Mobile Motion

I haven't spoken on the software business in what seems like forever. I'll regale you all with a quick update.

My partner, talent that she is, is busy hacking away at our code base. We've got running code on several mobile devices, but the damn Motorola's keep giving problems. Fuggin' Motorola! First they fuck up your call with a Playboy Playmate, then they fuck up your code ship dates. If it isn't one thing...

I've started the corporate restructuring process as well. We were originally incorporated but I decided to dissolve that and go with a good ol' LLC. It is just simpler that way. I'm waiting for the dissolution to run through so that I can file the LLC formation paperwork. Hopefully, by the end of this week, there will be some major progress on that front and we'll be official (or at least have the basics in place).

Otherwise, when not working at my Just Over Broke (J.O.B.), I've been putting in some time tweaking the business plan and the system architecture documents. Man, I can't stand this stuff. The hard part is getting all these great ideas down on paper where you can focus on them.

It really is beautiful how little it takes to start a software company these days. Hopefully, the back end payoff will be that much larger!

That's all for now. Until next time...

Mid-Market PE Action

An interesting, if brief, account (WSJ.com sub req'd) of the buyout of Network Solutions in 2003 by Najafi Cos. and the subsequent sale to General Atlantic for $800M earlier this year. This middle market space looks to be wayyy more interesting - indeed, fascinating - then the bulge bracket. Much more creation of value and ingenuity appears to be required here, not just LIPOsuction.

Diversification

There seem to be MANY views on the subject of diversification. Some commentators recommend it wholeheartedly, while others think of it as a crutch for imperfect or insufficient processes.

But that's not quite what we're going to think about today.

I was doing a bit of reading over at the Hedge Fund Blog and it occurred to me that the author, Mr. Allen, is recommending a diversified strategy. Could this really be the case - a hedgie recommending portfolio diversification? (Who knew?) I'm no expert on MPT but it appears to be the cornerstone of a good number of hedge fund managers and professional investors in many different asset classes. So maybe there is a place for diversification in alpha generating strategies, no matter the opinions of Robert Kiyosaki or Warren Buffett.

Mr. Allen appears to advocate plenty of portfolio diversification - lots of different hedge fund strategies. Now, while his bias is apparent, he may be on to something for even us smaller investors. So how about combining this idea of "portable alpha" (can I say that?) and diversification a bit more? "Alpha-centric investing" would seem to automatically require some level of diversification among asset classes, asset weightings, strategies, and managers anyway. It becomes a portfolio construction exercise, then, to put all the pieces together on an individualized basis.

Moving this concept downstream, the question becomes how do you effectively integrate diversification into a personal portfolio, with an emphasis on alpha generation? Can it even be done simply, or do we really need to rely on the mathematical models, MPT and various other complex tools of the professionals?

For example, I have come up with the following asset allocation based on my own (subjective, non-quantitative) risk profile:

20% US Small Cap Equity
16% International Mid Cap Equity
12.5% US Large Cap Equity
10% International Small Cap Equity
8 % US Fixed Income (FI)
6.75% Emerging Market (Mkt) Equity
6.25% International and Emerging Mkt FI
6% International Large Cap Equity
5 % US TIPS
4% US Real Estate
3.5% Commodities
2% Cash

Not all of those slots are filled out, which means I'm overweight in some areas and underweight in others. I'm still adjusting the allocations and seeking out ideal investments for certain categories, commodities in particular. (Keep in mind that this only includes securities and other vehicles which trade on markets. None of my personal RE holdings will be included, nor are those made with my partners.) I think this covers a fair amount of the investing landscape. It may cover too much and I am considering ratcheting down some of these allocations. I think I would prefer to stay close to fully invested but I'm not married to the idea. I'm completely open to higher concentrations in certain areas.

Anyway, I can see how diversification can be considered a crutch for not enough information. However, for those who don't have the resources to acquire and analyze all of that information, it makes perfect sense. More importantly, good diversification can work as a hedge (there's that word again) against miscalculations, bad timing and other problems. Not a perfect hedge, of course, but any downside protection you can muster is a good thing - if it protects, that is.

Soon, I'll look at doing some ad-hoc portfolio de-/re-construction, including some ideas on how to add a bit of extra return with (hopefully) little added risk.

Until next time...

High End Gyms

Ran across this article on money.cnn.com about 5 plush private gyms and whaddaya know, there's a mention of my old haunt...sorta. I adored the The Sports Club/LA when I was a member a few years ago (back when I lived in Orange County, CA). Although I wasn't a member of the LA club, I was a full member at the Irvine club meaning I *could* have used the LA club if I were ever up that way. Of course, the price has gone up quite a bit since I was a member. Even the DC club is quite a bit more pricey these days, but if you can afford it, and you're self-motivated, I definitely recommend The Sports Club/LA.

Ahhh, the memories. Those were the days!

Stress

Just when you think it is dying down, what happens? Your eyelashes start falling out again. Granted, I yanked out most of the lashes over my right eye, but only because they were impeding rather important things like...eyesight!

Fugg me!

I'm working on getting caught up on a number of things, not the least of which is actually closing some real estate deals. Later today I'll go to view a triplex outside of Baltimore. I think this one has lots of cash flow potential. If not for the fact that I'm in the middle of a credit repair effort, I'd be MUCH more enthusiastic about this. (Well, that and the fact that it looks like I'll need to borrow for my out-of-state real estate project in the near future.) I'm only a few weeks into this credit repair process, so I don't think too much progress has been made. Maybe if a few weeks were to pass, I'd feel better. However, if this is an opportunity to add some decent cash flow to my personal portfolio, I'd be plain mad to not investigate at a *minimum*. This one has 2 vacant units, so I figure it should be able to put $500/month into my bank account with a small amount of work.

However, over the next few weeks, my most important project has nothing to do with money. I am devoting myself to winning back the only woman I have ever wanted to marry. It won't be easy, which scares the fuck out of me because I have a long established history of running from endeavors which require effort. (Long story but I think this describes it more accurately than anything else I've come across. I almost cried when I read that.) I WILL -- I MUST -- get her back and make her my wife. (Yes, I'm talking about you, SME!)

Wow. Did I actually say that publicly? Kaizen, boy, kaizen!

Anyway, I'm not leaving you, my readers, in the lurch. If you haven't noticed, there's some serious shite going on with me this year and I'm still learning HOW to deal with it, much less actually doing so. I still continue to talk about alpha, both from the perspective of someone working to generate it and as an observer. Have no fear on that count.

Until next time...

Investment History as Taught by James Rogers

Great interview with/profile of James Rogers at Financial News Online. Everyone already knows Jimmy Rogers and what he's about right? Well, whether you do or don't, this piece is a nice quick read with some investing ideas worth keeping an eye on (if not some money).

Can You Trade as Well as You Drive?

Ok, this is a post I've been meaning to write for a long time, and I finally just decided to do it.

I consider myself a good driver. Aggressive, yes. Fast, most certainly. But not dangerous or reckless. Some time ago, it occurred to me that driving and trading (or even investing in some respects) share many similarities. Good trading, like good driving, is very tactical. It is about acquiring as much information as quickly as possible and acting on it decisively. Sounds similar to trading to me.

Primarily, good driving, like good trading, is about control. Once you've lost control, be it of your portfolio or your vehicle, then nothing else matters. Whatever the circumstances, you have to be able to maintain control of your vehicle. You won't get every call spot on. But you can reduce the severity of the mistakes, and take advantage when opportunity is presented, if you have done so. Control is FUNDAMENTAL. Without it, all else is moot.

After control comes intelligence. This may be better termed knowledge. Knowledge of what is happening around you, behind you, in front of you, to the sides, on the on-ramp (or off-ramp) coming up. The more information you have (if you are good), the better the decisions you'll make. So you have to take in, process, and act on as much information as you can. You also have to know when you have too much information for your current state of being (e.g. while driving, if you're tired, then you need to maintain larger distances and slower speeds). You need to know whats important and what isn't. Or you have to be able to discern these distinctions VERY quickly.

Intelligence while driving comes from some basic maneuvers. Constantly checking your mirrors (and for the love of God, having them correctly configured in the first bloody place!). Staying away from vehicles larger than you so as to not obstruct your visibility. Keeping adequate distance from other vehicles at all time, to give yourself more reaction time and better options when things don't work out (e.g. you make a mistake or a sub-optimal calculation).

This last point about options is huge. As many commentators have written in various ways, trading (particularly) and investing are about probabilities. What is the probability that a particular outcome will occur, out of the entire range of possible outcomes. (Whether you have calculated for the appearance of a "Black Swan" is yet another matter.) Good defensive driving is similar. You are calculating the probability of a certain outcome - lane A continuing to move when lane B slows or stops; the chance that route X will flow better than route Y; the general latency and flow characteristics of a given path at a given time, especially in comparison to alternate paths. In both driving and trading, the best way to learn how to successfully calculate these probabilities is through observation and practice. It takes continued exposure to the patterns of the driving in various conditions to learn how to quickly calculate the probability of a certain outcome.

Next, you have to know your vehicle and its capabilities. The analogue in trading should be clear. What are the potential pitfalls of your portfolio - the asset allocation, the assumptions - and how do you mitigate those risks using your chosen devices? How can derivatives of various stripes juice returns, or reduce risk (hedge)? What security is best for a given time horizon and risk tolerance? What asset classes are even available for you to invest in given the resources you have at your disposal? If you don't know how your vehicle will perform, then you shouldn't be driving it. That knowledge is what allows you to make the quick adjustments required to minimize losses or make outsized gains.

Going hand in hand with the capability of the vehicle is the capability of the driver. You have to know at what level you are capable of performing. I know that, for all the "aggressive" maneuvers I perform in a car, I never do anything that I am wildly uncomfortable with. I know that when I make any move, especially those which raise the heart rate, I am essentially overriding the natural fear-based response and acting completely consciously and logically. After the move has been made, the fear subsides due to its nature - it is irrational.

So taking all of this together, it would appear that I have the tools and ability to be a better trader/investor. However, something is missing. If I were to guess, I'd probably say then missing ingredient is experience borne of practice. It takes a long time to become proficient at anything; I started driving around age 13, almost 19 years ago. Likewise, becoming the type of trader or investor I seek to become will require time, focus, and dedication. (A lot more time and a little more money to work with would be nice too.)

Time to get started!

Until next time...

Brief Interlude

Just letting everyone know that I haven't forgotten you or this blog. I'm actually working on my longest piece to date, at least within the realm of investing and alpha. This is one I've wanted to write for a long time, and I want it to be as close to perfect as possible. I expect to have it completed, reviewed and posted by Monday. I am still here and I'm not going anywhere.

Until next time...

New Water ETF Launch

As far as investment themes go, water has been one of my focuses for some time. Infrastructure in general looks like a solid, long term prospect overall, but water has a special place given its fundamental need by everyone on this planet. To that end, The Beta Brief has a report on a new water ETF launching, well, yesterday. This could be just what I've been looking for. In conjunction with Bespoke's ETF cheat sheet, I may have found the 2 things I've most been wanting recently. Thanks to Abnormal Returns for the heads up!

Going In Motion

I have to thank Sherman Ragland for the title of this post.

My partner in the mobile software business and I had a meeting with my second cousin last Thursday. He's a lawyer at a fairly large and unnameable firm who has seen fit to consult us pro-bono about some of the things we need to do as a startup. It has been greatly appreciated.

So our next step will be to finally start perfecting the IP protections on our software. This shouldn't be too painful, its just not exactly how we'd like to spend our time. It really is beautiful how much traction you can get with a $300 investment, though!

I will be spending some quality time in the near future working on our architecture document.

Anyway, I find myself doing some reading that is long overdue. Last year, Margaret Hwang Smith and Gary Smith at Pomona College wrote a paper entitled "Bubble, Bubble, Where's the Housing Bubble?" Its a very nice read, with a new perspective on real estate valuation that I know I will carry into both my business and personal real estate purchases. I'm currently working their analysis into my valuation spreadsheet. Amateur financial engineering, baby! I'll write more on this in the future.

My real estate investor friend is getting closer to selling off his properties. Man, this shite will teach you patience. I can't really force the matter, since he has a bunch of properties I want to look at, most of them close to Washington, DC. In the meantime, I'll get back on my Baltimore hustle.

And one of these days I'll open that daggone self-directed Roth IRA.

Damn!

Until next time...

Laugh of the Day

From FiNTAG:

I asked him what he meant and the answer was he had locked in all his investors, some for 10 years, so that he didn't have to work anymore to fund his extravagent lifestyle - just like the Private Equity boys and girls. If his hedge funds blew up or failed to perform, the exit penalty fees were so huge that he could launch a couple of new funds from the fees.

Craziness

I was looking at my portfolio holdings recently and PRMSX has done amazingly. Too amazingly, actually. While I haven't reached my target for selling 25% of my position, I am getting closer much faster than I imagined. We'll see how the rest of this week plays out. I'm all for letting winners run, but I do want to harvest some gains and have money ready to go to work in the near future. Of course, I also should keep in mind that this is a fund and not a stock. But if I reach that target sooner than I expected, I may well take some money off the table.

Just a quick thought as I try to keep my bleary eyes open while taking this "Interacting with the Customer" online training course.

*sigh*

Until next time...

Is this the definition of market neutral?

Quote:

"The SEC alleges Amaranth unlawfully sold securities short in offerings and then covered those positions with securities bought in the offerings."

To me, it sounds like a cookie jar. But what exactly is this maneuver supposed to gain? You take both long and short positions in the security then cover the shorts with the longs, instead of purchasing them on the open market. Convenient. So I guess it just becomes an arbitrage, taking enough of a long (or short) position with enough leverage (hopefully) to goose the return on either directional move. Still sounds largely like a waste of time to me, as if someone wasn't sure which bet to make. (In which case, you would think the decision is to move on to another security.)

*shrug*

Until next time...

Private Equity pursuit of Alltel?

The only reason this piqued my curiosity is because I know Tom over at Accrued Interest holds Alltel bonds in his portfolio. This has come up previously on his blog, and I imagine it will come up again soon.

This should be interesting to watch. Wonder if he closed out those bonds yet when breathing room was created a few months ago? Hmmm.

The Return of Gordon Gekko!

Although the character is completely fictional, it sends goose bumps up my back to think about a sequel to "Wall Street". While the presumed plot line sounds a bit absurd (keeping in mind that it is presumed), it is also very befitting the man who made famous the words "Greed, for lack of a better word, is good."

All I can say is I loved that movie then, and I still love it today. Time to go cop my own copy for the DVD library! And I absolutely adore Equity Private's homage to Gekko in the form of a trailer. Check it out!

Woo hoo!

Syndicated Investing

Ran across this very intriguing piece on FinanceAsia.com about why syndicated investing is the new big thing in Asia (particularly China). This is the kind of stuff I love, looking at a situation, analyzing the particulars and coming up with a deal structure that works for all the participants. I'm sure these would make some interesting case studies.

Until next time...

Homecoming

I have to apologize to all of my regular readers for the extended absence. I have been torn every which way by events in my personal life, but things are normalizing now. I'm working on my next post now, and I hope to get back to my close-to-once-a-day schedule over the course of the coming week.

More to come...

Computers take on the market

Algorithmic trading has taken on a whole new meaning.

The quest for the grail continues, unabated.

I have nothing against these pursuits. I've even thought of participating in them. I am a believer in the advantages that quant analysis can bring to trading in all types of securities. However, speaking a a computer guy, I can't help but to believe that maybe one day some of these researchers and quants will realize that, ultimately, the best advantage is being a living, breathing person.