Monthly Archives: November 2007

SchmApple.

Posted on November 30, 2007 by | 5 Comments

My notional Long RIMM Short AAPL trade from mid-September is still on, and I think it will make me figuratively rich. I was up 20% on this at one point, but only 4% or so now, my RIMMs having been the victim of a Piper Jaffray downgrade today, and are down almost 7% at the time of writing. Still, never say die, and I would now like to double up on my invisible AAPL short and add another offsetting imaginary long, this in Nokia. So I will be 2x short AAPL, and be 1x long RIMM and 1x long Nokia in my little make-believe world. 

There’s nothing like a good anti-Apple screed to scandalise people. Bento, you know I hate Apple smugness, and that I think Apple is an anti-Spinozist company. But I like to think my concerns for the stock are reality-based. The way things seem to be turning out, I think the iPhone will prove to be the best thing that has happened to Apple’s handset competitors in a long time. RIMM and Nokia will be the real winners. For Apple, iDoom follows as the iPod franchise withers, and the “halo effect” (people buy Macs because they like their iPods and iPhones) goes into reverse. Also, Apple is much more sensitive to a consumer recession in the US.

Now, this is not an actual trade I can do in my non-imaginary tech fund, as we are ”long only” and cannot go short. However I can underweight stocks in my benchmark, and in point of fact we are really mildly underweight AAPL, and mega overweight RIMM and Nokia. There is real money behind this, I am not just making odd noises.

Why do I, Baruch, flout conventional wisdom in such a way? On the advice of my lawyer, please note at this point that nothing in this post constitutes investment advice. He further suggests that anyone who invests money based on the insane jottings of some anonymous blogger deserves to lose their shirt anyway; are you completely stupid?. Continue reading →

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Posted in Lens grinding, Stupid Cartesians, What Would Spinoza Do?

The American Women’s Club of Geneva are Barbarians

Posted on November 26, 2007 by | 5 Comments

We founded this site to complain about Barbarism in a sort of a macro sense, Bento, but what happens when we see a special sort of barbarism closer to home? I think we have to blog that, as well. So I got this email, which I copy below, and it made me very cross indeed. A more hateful, ignorant, maliciously scaremongering piece of third-hand, clumsily manipulative, busybody, illiberal, racist, crypto-fascist claptrap I never yet read.

It tells of a trio of ”scruffily dressed”, cackling, swarthy, child-stealing gypsies, who, had it not been for a mysterious “witness” who subsequently disappears, would have got away with a Dastardly Deed, amid more cackling. The story, hilariously, comes to us “second-hand by the mother’s neighbour”. It would be merely amusing were there not a special political context to it; the anti-immigrant Swiss People’s Party have gained ground in the latest elections, and more and more I notice a harder edge to the previously generous Swiss treatment of foreigners. Gypsies are particularly out of favour, for some reason.

It comes to me from a friend (who should know better) who was sent it by one of her friends at the American Women’s Club of Geneva. The idea of this organisation has always filled me with a special sort of horror. In my less charitable moments I think of them as a bunch of menopausal harpies from the Stepford Wives (the terrible one starring Glenn Close, not the cool original starring Ali McGraw).

Then I think, no Baruch, keep an open mind; it is hard enough being an expat as it is, no doubt these monoglottal matrons find harmless comfort in a strange land in each others’ company, just as vultures huddle together on cold cliffside ledges in the Atlas Mountains (or wherever). Then I get stuff like this and my sympathy disappears. No matter, enough of the introduction, I leave it for you to judge. Read on. Continue reading →

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Posted in Barbarians

375 today!

Posted on November 24, 2007 by | 1 Comment

Happy birthday to you,

Happy birthday to you,

Happy birthday, dear Baruch/Bento/Benedictus de Espinoza

Happy birthday to you!

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Posted in Uncategorized

When good quants — go bad!

Posted on November 23, 2007 by | 1 Comment

Apologies for not being present here for a while, but it has been a busy couple of weeks at work and I have been fighting to keep my head above water while my colleague lounges about on holiday, leaving me to navigate an absolute pig of a market all by myself. Of course, I have succeeded brilliantly, for now at least, leaving our competitors (including the various Fidelity, Goldmans tech funds) coughing in our dust and further cementing my reputation as the greatest investment mind of my, or possibly any, generation.

This will be my last post on the subject of Quants for a while, but I saw a couple of headlines the past few days which struck me as sort of telling. You may remember that my thesis for some time has been that Quant funds’ dominance ended in the horrendous “style squeeze” of August. Their ecological niche will be filled by fundamental stockpickers, like me.

So I was not overly surprised to see first this, from Yves Smith. Goldmans Quant funds are seeing withdrawals:

“Goldman Sachs Group Inc.’s Global Alpha hedge fund may lose about $6 billion in assets this year, a 60 percent decline, because of trades that went awry and client withdrawals, according to two investors.”

A letter sent by GS to cross investors in Global Alpha (which lost 2-3% in September as well) said the fund “would constrain its borrowing in the future, one of the factors that led to the problems last month, and consider the level of borrowing as a separate risk factor”. As Khatami and Lo point out, assuming mean reversion Quant trading stays as crowded a trade as it has been, reducing leverage is a recipe for radically lower returns. Unless these guys can come up with something new they are beginning to smell like toast.

And then this, from the FT this morning. Goldmans has been reading Baruch! 

Goldman Sachs is to raise $4bn-$6bn for a new hedge fund as the investment bank tries to rebuild its reputation in the hedge fund business, it has told potential investors. The new fund, run by bank partners Raanan Agus, former head of the proprietary trading desk, and Kenneth Eberts, former head of the US prop desk, will be the first from the bank to focus on picking shares, rather than using computerised, or quantitative, approaches.

If scurrilous gossip is true, and it normally is, I do not think things have got much better for the Quants, some of whom apparently decided to replace their moribund mean reversion strategies after August with factor-based, directional strategies which relied excessively on momentum — this is technically known as the “Buy Stuff That Has Gone Up a Lot And Cross Fingers” Strategy. This probably means they switched their computers off to save on overhead and went long Apple, RIMM and Google. This is the staple trade of underperforming managers everywhere at the end of every year, and works more often than not (ask Bill Miller). Just not this year: RIMM is down 20% from its October high. “Doh!” is the technical term we experts use when this sort of thing happens. 

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Posted in Lens grinding, Stupid Cartesians

Quants are weird

Posted on November 13, 2007 by | Comments Off

 

Came upon the most delightfully batshit website, that of Dr Espen Haug, Dolph Lundgren impersonator the co-author with Taleb of the assault on Black-Scholes-Merton option pricing I linked to in my recent history lecture.

I had imagined a tweedy academic with leather patches on his sleeves, someone not at all as interesting as Taleb. Instead Dr. Haug is a rock and roll  — maybe more Kraftwerk — trader-type, who seems to wear sunglasses indoors, and probably at night too. He calls himself “The Collector”, and has been dubbed Derivativens Konge in his native Norway, and seems something of a celebrity. He is a talented cartoonist as well, though his subject matter makes it unlikely he will achieve syndication in, say USA Today. A sample of his work is above, I hope he doesn’t mind. I would not like to see the demise of Quants who are this interesting, but as an avowed non-Gaussian, he should have a longer life expectancy.

Anyway, he linked to us, which shows admirable generosity, if possibly a lack of discernment. I have to say I was not able to follow much of the more abstruse 3D modelling of options “landscapes” on the site, my thinking sort of fuzzed up at that point. It struck me you might appreciate it more, Bento.

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Posted in Blogroll, Eurovision, Fellow Collegiant, Lens grinding

Plus ça change

Posted on November 11, 2007 by | Comments Off

Something for everyone who reads this blog, Bento, for the money-grubbing, “econoblog”-reading crowd, as well as the student of Spinoza. Get this: a book by a contemporary of Spinoza, a fellow Portuguese Jew no less, living in Amsterdam, writing about investing!

Published in 1688, Joseph de la Vega’s Confusion de Confusiones (here reprinted as a “B-side” to Extraordinary Popular Delusions) is a book in the now neglected dialogue format, between a know-it-all “shareholder”, who takes it upon himself to educate a naive “philosopher”, and a wily but uninitiated “merchant”, in the treacherous mysteries of the Amsterdam stockmarket of the time.

I mention it not just as an interesting curio, but also to make a serious point. Contra the otherwise reasonable and only-a-little-bit-wrong Richard Bookstaber, we are not living in a time of unprecedented innovation, sophistication and complexity in financial markets. We are living in a time of unprecedented market depth, breadth, and liquidity it is true, enabled by IT, globalisation, etc. This is not new, however; we have always been living in a time of unprecedented market depth, breadth, and liquidity. To say that we are more innovative and sophisticated in terms of the financial products we create — outside what is enabled by technology –than at anytime in the past seems to me to sell very short those who came before us, and who were able to devise working, complex financial products without the vast benefit of computers, but rather with nothing more than pen (quill?), paper, abaci, applied arithmetic and ink.

Indeed Taleb (hat tip to Felix) makes reference to de la Vega in his latest broadside against Black-Scholes-Merton, the “inventors” of the “formula” that “prices” options. His point is that high volumes of derivative products were traded and priced before the evil Gaussians got their hands on them, and that what we call the BSM model was in any case derived from someone else’s work. Options are and have always been priced by traders just like anything else, say Taleb and Haug: according to the laws of supply and demand, and you don’t need a clever formula for that. The options market in C17th Amsterdam was probably priced as “accurately” as our own. More so, perhaps, due to its pristine, pre Gaussian state.

I have my own theory about option pricing: option are priced by whatever the market makers think they can get away with, the dogs. I know this from bitter, recent experience, having probably made a few of the ones running the market in TomTom very rich indeed. Continue reading →

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Posted in Fellow Collegiant, Lens grinding, What Would Spinoza Do?

November 24, 2007: Spinoza turns 375!

Posted on November 8, 2007 by | 1 Comment

Baruch, you will rejoice at to know that the NRC Handelsblad — the Netherlands’ best daily paper — has a big article running in their magazine on Spinoza this week. He’s turning 375 in a few weeks (ok, that is a bit arbitrary, but still) and — you will love this — it is titled “Spinoza: The groeiende populariteit van de filosoof van tolerantie”. Or for our readers who don’t speak Dutch, “Spinoza: The growing popularity of the philosopher of tolerance”.

A big part of the article is taken up with portraits of Spinoza lovers — people like you and me! Then there is some interesting information:

  • Mention of a book I hadn’t heard of before in which apparently Spinoza plays the leading role: Enlightenment Contested: Philosophy, Modernity and the Emancipation of Man, 1650-1753 (published in 2006, written by Jonathan Israel). A worthy read, it seems.
  • A new theory about his excommunication: Spinoza had avoided the debts of his father on his death by appealing to Dutch law, rather than to Rabbinical law. Under Jewish law, he would have spent the rest of his life (probably) paying off some quite substantial debts. Not so under Dutch law. And so the Jewish community excommunicated him, according to Dutch historian Odette Vlessing. I’m not so convinced myself — I think the Spinoza biographer Nadler makes a convincing case that the kind of excommunication given to Spinoza was a truly extraordinary event — and something that clearly involved theological differences. But perhaps this was another item on the list of why it was so vicious.
  • Hmm. The article says Spinoza died of tuberculosis. That’s a new one. Rather dodgy assumption if you ask me.
  • As you know, Baruch, I visited Spinoza’s house in Rijnsburg back in October 2006, and found it rather run down. The Spinoza Society, which owns the house, did not have the required funds to renovate, so I did my part and put 20 euros in a box towards that goal. Good to know then that he Dutch government has now put aside 100,000 euros for the renovation of the house, and now plans are afoot to install a proper museum there. I can’t wait for the grand reopening!
  • Oh, and there are plans afoot to erect a statue of Spinoza in Amsterdam, and to have him become Amsterdam’s icon.

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Posted in Uncategorized

Lose your mind, find God

Posted on November 6, 2007 by | 2 Comments

Sad sad story, Baruch. The NYT piece takes a while to get going, but make sure you read until the actual interview with once-prominent atheist Antony Flew:

I pointed out to him that in his earlier philosophical work he argued that the mere concept of God was incoherent, so if he was now a theist, he must reject huge chunks of his old philosophy. “Yes, maybe there’s a major inconsistency there,” he said, seeming grateful for my insight. And he seemed generally uninterested in the content of his book — he spent far more time talking about the dangers of unchecked Muslim immigration and his embrace of the anti-E.U. United Kingdom Independence Party.

As he himself conceded, he had not written his book.

“This is really Roy’s doing,” he said, before I had even figured out a polite way to ask. “He showed it to me, and I said O.K. I’m too old for this kind of work!”

Elsewhere the article got my blood boiling when Christianists once again misrepresent Einstein’s views of religion, as in this narrated video:

Meanwhile, a narrator, talking as photographs of Werner Heisenberg and Albert Einstein appear on screen and Vivaldi plays in the background, says things like, “Many of the greatest scientists of all time” believed that “the intelligence of the universe, its laws, points to an intelligence that has no limitation.”

No! Albert Einstein is one of us. He must not be usurped by these mendicant credulists!

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Posted in Stupid Cartesians