertainty this quote by Walt Disney helps me focus on the 1,001 daily tasks that have nothing to do with the uncertainty at hand, but have everything to do with continuing to live each day.

Trifecta

For the record, the earthquake trifecta test went off again indicating to me another big rumble for the future.

Aquarius / Let the Sunshine In

In life, there are some days that you just remember.

They are days when the stars line up and something memorable, expected or unexpected, happens. It's a day filled with defining moments, where all the stars feel like they've lined up in your favor, "Jupiter aligns with Mars," and you only have green lights in your future as your driving down the road of life.

October 23, 2006 was one such day. So was July 16th 2007, May 9th 2010, and today, July 8th 2010, my mother's birthday .

I'm sorry for the teaser as its time for bed, but I look forward to writing about it more in the future. I'll end the post however on an upbeat note:

"Let the sunshine in."

Quotes from the Grind

I was shocked one day when I heard this very wealthy, semi-retired salesman say this about his children:

"I love my kids, but I don't respect them."

He said it several months ago, but it has stuck with me as a reminder that no wealth can compensate for a disappointing household. It has also served as a reminder that perceived wealth is the ultimate corrupter of our youth.

The analogy my Dad likes to use is that if you have kids, and you have money, you shouldn't drive a nice car. Not because you can't pay for it, but because you can't afford it. It sends the wrong signal (or "data point" as my old NY mentor would say) to your children. Instead of learning about the hard work and discipline it took to earn the car, your children learn complacency and entitlement. And it's not like you just wake up one day, and find out that your children are brats. It takes years of constant reminders, cars, vacations, clothes, credit cards, phones... it all adds up to a bill your children ultimately pay as they struggle to adapt to a world without handouts or the required skills (industriousness and passion) to survive . That's not to say that you shouldn't have nice things in your life, but be careful on what you let your children see and experience.

My 2nd favorite quote, came much more recently.

With summer time comes summer interns. I was working with a summer intern who also happens to be a 30 something year old MBA student from one of the top 10 business schools in the U.S. I attempt to be a good mentor. I start by showing him how to do certain short-cuts in excel after he bungles a first, second and third attempt at putting together a basic financial overview. After about 2 minutes he laughs and says, "don't you see the humor in this," [I look at him quizzically] "Here it is, I'm 30 years old, and you're teaching me how to use excel."

Pause.

Great, lesson over. I can go back to my work and you can figure this shit out on your own.

Instead I responded, "when I started here I never used excel, so you clearly have the opportunity to learn a lot in a little time."

And oh, go fuck yourself.

Creak

The creaking in my apartment is starting to get a little unsettling. I'm sitting at my desk, and then I can hear a creak move across one wall, and run through the apartment.

Stormy Weather Ahead...

I would like to preface this entry by paraphrasing what WEB has already stated multiple times: I have no idea what the stock market will do in the near term (day, month or years).

That said, I'm currently working to prepare for a crash. I'm doing this because I expect it to happen soon, and I need to be prepared to act when the opportunities exist.

This means building a shopping list of ideas to buy at 6x or under free cash flow (its like buying a bond with a 16% interest rate that's either paid to me or is reinvested into the company) and finding companies that have the liquidity to weather a terrible downturn involving many years of stagnation or declining revenue. If the investment also happens to be a good company that's growing with high returns on invested capital, that's great, but I don't need to have it. If a stock doesn't have the two key qualities (low P/FCF and liquidity), I'm not interested.

While it is exhilarating, I'm a little drained mentally and emotionally as I've been working on this list in any free time I have (excluding time at work or with the fiance) pretty much for a month now (and less diligently for the last year).

Why?

My personal return in 2008 and 2009 was over 50% each year largely through a combination of good fortune and preparation. In November 2008, one idea that I had been following for a year fell in my lap, dropping 70% in 1 day on hogwash headlines. The market overreacted, and I put 30% of my assets in the stock. Other than this one pick, I effectively sat in cash most of the crash, with my eyes focused almost entirely on this one idea. In retrospect, while I beat the market, I did not succeed (a la Wooden - doing the best in which you are capable). Had I been better prepared I would have invested the remaining 70% of my portfolio in the opportunities available at the time which included some companies trading for 2-4x normalized free cash flow. Instead I froze. I had never made a bet so big and I needed inactivity.

This next crash I must be better prepared. I need more ideas and I want to be fully invested when everyone else is panicking. I need to emotionally brace myself for a down year as I average down into my cheapest positions. I've learned so much since then, and the stakes are so much higher now.

Lincoln's Career

As I was rereading one of John Wooden's books, I came across this passage on Abraham Lincoln's career:

Born 1809
Failed in business 1831
Defeated for legislature 1832
Failed in business again 1833
Elected to legislature 1834
Sweetheart died 1835
Had nervous breakdown 1836
Defeated for speaker 1838
Defeated for elector 1840
Defeated for congressional nomination 1843
Elected to Congress 1846
Defeated for Congress 1848
Defeated for Senate 1855
Defeated for Vice President 1856
Defeated for Senate 1859
Elected President of the United States 1860

"The model Mr. Lincoln gave us with his persistence is one we can remember in the face of our own setbacks. And what is most wondrous of all is that persistence is a quality that we ourselves control. You, and only you, can decide whether you will stay the course." - John Wooden

In Memory of John Wooden

"I am a biography nut myself, and I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn better economics if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education." - Charlie Munger (pg. 136 of Damn Right)

On June 4th, 2010, John Wooden passed away. While I am happy that he will be reunited with Nellie, his childhood sweetheart of 60 years, I am also sad and a touch scared.

In some ways its like building a bridge. Upon completion, you remove the support beams to see if it can stand on its own. My life was built on the collective wisdom of a few role models, and when they pass, as they will in time, I must stand on my own, in living and practicing their life lessons.

Below are a few of my favorite quotes or writings of John Wooden:

"I am just a common man who is true to his beliefs."

"I am happy my teams at UCLA and elsewhere did well and we earned a measure of recognition. But all of this is nothing compared to my family: Nellie, our two children, our seven grandchildren, and all ten of our great-grand children. All that love is immeasurable."

"True success is attained only through the satisfaction of knowing you did everything within the limits of your ability to become the very best that you are capable of being."

Remember this your lifetime through -
Tomorrow, there will be more to do
And failure waits for all who stay
With some success made yesterday.
Tomorrow, you must try once more
And even harder than before.

How much more pleasant this world would be if we magnified our blessings the way we magnify our disappointments - Unknown

No written word
nor spoken plea
Can teach our youth
what they should be.

Nor all the books
on all the shelves.
It's what the teachers
are themselves. - Unknown

"I have prepared for death all my life by the life I lived" - Socrates

Proposal

This is just the beginning of a very interesting, and exciting time. I think one of the parts that I like the most about this new chapter in my life is all the life advice and feedback from family and friends. So far (and what I hope to be just the beginning):

The Dad - "Don't f*** it up"

The Mom - "Before I say yes, there are 3 things I want you to do: 1) be her "champion" 2) Don't let fear prevent you and her from living life or trying new things and 3) Don't stick to the conventional advice of others, this is your life, you should do what works for you."

The friend from high school - "I'm surprised she said yes too!"

My Psychologist / Jedi / Trader Mentor - "So this means she has 24 hours to shop for competing offers?"

My old private equity boss and friend - "Don't do it... just kidding"

...

CM - On Courage

Perhaps my favorite quote from the meeting:

"I developed courage, once I learned I could endure hardship." - CM.

Munger - Opportunity Cost

I went to the annual Berkshire and Wesco meeting this year, and while I'm not going to try to summarize 10 hours of learning right here, there were several quotes and analogies that just lit my brain on fire. It almost feels like those Japanese Anime super heroes that power up to discover new powers and strengths.




One analogy that CM gave on opportunity cost was incredibly powerful to me. After Berkshire bought $300mn of BYD (Chinese electric battery / car company) and the stock has proceeded to rally ~400%, CM has gotten several solicitations to consider investing in other Chinese companies. Your logical instinct should probably be that after this initial success he would be all over any potential Chinese ideas. But its the exact opposite!

CM, indicated that he wouldn't even looking at them, just given that the opportunity cost was so high given that he liked BYD, the product, the management, even though it had traded up 400%! He had more faith in BYD growing over time, (and had already done the work) than considering other investments!

It doesn't make 100% sense to me (as I'm younger - mid-twenties vs. 86 and try to be constantly looking at new ideas), but it's something I've been reflecting on, when considering potential investments (i.e. does this meet the opportunity cost? Even better, does it raise the opportunity cost for future investments?).

How Not to Finish the Game...

6th Inning (February 1999):



7th Inning (autobiography - where this blog got its name - November 2003):



8th Inning (At the Citi testimony before the Financial Industry Inquiry Commission explaining why Citi needed $45 billion in bailouts and $300 billion in tax payer guarantees under their watch - April 2010):

Wip-Saw

S&P 500: 1,128 (only -3.24% after falling intraday over 8%)

I'd be lying if I said I didn't have the evil "muah haha" laugh in my head today as I watched my short position lurch 8%+ today (and ultimately pullback). I don't expect tomorrow's performance to be anything like today, and if I had to bet on a direction I'd probably say up.

That said, to paraphrase WEB, I have no idea what the market will do in the next day, month or year. The game I play, is that I look for small, cheap companies at 10x or under free cash flow (mostly looking at companies under 6x free cash flow unless management is active in paying out the cash or it's an amazing business) that make a lot of sense to buy and don't warrant the corresponding 10% yield equivalent. There's less competition and the returns can be disproportionate with the uncertainty taken.

Parabolic

Since I wrote my last post, the markets have effectively gone parabolic causing one of the quickest losses I've ever had and I still haven't closed the position!

Admittedly this is one of the dumber trades I've done from a risk reward stand point given that I usually invest in situations where I have at minimum 50% upside.

In this case, what's my upside, 20%? 30%?

Dumb trade. The worst part about it, is that I knew, wrote and spoke against my betting against the market. Don't do it. Don't fight it. "The markets can remain irrational longer than I can remain solvent..."

In the last 3 years I've had 3 bad trades out of 11. Two of which were from betting against the f'ing market. Of my total loss amounts over 99% have been from these 2 bets.

GAAAAAAA!!!!! I'm a security analyst. Not a market timer.

2010 YTD Return: ~2%.

Tripled My Short

While I'm not betting against the long-term fundamentals of the U.S. economy, I tripled my bet against the market today for the following reasons (in no particular order):

1. The P/E10 Ratio (a 10-year avg. of the S&P 500's earnings divided by the current price) is in pricey territory:



http://dshort.com/articles/SP-Composite-pe-ratios.html

2. It's a hedge against the long positions already established (25% net invested mostly Berkshire, American Physicians, Fairfax)

3. Commercial real estate is an easy catalyst leading to bank mark downs, and further credit reductions).

"Between 2010 and 2014 about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present "under water"- that is the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates which now range from 8 percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined by 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties."

4. The fed recently stopped buying mortgage backed securities. This has provided a steady demand, which has kept yields artificially low.

5. PIIGS (Portgual, Italy, Ireland, Greece and Spain) Headline Risk - Paul Krugman's excellent article here.

6. Several investors I read are even more pessimistic.

Bill Gross

John Hussman

David Rosenberg (but he's been way to early, starting May 2009 - then again so was I).

Lucky Coinflipper?

As of 4/4/10:

Creaking

With all the creaking, it's almost as if my apartment is reaching out to me, saying... "earthquake"...

Skies of Blue

Recently I've been reflecting on my favorite things in life and what I consider the defining activities that make my life what it is. This helps me appreciate how much and how little is actually within my realm of control. For example, while I have my day job, it really has no bearing on how I feel towards each of these items (which is in my control). If you take it a step further, the job is just a means to participate in these activities, just like any other job. While it's a simple conclusion, it has been helpful for me to keep life in perspective, compartmentalizing the frustrating or stressful tasks from the activities that define me. It has also helped me realize how few material things I actually need or even want. And lastly, it helps me realize that if I were to die before my time (which I'm certainly not expecting, but do occasionally reflect on), that I am grateful to have still lived my life.

This list is not intended to have any meaning to anyone other than myself, as I think each person has to choose their own defining activities.

In no particular order:

Family meals. My own home. Exploring new adventures with Jess and friends. Jewish traditions. Researching unlevered companies that generate significant cash flow. Eating delicious foods. Restful sleep. Staying healthy. Playing cards with friends. Cooperative video games. Mini golf. Jacuzzi time. Walks on the beach. Hikes. Sunsets and sunrises. Listening to music while driving with the windows down. Thought provoking books and conversation. Living in a town with beautiful weather. East Coast vacations. Violin. Imaginary stories in my head.

And a few that I have yet to experience:

Good husband. Good dad (teach kids to be good and add value to world). Walk my own obedient dog.

Too much Dexter?

After a hectic weekend, I told Jess today that I was looking forward to having sometime to myself to relax.

"I don't kill people, I just read."

Life Addictions

Due to her ability to get me hooked onto television shows, I’ve recently started calling Jess my “drug dealer”. It usually starts with me walking by her desk, the volume isn’t even on, but something on the screen catches my eye. For example, about two weeks ago, I walked by and saw a naked chick getting strangled by the Ice Truck Killer a la Dexter Season 1. Upon seeing Jess watch what appears as porn as I walked by, I then walked back. My initial reaction was somewhat like George Bailey in It’s a Wonderful Life, when he realizes that he stepped on Mary’s robe and she’s naked in the bushes.... “Hmmmm…. A man doesn’t get in a situation like this every day.”

…

A week later and I walk up to Jess and tap my inner arm and say “I need the good stuff.” With Netflix I can get my fix of season 1 or 2 of Dexter at anytime online. It used to be Heroes but the show doesn’t give me the high I need anymore. On Friday we finished Season 2 of Dexter in a 4 hour marathon session. I started thinking of a 12 step program for my dark demons when I got an email from Kelvin…

…

In the last 24 hours, I’ve played 5 games of Craps on my iphone due to Kelvin’s recommendation. I won $300 (fake dollars) in one, won $100 in another, and crapped out in the rest. Just enough of a net win to keep me going into the next week.

With friends like these, who needs enemies?

Surrogates

Maybe I'm just easy, but Surrogates just blew my mind.

It raised a lot of thought-provoking questions (would you have sex with a robot? As a robot?) and also had a iRobot like story.

The ending also wrapped everything up so nicely.

Man, that was awesome.

I haven't been this pumped after watching a movie since I saw Taken.

Dealing with Death

As a follow up to the last post, below are two excerpts from When Bad Things Happen to Good People by (Harold Kushner) that help me grapple with premature deaths:

"If the bad things that happen to us are the results of bad luck, and not the will of God, what makes bad luck happen?" I was stumped for an answer. My instinctive response was that nothing makes bad luck happen; it just happens. But I suspected that there must be more to it than that... Can you accept the idea that some things happen for no reason, that there is randomness in the universe? Some people cannot handle that idea. They look for connections, striving desperately to make sense of all that happens. They convince themselves that God is cruel, or that they are sinners, rather than accept randomness. Sometimes, when they have made sense of ninety percent of everything they know, they let themselves assume that the other ten percent makes sense also, but lies beyond the reach of their understanding. But why do we have to insist on everything being reasonable? (pg. 46)...

Laws of nature do not make exceptions for nice people. A bullet has no conscience; neither does a malignant tumor or an automobile gone out of control. That is why good people get sick and get hurt as much as anyone. No matter what stories we were taught about Daniel or Jonah in Sunday School, God does not reach down to interrupt the workings of laws of nature to protect the righteous from harm. (pg. 58)

The Unknown, Unknown

Every few months I get the itch to change the name of this journal to reflect the current flavors in my life. But then, about just as often, something completely unexpected, an "unknown unknown," or a blackswan, enters my life. It's usually after the initial suprise, or"holy s#$%!" phase wears off, that I remind myself that: "we live in an uncertain world." It's not a judgment about good or evil, right or wrong, but a mantra that alleviates the echoing questions in my mind and helps me accept the randomness in life.

I found out today that a family acquaintance passed away unexpectedly on Friday. He was a year younger than me (~23 yrs old), a friendly trumpet player in the high school marching band, and died from complications associated with his diabetes. I am both shocked and saddened by his death.

We live in an uncertain world.

Life Choices...

In every life we much choose between the following two philosophies as presented in the following quotes:

“I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.” - Ayn Rand (John Galt's Oath from Atlas Shrugged)

Vs.

"Then I grasped the meaning of the greatest secret that human poetry and human thought and belief have to impart: The salvation of man is through love and in love. I understood how a man who has nothing left in this world may still know bliss, be it only for a brief moment, in the contemplation of his beloved." - Victor Frankl (Sharing how he survived Auschwitz from Man's Search for Meaning)


...

I don't think Ayn Rand knew what she was missing.

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.

huh?

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?

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.

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.

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).

Argh.

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?

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.

- WEB

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.

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?"

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. "

Wow.

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:

http://files.shareholder.com/downloads/ONE/642257354x0x283417/92060ed3-3393-43a5-a3c1-178390c6eac5/2008_AR_Letter_to_shareholders.pdf

I Dreamed a Dream

Susan's got nothing on her:


http://www.youtube.com/watch?v=Yt-IBJpEMzA

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

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.

Yesterday

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)

Complacency

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.

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?

Favorite Things from 2008

The thoughts of others,
were light and fleeting,
of lovers meeting,
or luck or fame,
but mine were of trouble,
and mine were steady,
so I was ready,
when trouble came - Eugene Stead

Two phrases from Dark Knight:

"The night is darkest just before the dawn."

"You either die a hero, or live long enough to see yourself become the villain"


Andrew Marlowe on rules for employment:

1.) Are you competent?
2.) Are you pleasant?
3.) Do you make my day shorter?

Who Put This...

The last couple of posts were a little more serious than usual so I decided to lighten it up a bit:

http://www.wallstreetfighter.com/2008/10/exchange-floor-trader-prank.html

You lived through 2008?

If you had asked me two years ago what the economy would look like if Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual, and Wachovia had all disintegrated through implosion or fire sale, I would have likely said that the country would be reliving a great depression.

These are uncertain times, fear of a global meltdown is violently shaking investors of all shapes, sizes and asset classes. Unemployment is 6% today and possibly 8%+ within the next 12 months.

Death is Not the Enemy

DEATH IS NOT THE ENEMY
By Joshua Loth Liebman

I often feel that death is not the enemy of life, but its friend; for it is the knowledge that our years are limited which makes them so precious. It is the truth that time is but lent to us which makes us, at our best, look upon our years as a trust handed into our temporary keeping. We are like children privileged to spend a day in a great park, a park filled with many gardens and playgrounds, and azure-tinted lakes and boats sailing upon tranquil waves.

True, the day allotted to each of us is not the same in length, in light, in
beauty. Some children of earth are privileged to spend a long and sunlit day in the garden of the earth. For others, the day is shorter, cloudier, and dusk descends more quickly as in a winter’s tale.

But whether our life is a long summery day or a shorter wintry afternoon, we know that inevitably there are storms and squalls which overcast even the bluest heaven and there are sunlit rays which pierce the darkest autumn sky. The day we are privileged to spend in the great park of life is not the same for all human beings; but there is enough beauty and joy and gaiety in the hours, if we but treasure them.

Then for each of us the moment comes when the great nurse, death, takes us by the hand and quietly says, “It is time to go home. Night is coming. It is your bedtime, child of earth. Come, you’re tired. Lie down at last in the quiet nursery of nature and sleep. Sleep well. The day is gone. Stars shine in the canopy of eternity.”

Repairer of Fallen Walls

Isaiah 58:5-58:12

5 Is such the fast I desire,
A day for men to starve their bodies?
Is it bowing the head like a bulrush
And lying in sackcloth and ashes?
Do you call that a fast,
A day when the Lord is favorable?
6 No, this is the fast I desire:
To unlock the fetters of wickedness,
And untie the cords of the yoke
To let the oppressed go free;
To break off every yoke.
7 It is to share your bread with the hungry,
And to take the wretched poor into your home;
When you see the naked, to clothe him,
And not to ignore your own kin.
8 Then shall your light burst through like the dawn
And your healing spring up quickly;
Your Vindicator shall march before you,
The Presence of the Lord shall be your rear guard.
9 Then, when you call, the Lord will answer;
When you cry, He will say: Here I am.
If you banish the yoke from your midst,
The menacing hand and evil speech,
10 And you offer your compassion to the hungry
And satisfy the famished creature —
The shall your light shine in darkness,
And your gloom shall be like noonday.
11 The Lord will guide you always;
He will slake your thirst in parched places
And give strength to your bones.
You shall be like a watered garden,
Like a spring whose waters do not fail.
12 Men from your midst shall rebuild ancient ruins,
you shall restore foundations laid long ago.
And you shall be called
"Repairer of fallen walls,
Restorer of lanes for habitation."

The Downside to the Top of the World

The downside to living at the top of the world is that once you leave, it's not easy getting back.

For the longest time I thought I had met "the Girl" for me, Diana. On our secret trip to New York I put a grass "wedding" ring on her finger with every intent of making it real someday. Wiser than I, she told me that it wouldn't solve the inevitable breakup resulting from our conflicting religions.

The first Friday of next month will mark the one year that Jess and I have been together. I love her and despite that I'm occasionally haunted with past stories, she loves me without reservation. This week I've been invited to join her family to visit their summer home and vacation spots on the east coast. It should be a fun trip where I learn both about her family, the dynamics of our relationship, and my own emotions. It's will also be the only vacation I've taken since my my trip with Diana.

Undoubtedly this vacation will be very different than the last, both in place and in spirit. I'm not the boy I used to be. I'm more cautious. I'm less outspoken about my dreams. Failed love hurt and still hurts.

While I can pontificate all night long about my self-imagined, new found, maturity, mostly, I'm just excited to be back in the game of life, its adventures, misadventures, ups, downs, and returns.

Off by a Little

As you can see from the last post, I was off with both time (2 mos) and severity (Only 5.8).

List of new experiences:

1.) Went to my first movie premiere (Mummy 3)

2.) Was promoted for the first time.

3.) Was invited by the President to join him for drinks

4.) First time I ever drank socially with a group of people that were all millionaires (Myself excluded. A problem I'm trying to rectify)

5.) I pitched my first LBO idea.

6.) I listened to my first live conference call.

7.) Someone bought 10,000 shares directly based on my stock recommendation

More experiences to come. Just need more time to write them down.

Maybe I'm just crazy

If there is a force... I feel it. We are due for a substantial earthquake soon.

Wowsers

It's been way to long since I last posted, but it's a reflection of how busy life has been. As an example, I'm waking up in 5 hours from now for work, but I felt compelled to write a few notes before going to bed.

1.) Life has been very busy and very full. I've had a lot of new firsts however I haven't had the time to digest them. (e.g. flying first class, and also the first time a financial times reporter called me to get the inside scoop on a story)

2.) I pitched a stock to the head of the Company, purely out of my own volition and free time, and subsequently it went up nearly 40% in less than three months. I hope that this may have impressed them as I'd very much like to be considered for a job transfer to the asset management division.

3.) I just had a wonder Passover Sedar with my Family and Jess. Jess and I got back together shortly after breaking up because I realized that she was very healthy for me, and that while I still miss Diana, given religion and geography, it just wouldn't work out right now. So while I miss her, you have to work with reality. While she took the quote down from her profile, "Keep moving forward." - W. Disney

4.) On that note, I look at Diana's facebook about once a month to see a.) if she's still single (I'm not sure if it's curiosity or masochism) b.) to see what she's still up to. I sincerely miss the conversations that entailed on our walks together, from finance to abstract mathematical theory. I'd like to surprise her by driving down to her school and meeting one day for coffee, but I hardly have the time of day for my own family let alone a 1-2 hour drive. Plus, I don't think Jess would be too happy with me. I would love to see her in her element teaching algebra! I'm tremendously proud.

5.) Things with Jess are very nice. She's a sweet heart and strives to be a successful artist on the side. I respect her initiative a great deal and she picks me up with an unrealistically optimistic spirit at times. From my limited introspection I've noticed that emotions towards her depend on my work load. If I'm working 80+ hours per week, I find that I'm not as attached to her, and I'm not as lovey dovy. However if it's under 80, I feel great and I love her like a boyfriend should. It's bizarre and it scares me that I go from boyfriend to stranger and back on what seems like a monthly basis purely based on the pressures at work and my inability to compartmentalize.

6.) Jonathan is going back to NY after visiting for Passover for the last few days and I'm truly sad that he's leaving. Given the workload, I had zero availability to spend any time with him outside of the dinner's with my entire family. While I'm not spending enough time with the people I love, I keep reminding myself that it's for a long-term goal. I wish I had someone to remind me at times, as Jess is a huge advocate of finding another job with better hours. It's hard to leave a firm that is benefiting from the ongoing recession as literally thousands of investment bankers are being laid off.

7.) Thank you Lord, for giving me such a rich life with caring family and friends.

And Sometimes You Just Need to Cry

I broke up with Jess today. I wasn't being true to her or myself. The worst part was that it's her birthday. I don't think I've ever felt like such a lousy person - but I'm also relieved.

Dear Lord, help me find myself.

Sometimes you just need to laugh...

http://www.apple.com/trailers/sony_pictures/youdontmesswiththezohan/high.html

http://www.apple.com/trailers/universal/forgettingsarahmarshall/large.html

Central Park

How do you tell someone that your biggest regret is not proposing to them when you had the chance? Or do you not say anything at all?

Life in Bullets - A lot of firsts

"The intellect should be the servant of the heart, but not its slave" - Comte


A lot has happened over the last few months:

- I've worked as an investment banker for nearly 6 months

- I've fallen for Jess. We're currently planning on starting two business together. One has to do with art, and the other finance. I have a third in mine with regard to charity.

- I've realized that I want to become the investment banking client more than I want to be the investment banker. (I want to own the company, not work for it. I need to take risks and seed any entrepreneurial ideas I can be part of.)

- A part of me still loves Delilah. I think about her daily and the random adventures we had. I never thanked her for making such a monumental impact on my life. It isn't really fair to her that while she's the one who changed me so significantly since college, she doesn't get to see it, and I'm very sorry that she can't. I'm sorry for how everything turned out, and I miss her.

- I just got back from my first business trip to Colorado.

- I ordered room service for the first time. (Chocolate cake and ice cream)

- I gave a tour of an $8 million dollar mansion in Beverly Hills.

- I missed my first holiday party.

- I got my first moving violation.

- I drove in snow for the first time.

- I've been a lousy friend to Mike and Heather. I haven't spoken to my extended family for over 2 months. I miss my family and friends.

- I missed my first wedding.

- I was a pallbearer at my first funeral. (Same day as the wedding)

- I worked on Yom Kippur.

- I worked on Thanksgiving.

- I failed the CFA for a second time. (Probably)

- I made my first financial model.

- I wrote my first stock research report (still in progress)

- I channel surfed for the first time in 6 months last week.

- "More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly." - Woody Allen

- I've never been more optimistic about people and the unexpected gifts in life. Thank you for being one of them.

Gravity Defied part I

"Success is getting what you want, and happiness is wanting what you get."

- W. Buffett

I'm absurdly happy; her name is Jess.

She meets the three criteria I'm looking for in a life partner:
1.) Jewish.
2.) Nurturing / Motherly / Wanting kids.
3.) Happy / Upbeat about life.

While I don't usually have enough time to plan or schedule formal dinner dates, she makes it work. For the last two months, Jess and I have gone on several brunch dates, exploring hidden culinary gems, while making life memories. My favorite so far has been the "Egg Scandia" at the Rose Cafe (fresh croissant with lox, poached eggs and hollandaise sauce with a blueberry muffin). Our brunch adventures also expands upon the list of restaurants I'd like to share with my out of town family. There's an ice cream shop I can't wait to take Heather to, and there are a few cafes near the Venice boardwalk that i have in mind for Mr. and Mrs. Banrock.

Jess also has awesome parents. They are very welcoming and I really enjoy spending time with them. Their house is beautiful and fitting for a famous screenplay writer. In the poker room next to library is "Dark Knight," the first multi-ball pinball machine. I wish my parents were as open minded as hers. My parents still haven't had her over for dinner but I guess that's the trade off for having "old school values," whatever that's supposed to mean. (I think it's a lousy excuse for being slow to welcome strangers into their lives. "The chains of habit are too light to be felt, until they're too heavy to be broken" -WB)

More to come....

Vibe...

I know I should feel excited about the week ahead, but for some unexplained reason I'm getting a really nasty vibe. Something's coming....

Or maybe it's nothing. Maybe it's just the culmination of my sadness marked by the anniversary of our first date....

Or maybe I'm just a little loopy.

Buffett Letter

That same summer I wrote a birthday letter to Buffett. July 18, 2003:

Mr. Warren E. Buffett
Chief Executive Officer
Berkshire Hathaway Inc.
1440 Kiewit Plaza
Omaha, Nebraska 68131

Dear Mr. Buffett;

From the reaction of my friends, I guess it’s unusual to hang a picture of a seventy-two, and soon to be seventy-three year old man, on my wall. Unlike my friends who have pictures of sunbathing beach babes, I have chosen one of my heroes.

After working on a mid-term paper into the night, and chugging five of the six Cherry Cokes in a pack, I looked up to see my inspiration. While I’m trying my best to follow in your tracks, I haven’t yet figured out how you were able to procrastinate on papers and study Ben Graham’s The Intelligent Investor, all while setting the curve on class exams. I may wish otherwise, but I most certainly don’t have the brainpower to imitate your undergraduate habits, and as Yogi Berra said, “If you can’t imitate him, don’t copy him.” Unable to answer the question myself, I gathered my courage and shareholder’s rights, sat in the second row of the annual Westco meeting and asked Mr. Munger the best way to follow his partner’s tracks. Your partner quipped that many young people ask how to become wealthy like him, only faster. Instead, slug it out, step-by-step everyday, suggested the Westco Chairman once the laughter subsided; this advice will do. True, your wealth probably won’t be achieved by someone with less candlepower but the wisdom is exact; everyone works according to their best light and, thankfully, the measure of our success doesn’t depend on a comparison with either you or Mr. Munger. Success depends on the careful execution of our life plan.

I cherish your teachings about character. For example, in my junior year of high school, I listed the traits that I found admirable and objectionable. Motivated by the fear of ruining a twenty-year reputation in five minutes, forging strong habits now becomes a bit easier. I’d rather read about other people’s blunders in the headlines, not my own. As a young man, practicing the right habits can be tough, but it is better to lay the foundation now than see the house tumble later. Like value investing, a successful character is the result of slow, patient attention; “faster” has nothing to do with it.”

So happy birthday, Mr. Buffett. A lifetime of patient investing in character and intrinsic value has yielded wealth, success and happiness. You’ve demonstrated the perfect mental model: Success is getting what you want, and happiness is wanting what you get. In my essay for the application to the University of California at Los Angeles, I compared your advice on the qualities of character to the teachings of another one of my heroes, basketball coach, John Wooden. I was accepted, and I’m tap dancing to each class.

Looking Back

I wrote this on July 3, 2003, the summer prior to starting UCLA. I was seventeen.

Losing Paradise

I’m losing paradise. As each day passes I’m one step closer to becoming a full-time college student. While the independence associated with entering a university is an exciting experience, the joys of childhood are left behind.

Despite the occasional order to clean my room or wash the dishes, my past seventeen years have seemed utopian. In an age of high divorce rates, domestic violence, and besieged family values, my parents carefully nurtured their children’s developing character. Accomplishments come easily swinging high above a secure parental safety net. As a child, the “menial” chores, cooking or laundry, seemed beneath my aspirations but perfectly suited to my parent’s indolent life. In my mind, high school was just as “tough” as my Dad’s work; perhaps he could work forever while I remained a child. Surprisingly, adulthood means shouldering menial chores that my parents have outgrown. So its “goodbye” to the safety net and “hello” university life, twenty page papers and cleaning my closet-sized dorm room.

With these newfound fears of independence, one quote by Abraham Lincoln relieves my mind: “ The worst thing you can do for those you love is the things they could and should do for themselves.” Lincoln was right; my university independence is best served if my parents are freed from the slavish devotion to my meals and laundry and allowed to relax with their own “menial” tasks.

I Think I'll Try Defying Gravity

I miss listening to her sing in the car.

I spoke with Heather this past weekend. I started complaining about my feelings for Delilah: "I hate the fact that there's someone out there that can completely shake-up my life."

Heather responded: There's a lot of things you can do in life, Charlie, but it's what you choose to do that defines you. If you let her mess up your life, that's your choice.

Timshel all over again. Heather is a great friend, but damn, she's smart too.

This is my life, and I'm choosing to dwell in the past rather than moving on. I don't think I'll ever be as enamored with anyone as much as I was with Delilah, but then again, we live in an Uncertain World.

They were wrong...

Everyone told me that after three months the nausea would go away. Four months later and I still hug the toilet bowl when a memory of her pops up.

Over dinner my Dad told me that for Succoth, the Jewish holiday, my cousins went rowing in Central Park. I had to excuse myself, as I almost started crying at the table. The pond in Central Park was where I was going to propose to her.

Big Shit

"If dating a girl in the office is like shitting where you eat, I just pinched a loaf on the dining room table."

When Delilah and I were dating I had zero respect for her ex, aptly named, "Man-Whore." After splitting with Delilah, he went on to hook-up with many chicas. Up until now, I never understood how a guy could sleep with dozens of women, and look at himself straight in the morning. I understand now. He was trying to find happiness, and settled for sex. Believe me, the quest for happiness is even harder when you're used to loving someone who's perfect for you.

Since splitting with Delilah I've been with two wonderful, understanding, Jewish girls, "Chef" and "Shorty." They both respected the ridiculous hours I work, and wanted to make it work. In short, we went on a few dates, they tried the kool-aid, and they left even more thirsty. But here's the catch: I'm not ready to move on. I already told Chef that it wouldn't be fair to her if we dated seeing that I still had feelings for Delilah. Shorty works in my office, and told me today that I'm the "silver-lining in her life." I know the healthy thing is for me to give Shorty a fresh try, but everything reminds me of Delilah. I'm just not getting over her. I miss nearly everything about her. I even miss the way she brushed her hair.

It still upsets me so much that she wasn't willing to try to make it work, yet here it is two girls that I go on a few dates with are willing to overcome obstacles to try and build a relationship. But she wasn't. She wasn't willing to make it work. She said no because she didn't love me as much as I loved her.

God Laughs

"Had my mother not died, there's a slim chance I would have been accepted to medical school." -My Dad

Paul died today. When I got home I cried thinking of the pain his wife and children must feel. Banrock's wedding is this Sunday, as is Paul's funeral.

"Men plan, God laughs."

Peace

Success is peace of mind from doing the best you can under the conditions that exist.

Paraphrasing John Wooden

She said no.

There was nothing more I could have offered.

I've done the best I can.

Why She's Worth It, A Few Reasons Why I Hope She Says 'Yes'

Given my willingness to make the sacrifices necessary to overcome a prior impasse, I left her a voice mail asking if we could get back together. It took me a few months to reach these conclusions and so I expect it'll take her at least a few days to reach her own. This is a major cross-roads in life, and I'm simultaneously excited about our potential future together and outright scared she'll say "no." While it's useful to document the thought process that has lead to these conclusions it also serves as a list for why I hope she says "yes." Bottom line is that I'm not asking her to marry me, I'm just saying that I'd like to keep dating without a deadline or a restricted potential.


Here goes, in no particular order and non-inclusive:

Why She's Worth it,
A Few Reasons Why I Hope She Says 'Yes'

Several of my life hero's would make this decision. If Warren had been Jewish, knowing that Susie was the love of his life, I bet that he'd have converted. (What would Warren Do?)

I'm finally thinking about what I want and how I can achieve it rather than how I can make other people happy.

Maybe it's naive, but I believe love can prevail. If we're madly in love 30+ years from now, it's extremely unlikely that either of us will have regretted our decisions. (Not to say I won't experience occasional pings of nostalgia or sadness.)

When we broke up, this would have been a decision I had made for her. Given my clarifying thoughts over the last few months, this decision is just as much for her, as it is for me. I don't feel any bitterness or anger directed towards her and I'm certainly not having the Sex in the City moment where I'd want to yell "I gave-up Jesus for you," except in reverse.

I believe in raising good children in a moral family. This isn't limited to Judaism.

Despite my hesitancy to raise a non-Jewish family, I actually like Christianity. It's been a great moralizing force for civilization. Jewish people could learn a lot about being nicer to their neighbors. We got a little lost in self-preservation and money making. That's one trait I seem to have down fine and I don't think I'll have trouble passing it, and hopefully not the proceeds, onto my own children.

I want to marry a woman committed to teaching values of responsibility, love and kindness.

I have very fond memories of going to the Easter Sermon with her. I really liked the lessons that were taught that day and I feel that my kids could really benefit from hearing the same things:

A.) Charity
B.) Most the noise in life comes from the shallow end
C.) Love thy neighbor
D.) We don't live in a perfect world, but it doesn't mean we should hold ourselves to lower standards

I can't remember the last time I went to Synagogue and months later still remembered key highlights.

She knelt before praying. I'd want my kids to see that type of respect and devotion to a higher spirit.

I can say the Prayers, but I don't understand the words. How can I pass a religion to my own kids if I don't understand the words? I don't really speak a word of Hebrew. I mix up all the stories. I don't want to be more Jewish, and I'm not making the time to learn.

On Friday nights, I "bench" after the meal with my family singing Hebrew songs I don't really understand. I like the tunes, the family connection, and the amazing foods but the words are, yet again, lost on me. Are these tunes effectively any different than saying grace in English? The main connections I have are through cultural observances and reading the text, in English, on a weekly basis. Of which, I have two additional thoughts:

A.) I'd like to read both the old and new testament with my own kids. My decision doesn't really effect this.

B.) I'm sad that I'd lose my Jewish cultural experiences, but I'll also gain new Christian ones. The morning excitement of Christmas sounds amazing as I can see myself smiling over at Her while our kids open up gifts under the tree.

The Garden of Eden

Honestly I'm scared. At the end of my senior year in college I realized that I didn't get enough of the life experiences I should have. I was always too worried about the immediate future that I couldn't think longer term. I never stopped to ask myself, will I regret these decisions two, five, ten or even twenty years from now? Since my senior year, I've been applying this time-acid test more frequently.

Investment banking is not easy, but will I regret working my ass off when I'm 25 or 30? I don't think so. I'll probably be happy that I put in my time, and paid my dues. Investment banking is a situation where the time-acid test works. But what if it doesn't? This is where it gets scary.

What if I know I'll regret a decision I'm actively making but I stick to it because the alternative is similarly terrible?

Finally when I realized that I should start living my life so I won't regret it, I'm forced to choose between mutually regrettable outcomes: Delilah or a Jewish family. I've walked away from Delilah, and I hate myself for doing it. I’m compromising personal happiness for religion. It’s the most difficult decision I’ve made in my life, and I'm starting to wonder if the reciprocal is just as bad.

I talked to Steve on the weekend and I told him I was seriously considering raising a non-Jewish family. If I made that decision, he asked, will I regret it when I’m 50? I responded, not as much as I’ll regret losing the love of my life at 21.

Now I’m really scared. Where do I go from here? Would She support me?

You just learn to live with it? I hate lemonade.

"You never get over it. You just learn to live with it. When my Mom died I was seventeen.... You never get over it. You just learn to live with it." These were the words my Dad said to Paul's wife, Toby, and then repeated back to me.

Recently, my family went to visit a friend, Paul, in the Kaiser Permanente, Intensive Care Unit (ICU). Paul always treated my brother and I with kindness and was close to my parents. He was one of three people that attended my parents wedding and he was a medical school buddy with my Dad. Unfortunately, his cancer has spread across his body and made its way into his lungs and throat. He also has pneumonia. Outside his room I saw him with tubes in his arms and down his throat. It scared me. He didn't look anything like the way I knew him from childhood memories. I didn't recognize him without a smile on his face.

My parents led the way into this room. My Dad and Mom helped him move his feet back unto his pillows. He was barely conscious, and had a blank stare that moved between the three of us. I felt like a scared kid. I didn't know what to say, I didn't know what to do, and my parents did everything. My parents kept on saying, "Keep on fighting, Paul. You're so strong. Keep on fighting." His eyes barely open, he stared straight into me. What do you do when you're staring into someone's death? I don't have an answer, so I forced a smile.

When my Pop Pop told me that my visit would be the last time I saw him, we cried, we hugged and we smiled. It still brings tears to my eyes, thinking about him slowly waving from the front porch with his sunken eyes. The same eyes, that Paul had.

What's equally sad is what Paul leaves behind. While the experience must be very painful for my parents, it's tragic that he leaves behind a wife and two daughters, one in college and the other in high school. While I believe or at least hope that the twenties is the most difficult period in my life as I define myself through work and the companion I choose, (the naive understanding of course is that afterwards is smooth sailing) what are you supposed to do when you have to reset your life at 55? I'm 21 and it certainly puts bitching about my life in perspective. I can't begin to imagine the fear and pain that Paul's wife, Toby is experiencing. What is she supposed to do? How can she "learn to live with it?" Empty chairs and empty tables all over again.

...

Generally, I like the question that when life tosses a lemon, or in this case, a crate of lemons, how do you make lemonade? I see what's going on with Paul and his family and it's beautiful to see their friends showing support. My parents are being true friends and they're a role model for the commitments I should show to my partners. In short, while it's certainly no cosmic balance, I'm actively reflecting on this tragic event to show my appreciation for friends and family. It's petty, but it's an attempt. My mom wanted to play cards with me last night, and I really didn't have time, but I did anyways. She "beat" me. I kissed her on the fore-head when I said goodnight. I said the Shema with my dad every night that I saw him this past week. Lastly, I was lucky enough to speak with my brother on Friday night and Banrock, soon to be Mr. and Mrs. Banrock, on Saturday.

....


I spoke to Banrock on Saturday and told him that I wasn't going to be able to make it to his wedding. I feel like shit about it. If you're not making the time for life partners, who are you supposed to do it for? For a list of reasons, I can't. But here's where the story gets interesting. Banrock responded, "Charlie, I missed a lot of weddings in my time. Next time your out in Manhattan, you'll toast us." Wow, another example of Banrock giving better than he gets.

What an amazing friend. Instead of saying, "oh what a shame," or "I can't believe you can't make it especially given that you said you would," he makes an effort to make me feel less rotten about it. I'm so lucky to have such great partners and role models, and I'll do whatever I can to keep them.