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My New Hedge Fund
Posted Nov 27, 2004, 1:26 PM ET
I?ve decided to start a new hedge fund. However, this hedge fund won?t invest in stocks or bonds, or any type of business. It?s going to be a fund that only places bets. A gambling hedge fund.
It won?t be me figuring out what bets to place, or what games to play. This is a fund.**I will find the best and the brightest, with a confirmable track record and hire them.
It?s an idea whose time has come.
I*have bet on stocks long and short for about 15 years now. I?ve done very well. There has already been one hedge fund started based on my trading results. In those 15 years,* I have learned that despite all the claims and books written about efficient markets, the trading of individual stocks are not efficient. There are always people trading on better or worse information. There are always people trading on*emotion rather than logic. There are always people trading on hopes of the big*hit.*What Peter Lynch would call the ?10 Bagger?. They were gambling. Nothing more. Nothing less.
It?s not unusual to hear people refer to trading stocks as no different than going to Vegas. They are right. Gambling is*gambling.
The question really is, which gives the opportunity for a better outcome?
If you play the slots in vegas, you can read what the payout ratios are for each casino.*97 pct. 98 pct. If you*play long*enough, the*casino will end up with 2 or 3 pct of your money. *Unless of course you go up to the winning side while you play, and quit while your ahead.
The stockmarket equivalent would be to buy an At*The Money Long Term*(LEAP)*Put for 2 or 3 pct of the stock price. The put would protect your downside for several years, and the stock would only have breakeven or upside potential over that period. It?s a nice thing, except that it?s much, much, much more expensive than 3 pct. As a point of reference, IBM which is trading at about 94 today, has a price of $5.90 for Jan 2006 95 puts. It?s $7.90 for Jan 2007 puts. Just to protect yourself on the downside for less than 2 months, till the 3rd week of Jan 05, will cost you $2.40, or about the same percentage as the hold the house puts on you in playing slots in Vegas.
Of course tha?ts for slots. If you play blackjack. The odds are better and every now and then in your favor. If you play poker, you are playing against the other players, and the house only takes its commission. Just like your broker takes its commission.
Unlike the stockmarket, you know the rules exactly.*You know without question, the house is going to play by the rules. The gaming commission appears to actually enforce rules of play, unlike the SEC.*
And then there are sports bets. Like any other investment or bet, the question always come down to whether there is good information available, who knows how to use it better, and who is the competition and are they smart or not.
Honestly, I don?t know if the best and brightest go to Wall Street or Vegas. I don?t know the number of gamblers via sports books in vegas vs the the number of*gamblers, I mean investors, in the stockmarket....[cont.]
My New Hedge Fund
Posted Nov 27, 2004, 1:26 PM ET
I?ve decided to start a new hedge fund. However, this hedge fund won?t invest in stocks or bonds, or any type of business. It?s going to be a fund that only places bets. A gambling hedge fund.
It won?t be me figuring out what bets to place, or what games to play. This is a fund.**I will find the best and the brightest, with a confirmable track record and hire them.
It?s an idea whose time has come.
I*have bet on stocks long and short for about 15 years now. I?ve done very well. There has already been one hedge fund started based on my trading results. In those 15 years,* I have learned that despite all the claims and books written about efficient markets, the trading of individual stocks are not efficient. There are always people trading on better or worse information. There are always people trading on*emotion rather than logic. There are always people trading on hopes of the big*hit.*What Peter Lynch would call the ?10 Bagger?. They were gambling. Nothing more. Nothing less.
It?s not unusual to hear people refer to trading stocks as no different than going to Vegas. They are right. Gambling is*gambling.
The question really is, which gives the opportunity for a better outcome?
If you play the slots in vegas, you can read what the payout ratios are for each casino.*97 pct. 98 pct. If you*play long*enough, the*casino will end up with 2 or 3 pct of your money. *Unless of course you go up to the winning side while you play, and quit while your ahead.
The stockmarket equivalent would be to buy an At*The Money Long Term*(LEAP)*Put for 2 or 3 pct of the stock price. The put would protect your downside for several years, and the stock would only have breakeven or upside potential over that period. It?s a nice thing, except that it?s much, much, much more expensive than 3 pct. As a point of reference, IBM which is trading at about 94 today, has a price of $5.90 for Jan 2006 95 puts. It?s $7.90 for Jan 2007 puts. Just to protect yourself on the downside for less than 2 months, till the 3rd week of Jan 05, will cost you $2.40, or about the same percentage as the hold the house puts on you in playing slots in Vegas.
Of course tha?ts for slots. If you play blackjack. The odds are better and every now and then in your favor. If you play poker, you are playing against the other players, and the house only takes its commission. Just like your broker takes its commission.
Unlike the stockmarket, you know the rules exactly.*You know without question, the house is going to play by the rules. The gaming commission appears to actually enforce rules of play, unlike the SEC.*
And then there are sports bets. Like any other investment or bet, the question always come down to whether there is good information available, who knows how to use it better, and who is the competition and are they smart or not.
Honestly, I don?t know if the best and brightest go to Wall Street or Vegas. I don?t know the number of gamblers via sports books in vegas vs the the number of*gamblers, I mean investors, in the stockmarket....[cont.]
