The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination – and is why your Christmas stocking may be on the light side this year.
 
It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world’s ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world’s economies. So they have been quietly retired to this equatorial backwater, to be maintained only by a handful of bored sailors. The skeleton crews are left alone to fend off the ever-present threats of piracy and collisions in the congested waters as the hulls gather rust and seaweed at what should be their busiest time of year.

But then our initial skepticism towards Europe’s new money quickly turned to admiration. The euro’s weaknesses were actually its great strength. Since no nation stood behind it, none would knock it down to get where it wanted to go. Just as the Europeans could never agree on sausages or military campaigns, they would never agree on the destruction of their money. If French wanted a weak euro to help enliven their economy, the Germans and the English would tell them to stop whining and show some backbone. If it were the English whose economy went soft and who wanted an easier money policy, likewise, the French would like nothing better than to deny it to them.

That is the charm of the Europeans; they detest each other mutually. The French would rather endure a depression themselves than spare the English one. And as for the Italians, the Irish, the Austrians…and all the other peoples at the periphery – well, they can just look out for themselves!

But rather than leave the European Central Bank weak and subservient, it actually makes it stronger and more independent. Its officials may have no more integrity than officials of the Federal Reserve. Their economic theories may be no better. But at least they are unresponsive. In central banking, the consequence of inertia and inactivity is almost always salutary.

While the Fed has cut rates…raised them…and then cut them again, the ECB has done nothing. And the euro has almost doubled from its low and now trades for $1.55.

Bill Bonner, The Daily Reckoning

Bright sparks like Mr Bookstaber ushered in a revolution that fuelled the boom in financial derivatives and Byzantine “structured products”. The problem, he argues, is that this wizardry has made markets more crisis-prone, not less so. It has done this in two ways: by increasing complexity, and by forging tighter links between various markets and securities, making them dangerously interdependent. As the system has grown more tangled, tougher regulation has only made things worse. Ironically, so too has the ocean of capital sloshing through markets in recent years. This has encouraged ever bigger bets with borrowed money, even though every seasoned investor knows that liquidity is the first thing to disappear when trouble strikes.

Worse, the fancy products cooked up by banks often have unintended consequences. That is because they are designed assuming rational behaviour, whereas markets have a nasty tendency to react unpredictably. Mr Bookstaber knows all about this, having played a key role in the creation of, among other innovations, “portfolio insurance” programmes. Instead of reducing risk and dampening shocks, as intended, these exacerbated the October 1987 crash.

I disagree with his thesis, and in fact, think the opposite is true. First off, financial crises tend to happen once since people vow never to let it happen again. The next time similar conditions appear, people prepare for it well in advance. So when the actual typhoon hits, the effect is smaller. For example people who see similar conditions of a crash brewing sell in advance, so when the actual crash hits, there are less sellers, so the effect is less.

Some reasons for the 1987 crash were program trading and “portfolio insurance”. Program trading is when computers execute orders directly based on programmed parameters. Portfolio insurance is when a fund is already long stock, and they think the market will go down, so they short index futures against their long stock. The perverse irony is that when the fund shorts the index futures, they are at the same time hurting their current long stock holdings. People see the futures go down, they sell their stock holdings, which begets more index shorting (or more portfolio insurance), which snowballs out of control. (A funny analogy about portfolio insurance I liked from before is as follows: portfolio insurance is like when your house catches fire, and you move your furniture 3 feet to keep it away from the flames. The fire moves closer and you move it 3 more feet away, etc, etc. ie it’s not really insurance.) Another reason for the ‘87 crash was that everything was not electronic like it is now. People had to phone in big orders and such. So when the market went down, and program trading kicked in with the selling, people who wanted to buy couldn’t get their orders in fast enough – ie there wasn’t enough liquidity.

People making big bets also helps level out the market. For example people who short big against the market are natural buyers when the market goes down. If someone shorts ABC at 100, and it plunges to 50, he would probably want to lock in his gains and buy at 50. Heck, he can buy all the way up to 60 and still make out great. That’s why when a stock takes a plunge, many times you will see a bounce in the days following the plunge. If no one was short ABC, then there may not be someone looking to buy when it plunges to 50.

Interconnectedness and complexity of financial products are also net positives, in my opinion, simply because they provide more liquidity. When someone buys or sells something that affects something else, there is again, the natural buyer/seller at work – it broadens the investor base. For example, if someone wants to put on a complex futures trade, throwing in futures options along to hedge, that creates liquidity. The futures and options market makers will sell or buy from him, hedging their positions along the way. If the bet goes for or against the complex trade, there are natural buyers or sellers down the road. That was a bit of a convoluted example, but it’s similar to the short seller being the natural buyer above.

There is also now much more capital abroad than in the 1980’s. China, Japan, the Middle East, and Europe all have money, which translates to liquidity. If the US takes a hit, US investors may be gun shy, but foreign investors may not be. So they step in and buy. Net net, I disagree with him about reigning in leverage in general, because again, it provides liquidity. Long Term Capital Management (”LTCM”) was an extreme because their banks let them go beyond the normal guidelines. Perhaps if they didn’t let them go beyond the guidelines, the blowup may have been isolated. Here’s a good example: Amaranth lost billions because of a huge wrong way bet. However, this guy took the exact opposite bet as Amaranth and Brian Hunter, and made $2.4 billion, i.e., more than a third of Amaranth’s total loss went directly to his pocket. Not bad… Again, I think if anything, the benefits from liquidity, complexity, and interconnectedness outweigh the negatives. If anything they have a stabilizing effect on the financial markets rather than a destabilizing effect.

BOSTON (Reuters) – Private tutors are a luxury many American families cannot afford, costing anywhere between $25 to $100 an hour. But California mother Denise Robison found one online for $2.50 an hour — in India.

“It’s made the biggest difference. My daughter is literally at the top of every single one of her classes and she has never done that before,” said Robison, a single mother from Modesto.

Her 13-year-old daughter, Taylor, is one of 1,100 Americans enrolled in Bangalore-based TutorVista, which launched U.S. services last November with a staff of 150 “e-tutors” mostly in India with a fee of $100 a month for unlimited hours.

Taylor took two-hour sessions each day for five days a week in math and English — a cost that tallies to $2.50 an hour, a fraction of the $40 an hour charged by U.S.-based online tutors such as market leader Tutor.com that draw on North American teachers, or the usual $100 an hour for face-to-face sessions.

“I like to tell people I did private tutoring every day for the cost of a fast-food meal or a Starbucks’ coffee,” Robison said. “We did our own form of summer school all summer.”

Jonathan and Lex said it better than I can:

Jonathan: Agreed. The real story is that it potentially undercuts the entire
govt-schools system. If you have kids going from failure to excellent
performance based on a couple of hours’ tutoring per day, how much better
would they perform if they spent four or six hours every day with their
online tutors and blew off their schools entirely? That’s what parents will
be thinking. The teachers’ unions are going to try to make this kind of
tutoring illegal or so larded up with mandated bulls*** that it won’t be
effective. I don’t think the unions can succeed, however.

Yippee. Education arbitrage.

Lex: EDUCATION ARBITRAGE!

Those bast***s in the real, existing, Brezhnevite system we have here are going to EAT DEATH at long last.

This is the beginning of the market wedge that will split the whole rotten system apart.

I hope I hope I hope.

I hope that’s the reception TutorVista continues to get as it catches. Check out their website here. Outsourcing hits education, disintermediation with a vengence…

“Western nations yesterday pledged $500m (£263m) in aid to the Palestinians as the UN humanitarian chief warned an economic crisis meant the Gaza strip was a “ticking time bomb”.

A total of $114m will be spent on humanitarian aid. The remaining money will be used to meet a shortfall in UN emergency funding and to cover the reconstruction of infrastructure.”

Story.

Possible video.

Google News compilation.

Die terrorist scum.

]]> http://chicagoboyz.net/archives/4225.html/feed 2 http://chicagoboyz.net/archives/4002.html http://chicagoboyz.net/archives/4002.html#comments Wed, 15 Mar 2006 19:45:30 +0000 In-Cog-Nito http://www390.pair.com/chicagob/blog/004002.php Here’s a very good Opinion Journal oped piece on the Mid East economic boom thanks to the high price of oil.

The recent performance of Arab stock markets makes the Nasdaq of the late 1990s look like a slouch. Since January 2002, the Egyptian, Dubai and Saudi stock markets are up respectively by over 1,100%, 630% and 600%. Only four years ago, gulf companies were priced at around twice book value. Today they trade on an average of 44 times historic earnings and at over eight times book value. gulf banks are valued at over nine times book value, according to Credit Suisse.

Here’s a website with pictures of Dubai. Very impressive.

Photos from Visit Dubai at www.dubai-city.de

Google’s major weakness is that it is almost entirely dependent on one, high-margin revenue stream. The company has dozens of cool products, but with the exception of AdWords, none of them generate meaningful revenue. From an intermediate-term financial perspective, therefore, they are irrelevant.

Blodget was considered the top analyst for the Internet sector back in his day. Like him or hate him, his writing is worth checking out if for no other reason than to get a different view.

Disclosure: I’m holding GOOG put options, which means I think GOOG’s stock price will decline. Do NOT construe any of the above as investment advice.

]]> http://chicagoboyz.net/archives/3876.html/feed 4 http://chicagoboyz.net/archives/3756.html http://chicagoboyz.net/archives/3756.html#comments Wed, 23 Nov 2005 20:19:05 +0000 In-Cog-Nito http://www390.pair.com/chicagob/blog/003756.php

Walmart stock’s volatility is extremely low. Being a Dow component helps. As a result, the option price is pretty cheap compared to even large cap tech stocks. The $47.50 calls cost me $3.20. It’s in the money by $2. So what I’m really paying for is $1.20 for the right to WMT’s upside from now until March 17, 2006. To put it in other words, if WMT is at $50.70 on or before March 17, 2006, I break even. Anything on top of that, and I’m making money.

Why do I like the $47.50’s? The $50 calls are not in the money. So I’m really paying $1.90 for the privilege to WMT’s upside from now until March. But the initial outlay is lower per contract. With the $45 calls, I would be paying 90 cents for that privilege, but the intial outlay is much higher since it’s further in the money.

For me, it’s like buying a $3 tech stock with the upside potential of Nasdaq, backed by the steadiness of a Dow component.

Buyer beware: options are extremely risky. Do not construe any of the above as investment advice.

Update: It seems Warren Buffet thinks Walmart is a value here as well.

WASHINGTON (Reuters) – Berkshire Hathaway Inc. (NYSE:BRK-A – News; NYSE:BRK-B – News), a company run by billionaire investor Warren Buffett, on Monday revealed previously undisclosed holdings of shares in Anheuser-Busch Cos. (NYSE:BUD – News) and Wal-Mart Stores Inc. (NYSE:WMT – News).

According to amended U.S. regulatory documents, Berkshire Hathaway disclosed that it held 44.7 million shares of Anheuser-Busch stock valued at about $1.9 billion and 19.9 million shares of Wal-Mart stock valued at about $874 million as of September 30.

It’s nice to have validation from the most influential value investor. Even better is that he has a legion of investors who follow his lead.

Update 2: Wal-Mart’s Black Friday numbers are better than expected, and they forecast November same-store sales growth to be 4.3%. This number is without new stores and former Wal-Marts converted to Wal-Mart Supercenters. It’s looking like a merry Christmas indeed.

One interesting thing I saw over the weekend on LWSN is that they have $248m of cash/mkt securities on their balance sheet with negligible debt. Current market cap according to Yahoo Finance is $856m. But since it’s profitable and cash flow positive, under M&A analysis, LWSN’s market cap is really closer to $608m since whoever buys them would pocket the cash and get the earnings stream. Assuming analyst estimates of 36 cents a share for FY06 earnings, and 105m diluted shares outstanding, LWSN should earn in the ballpark of $38 million. This makes its forward P/E closer to 16, rather than the current forward P/E of 22.5. Funny thing, Yahoo Finance’s market cap calc looks like 113m shares outstanding, but LWSN’s financials say 105m fully diluted. I’m guessing LWSN is more accurate, which would make LWSN’s true market cap closer to 793m. Call it a market inefficiency of info, ie more people look at Yahoo than SEC filings. Backing out cash, 793m-248m = 545m, brings forward P/E closer to 14. Downright cheap.

I’m hoping LWSN is a buy and hold. I won’t hesitate to sell if the market plunges, but this gives me comfort in holding the stock.

Some good news, the portfolio’s first full month performance (since inception/start of law school) as of this weekend is 15.5%. It was higher, but I’ll take that any day. So cheers, here’s to the return of Greed. Hopefully I won’t have to experience the return of Fear (and loathing).

Ding ding ding…

Update: I should have waited until the true “end of the month” to calculate 1 month returns like mutual funds do. It would have been 21% vs 15.5%. I love mark up day – good enough for a 5.5% improvement on returns today. But I bet my original calculation is a “cleaner” return than the potentially artificial end of month numbers. I should also write another post called “day trading for fun and profit”… I took advantage of the run up for some intraday gains. Not recommended, but it’s a way to play the gun up game, without the overnight risk.

I’ve highlighted what can go wrong with an investment. Here’s an example of what can go right: Novavax (NVAX), top gainer and most active for trading on Nasdaq today, up 33% on 51 million shares.

Novavax is an avian flu play. They have a potentially proprietary way of mass producing flu vaccines. I didn’t quite believe it, but vaccines are still made the same way as a century ago: “where the product must be incubated over months at a time using century-old chicken egg-based technology.” Novavax’s Virus-Like Particle (VLP)technology can cut that time down significantly.

If you’re into watching the market, the trading in NVAX is a sight to see. NVAX has 43.5 million shares outstanding. So today’s 51 million shares volume says a lot. What caused the jump? You name it: the avian flu scare in Europe, short squeeze, momentum traders, CNBC focus, shortage of flu vaccines last season from production problems, to name a few.

I smell a frenzy. Smokin’ hot.

Note: NVAX is a highly volatile small cap stock. Be careful. Do not construe any of the above as investment advice.

Dana Says Restatements to Reduce Profit by Up to $45 Million; Company Cuts Dividend

TOLEDO, Ohio (AP) — Dana Corp. said Tuesday that its planned financial restatements will reduce profit by as much as $45 million going back through 2004 and the auto parts maker slashed its quarterly dividend to one penny.

Dana shares fell 89 cents, or 12.8 percent, in after-hours trading. They fell 22 cents, or 3.1 percent, to $6.97 in the regular session on the New York Stock Exchange.

Here are some notables from the press release:

Although the investigation is not yet complete, and the effect of the above restatements may require the restatement of financial statements for prior periods, the company currently expects that the net aggregate reduction in net income for all periods to be restated will be between $25 million and $45 million after tax.

Financial Agreement Waivers Secured

Since Dana’s announcement on Oct. 10 of its intention to restate its financial statements for 2004 and 2005 and its decision to write off its U.S. deferred tax assets, Dana has received additional necessary waivers through Nov. 30, 2005, under its principal bank facility and accounts receivable securitization agreement. The company is currently in discussion with its lenders regarding possible modifications to its existing facilities, as well as alternative financing arrangements.

The company is in the process of addressing possible non-compliance with covenants in two of its indentures and four leases with respect to furnishing financial statements in accordance with generally accepted accounting principles in the United States (GAAP). The company is continuing to assess the impact of these developments on its obligations under other leases and agreements.

Since I’m short the stock, I’m betting that the repercussions will be serious. The auto industry is tough enough without financial problems. Dana is not in a good position.

Intuitively it sucks to, essentially, bet against America, since the auto industry has been as American as Coke and McDonald’s. But as I stated earlier, trading is trading. It is what it is.

Some more updates: I’ve closed out the KB Homes short to finance a short position in GM on its pop yesterday. GM has more problems than Ford. I like Rob Read’s take on GM in the comments to David Foster’s discussion of GM:

GM is a underperforming pension fund that happens to manufacture cars.

I’ll get more into it at a later date time permitting, but some main catalysts for shorting GM are:

1. Earnings really stunk. Estimates were for a loss of 87 cents a share. They lost more than twice that, three times if you count the extraordinary items.
2. Assuming Delphi’s pension costs will hurt
3. Sales are plummeting (same as Ford)

An interesting side analysis would be if GM’s stock declines faster and more than KB Home’s stock. Opportunity costs are a pain, as I so eloquently alluded to earlier.

Update:OK, Dana was a bad idea overall. Time to bite the bullet, admit mistake, and cover. Tax losses are a great thing eh?

Up this week are Ford (F) and Dana (DCN). I’m shorting both. The main reasons were this article, and Citigroup’s downgrade of Ford.

The article’s headline says it all: “October U.S. Auto Sales Plummet.”

New-vehicle sales were down 33 percent in the first nine days compared with the same period a year ago, and down 44 percent compared with the first nine days of September, the survey found.

Sales at No. 1 automaker General Motors Corp. were down 57 percent compared with early October 2004, while Ford Motor Co.’s sales were down 45 percent. The other seven major automakers also showed declines.

“The aftermath of the employee pricing programs is having a dramatic impact,” said Jeff Schuster, executive director of global forecasting at J.D. Power. “A lot could happen between now and the end of the month, but at this point, we’re on track for an October like we haven’t seen since the early 1990s.”

I’m guessing Citigroup is downgrading for the same reasons. Thestreet.com’s Gary Smith is arguing that technically Ford’s stock will not bottom until it hits the March 2003 lows in the mid to low $6 range. Ford stock’s intermediate bottom set in May has been broken. I’m betting that the Citigroup downgrade was an additional “punch” to break it lower.

Ford’s financing unit is keeping Ford profitable. But if auto sales plummet, you won’t need as much financing, and it will take the financing unit down with it.

Dana is a collateral play on Ford. The main reasons are:

1. Accounting problems
2. Ford’s preference for Visteon
3. Delphi factor

Dana is having accounting problems. They admit weakness in their internal controls, and have withdrawn their earnings forecast for the remainder of 2005. When they have to write off $740 million in deferred tax assets, I’m betting there are more problems under the hood.

Visteon (VC) is to Ford what Delphi is to GM. Maybe not to the extent Delphi was, but Ford is propping up Visteon. I’m betting that Ford would rather send business to Visteon than any other. Dana’s sales are 25% to Ford, and 11% to GM.

Delphi is about to lower its costs dramatically. Its debt will be more or less wiped out, and the bankruptcy court will probably void its labor contracts. I’m betting that this will squeeze Dana and the other parts manufacturers. GM likewise has good reason to send business to Delphi as opposed to 3rd party parts manufacturers.

Deutsche Bank is negative on Dana, putting a rare “sell” rating on Dana. DB got it right with Delphi. I’m betting they’re getting it right with Dana.

The auto industry is quite similar to the airlines. They are saddled with unsustainable labor contracts, along with a commodity product affected by oil, and the added bonus of no one wanting their products without heavy discounting.

Ford reports its earnings for Q3 on Thursday. GM reports on Monday.

As a side note, I’ve closed out the Toll Brothers short and a third of the KB Homes short to finance the Ford and Dana shorts. Unlike newsletters, I have to work within the confines of limited capital. I still think the homebuilders are good short candidates, so am keeping the KBH short on. You can say I’m diversifying.

Here’s my latest trading idea: short the homebuilders. It’s not the most original idea – more like the pink elephant in the room – but where there’s opportunity, doesn’t hurt to coin it. I’m currently shorting KB Homes (KBH) and Toll Brothers (TOL).

Stock and technical analysis wise, the group looks ugly. Both KBH and TOL’s charts are “broken”, ie their meteoric rise is over. They’ve broken through important moving averages and support. No need to go into details, the charts are pretty clear.

Rates are rising, and it looks like the housing market is finally slowing. Simple supply and demand, when inventories go up, prices come down. It will take a while for the housing market to play itself out. But the stock market usually anticipates these things faster, so I think the price decline in the homebuilder stocks will be faster than having to wait out the actual decline in home prices. Worst case scenario is the housing market implodes. If that happens, I think we will have many more things to worry about than trying to make a few bucks shorting stocks. It is what it is. Personally, I think the US economy is strong enough to withstand even that shock, but that’s a different discussion.

I think the homebuilders are making the same mistakes they made in the 1980’s, which is to take on a ton of debt based on the value of their inventory. Looking at KBH’s financials, a few things stood out. Cash flow from operations is negative $554 million for the 9 months YTD. They financed that through issuing $748 million in notes payable, ie debt. Based on those figures, they’re averaging operating cash burn of $2 million per day for the year, and around $2.6 million per day for the latest quarter, so cash burn is accelerating. Cash on hand at the end of Q3 is $60 million. I’m no expert in the homebuilding business, but this tells me they have to borrow more money to finance operations, which is not a good thing.

Mortgages & notes payable on the books at the end of Q3 is $2.7 billion. Total liabilities are around $4.5 billion. The cynic in me says half their market cap is debt.

Inventories (houses) total $5.7 billion.

Construction is obviously a capital intensive business, but something doesn’t smell right here.

I’m betting they are heading towards a cash crunch, or at least cash is getting expensive.

Insiders have dumped stock hand over fist the past year, especially this summer, which is telling in itself. If they don’t think it’s worth holding, why should outside investors.

So here are some main reasons from my hypothesis.

Update: I smell a rat. I don’t think there’s outright fraud yet. But usually with any booming sector – where the stock zooms from nothing to the stratosphere – there are those who will take advantage of it, either to milk more out of it or to keep it going. Think high tech or Enron. It would not surprise me if there turns out to be some bad apples in the barrel. A good indication of the temptation would be the massive insider selling.

Here’s a 1 day chart of today’s trading in Protein Design Labs (PDLI). Beautiful isn’t it?

Do you see the flat part of PDLI’s chart on the left, oh around 10:20am EST? That’s when I sold my 600 shares of PDLI, missing out on $800 of gains. Hurts don’t it? The market has a particular knack for making one feel stupid. My original reaction is a bit less academically objective; more along the lines of “AAARRRRRRRRRGGGGHHHH”…

So as a public service to the Chicagoboyz, here is a lesson in what not to do in the market. (Don’t worry, there’s a happy ending)

To back up, I originally invested in PDLI due to a highly sophisticated screening method. I was frustrated at another position, Biogen (BIIB) sold at a loss, but wanted exposure to biotech, so jumped into PDLI. Deep eh? It was another “AAARRRRRRRRRGGGGHHHH” moment, but to a lesser scale. It was a stupid trade, which brings up a useful lesson:

1. Don’t get emotional in the stock market. Jonathan had a good quote from a famous trader “Losing your position is aggravating, losing your composure is fatal.”

So I rashly bought into PDLI at $29.50, and rode it down to $27-$28. Genius eh? PDLI was, however, already on my watch/buy list, so it wasn’t completely blind, but it sure did suck to buy a stock and have it go down immediately, and keep going down.

PDLI got onto my watch list through another highly sophisticated screening method. I read Motley Fool’s Rule Breakers newsletter, and thought, “hmmm… that looks pretty good”. As a plug, I highly recommend their newsletter. It’s free for 30 days, and they’ll give you a refund any time if you don’t like it. There are some good ideas in there. I used it to get quickly up to speed on the market, with trading ideas. And I think that’s the main value of any good information source, to get you up to speed on something you don’t understand. In this case, I smelled a bull market in biotech, and wanted exposure (ie make money). So I bought into PDLI, the thing bled until $27, and came back up to $28 as of this morning.

My original intent was to hold PDLI back to break even and then decide what to do with it. It’s a well run company. They have a good royalty business from licensing out their patent for humanizing mouse antibodies, which Genetech (DNA) used to good effect on their blockbuster drugs. PDLI gets 3% off the top. PDLI has some good drugs in the pipeline, and is a year ahead of schedule in getting to cash flow positive. All well and good right? That’s the cerebral part of the game. Trading is the animal instincts part of the game, and almost a separate game in its own right.

So I’m sitting with PDLI at $28 this morning. One of my other holdings, CV Therapeutics, came out with good news this morning for their primary drug Ranexa. Here were my main rationales for selling PDLI at the time:

a. PDLI hasn’t gone anywhere since I bought it (opportunity cost)
b. I wanted more shares of CVTX. CVTX was at a good entry point this morning of around $27.25 when I bought it.
c. I was already using a good chunk of margin, so wanted to fund the buy as oppose to taking out more margin
d. I am sitting on losses for PDLI. I have taxable income this year from working before starting law school, so can reduce my taxes with a realized tax loss

And sold I did. Literally minutes before the sucker took off. Jim Cramer has a good saying “I’d rather be lucky than good”, which in this case, drives it home even more. This isn’t the first time impatience got the better of me, and I’m sure it won’t be the last. Which leads to more useful lessons:

2. Be patient in the market place.

3. Scale into and out of trades (Jonathan again). I have been scaling into and out of positions more with other positions, but impatience got the better of me with PDLI. See lesson #2.

Taking a loss burns, and it burns even more when the thing shoots straight up after you sell it. My original thesis pegs PDLI at going to $35-$40 by year end. When you see a sold stock run, you will think of everything bad: It’s going straight to $40, someone is going to buy them out, they’re going to cure cancer tomorrow, etc, etc. The market is truly built on regrets. So to emphasize it more, don’t get emotional. Jonathan summed it up better than me:

Take loss, reevaluate if necessary, move on. Minimize hindsight
self-criticism once you have drawn whatever lesson you can from a
trade. It might be that you did the right thing even if you would have
made more money by holding. If yes, forget trade. If no, try to figure
out what to do better the next time, then forget trade. To quote
famous trader: Losing your position is aggravating, losing your
composure is fatal.

The good news is that CVTX went up as well after I bought it, although not as much. I made about $400 in moving to CVTX by the end of the day. It makes up for part of it, but it still bugs me to no end that I missed out on PDLI. Aagh…

And herein lies another huge irony of the market place. My biggest holding is Vertex Pharmaceuticals (VRTX). The stock has been on a rampage lately:

I’m holding 2000 shares of VRTX, so today was a $4000 day for VRTX. The irony is that the $800 loss from PDLI feels worse than the $4000 gain from VRTX felt good, ie the magnitude of the PDLI bad was bigger than the magnitude of the VRTX good. Funny how that works eh?

Political correctness is communist propaganda writ small. In my study of communist societies, I came to the conclusion that the purpose of communist propaganda was not to persuade or convince, nor to inform, but to humiliate; and therefore, the less it corresponded to reality the better. When people are forced to remain silent when they are being told the most obvious lies, or even worse when they are forced to repeat the lies themselves, they lose once and for all their sense of probity. To assent to obvious lies is to co-operate with evil, and in some small way to become evil oneself. One’s standing to resist anything is thus eroded, and even destroyed. A society of emasculated liars is easy to control. I think if you examine political correctness, it has the same effect and is intended to.

Hearty congrats to the proud Mom and Dad. May “Little Lex” grow up healthy, strong, and smart. Go get’em Tiger.