Welcome to part two of what started out as a simple exposition about cloud computing and has turned into...this. I apologize for the delay in getting this out, but life caught up with me. Plus, I had a lot I wanted to say and organizing my thoughts took a bit of time.
If you read part one, then you have some context for the remainder of this discussion. I plan to cover cloud providers, some thoughts on what may or may not be competitive advantages of various providers (or maybe an ideal provider), and what some of the investing implications may be in this space. This should ALL be considered a giant thought experiment. It sure as hell is not investment advice. If you even conceive of investing based on anything said here, you're an idiot, and as Gordon Gekko once said, "A fool and his money are lucky enough to get together in the first place". You might as well send me that money (or you could commission me to do a research report for you, to make it feel like less of a waste).
In my last post, I discussed the idea of automated infrastructure. The basic idea is that you can scale your infrastructure, systems and network, dynamically and programmatically based upon capacity planning rules you define for your architecture. That whole sentence sounds pretty high level, but I'm not sure how to break it down further right now. Follow the links above for an example of how SmugMug achieves these outcomes.
That said, a lot of the effort that goes into creating systems that can automatically scale themselves up AND down is in building the tools. THAT effort is what is slowed down by the lack of programmability of network elements such as switches, routers, firewalls and others. Making these devices programmable would allow the creation of tools which can scale based on input from monitoring systems (again, following predetermined rules and at predetermined thresholds). Scaling could occur with less latency, increasing responsiveness in both directions. Sysadmins could spend their time building these tools, developing the rules driving them, and managing the metrics which are fed as input to the tools (among other, higher level tasks). This is the ideal. While this is achievable now, it is not easy, which is why it is so rare to find it. It also takes a lot of time and infrastructure and software development investment to make this reality given the inherent inaccessibility of these devices.
Creating an API is like creating a software development kit (SDK). It provides a means for customers to control their products, and make them work the way they need them to. If I run an in-house application development group and want to add some HA functionality to the application, then Veritas (Symantec) provides an SDK for enabling my application to work with Veritas Cluster Server. Not only does this lock me into the Veritas HA solution, but it gives me control and flexibility to really manage MY application the way I want/need to, if I'm willing to invest in the time and resources. If I'm not willing to make that investment, then provided the proper security precautions have been taken when the device ships from the vendor, there is no downside to the API being made available.
As for investing, I'm not sure what the best route is. Who knows if a company like Joyent will ever go public? I doubt it, as it seems the team over there is building a long term business. I'm sure Jason et. al have a price though. I'm sure there will be cloud providers who do decide, eventually, to enter the public markets. Some will be snapped up by HP, IBM or other providers of technology services. AWS makes up a growing part of Amazon's business and revenue mix, and it wouldn't surprise me to see it spun off eventually (in say 3 or more years). Of course, Jeff Bezos isn't the type of founder to let go of such a growth engine, so maybe Amazon is the easiest play on cloud computing after all. If I recall correctly, AWS may actually be as large as the retail business now, and it is definitely growing faster.
What IS clear is that automated infrastructure and system/network operations is truly becoming a competitive advantage and force multiplier for many companies. This is not just the case for online companies such as Google, Yahoo!, Microsoft, Amazon, Apple or many of the cloud providers that I mentioned. This will more and more become the case for anyone of any reasonable size, whether they are online or not. And let's face it, anyone of any reasonable size (1000+ employees) will be online in SOME fashion, either selling products and services directly, or supporting their customers with online knowledge bases, documentation archives, software downloads and updates, customer relationship management (CRM) and technical support/trouble ticketing, mobile device (e.g. cell phone) services, etc.
Investing in Amazon or Google is A way to play public automated infrastructure. IBM doesn't seem to make a good bet, as they suffer from the conglomerate problem -- they do everything, so anything they do may have a lot of growth potential but it will not be substantially accretive to the bottom line. (In fact, expect for most large companies that automated infrastructure and systems/network operations products and services may be loss leading for a while, if not permanently.) Rackspace could be interesting from the cloud service provider angle, given that they are small compared to most of their competitors and publicly traded. However, there have been some other rumblings in certain forums I follow, so that one definitely requires some in-depth homework. If you're looking to invest in providers, RAX is public, well known and (generally) well regarded even though they've had some hiccups in the recent past. (But who hasn't? This whole space is all new.) The biggest problem with RAX may be the commodity hardware business they are attached to. Definitely proceed with caution, but if you like the Joyent angle, the best currently available investment in that space is Rackspace. They are direct competitors.
I definitely think that network equipment vendors adding APIs to their devices is powerful. This is the "picks and shovels" way of thinking about this space. I'm not sure how well Juniper has done with this, but they need to be promoting it HARD HARD HARD!!! JunOS is known, or at least marketed, as being scalable across the entire line of Juniper products so there's only one software release to manage. That in itself is a win, but if I can now program my routers (and switches! Please Juniper!) to adjust to inputs from my monitoring system or as part of the process of spinning up overload servers/infrastructure, that becomes extremely useful for the cloud services providers. Again, many already do this but it's not easy, it's not built into the fabric, it's subject to subtle changes in the vendor software, user management issues (password changes, account deletion, etc.) and a raft of other problems. Of course, if Cisco did this, it would be HUGE but it wouldn't lead to much product uptake, I don't think. It would be more of a lock-in move for CSCO.
Smaller vendors such as Vyatta, Extreme Networks, Force 10 and others might stand to benefit from providing programmatic access to their networking software, however. Arista Networks is another obvious name for this too, and they have the technology chops to do it easily PLUS they target this high density server space as their core market. Programmatic infrastructure would appear to be a natural direction for Arista, but of course, they're still private.
The best way to invest in some of these companies and the future of automated infrastructure and cloud computing is probably to USE them. Any benefit that accrues to the providers is gravy, but if you can use these products, and it fits your product or service offering from a value perspective, then by all means do it! The problem with trying to invest in this space is that you want to prefer the smaller vendors who have little to nothing to lose. That counts some of the smaller hardware vendors like Extreme Networks and Force 10 Networks, but it also includes companies that are not yet public. The large, incumbent vendors aren't going to see enough of a move from investing in programmability, which is exactly why they will be slow to do it and the smaller vendors should embrace it completely. The field is so wide open it's sick. I didn't even mention other infrastructure that needs to be automated, like storage systems and storage networking. What the hell is Brocade doing in this space to compete with Cisco? Think about it. Programmable storage infrastructure will be next in line.
Programmability is a key enabler to the operations secret sauce, and will have to become important as operations grows in importance. It will be interesting to watch, and even more interesting to participate. Yaaay!
Until next time...
Showing posts with label Investing. Show all posts
Showing posts with label Investing. Show all posts
Monday, November 21, 2011
Friday, November 18, 2011
Cloud Computing and Programmable Infrastructure (Part I)
This post will be a bit different, but if you bear with me, I plan to relate it back to investing. This will be part I of a series (as I found out earlier today).
A few weeks ago, I attended the Structure 09 Conference put on by GigaOm Media in San Francisco, CA. Not a bad little conference. While I'm glad I attended, and I had a great time in the later sessions and the "meet and greet" held by Canaan Partners after, it wasn't quite as technical as I was hoping. Either that, or I missed the best parts. (I arrived about 3 hours late since I was driving through rush hour traffic on the 101 from "Man" Jose.) I did get more technical meat from O'Reilly Media's Velocity 2009 conference the previous 3 days, so it was all good. Besides, I met Paul Kedrosky of Infectious Greed fame and had a nice, though brief, conversation with Jonathan Heiliger, who was my personal hero for a great many years at the start of my career.
During the conference, I shot off this tweet about cloud computing. (Much of Structure seemed to revolve around this topic.) It seemed such a simple thing to say, and so disgustingly obvious that it wasn't even worth saying, but apparently it struck a chord with some folks. So I want to expand on this idea.
For ages, the supremely competent engineers and sysadmins out there have been developing custom tools to allow them to manage their systems and networks. Most of these tools have probably revolved around some combination of expect/TCL, Perl, and shell. The reason is simple - most device operating systems were not accessible programmatically, e.g. via an API. Most still are not. I attribute this to vendor lock-in. If the only way to interface with the device is by the vendor's prescribed methods (web based, software application, or command line), then you are forced to learn the vendor's products. As you become accustomed to how a given vendor's products work, you're going to be reluctant to invest the time and energy to learn a competing vendor's products. Voila! This is the biggest reason that so many networking products have command line interface syntaxes similar to Cisco's IOS and CatOS. This has been a huge contributor to Cisco's financial success over the past 20 years. Cisco's command line syntax has become de facto standard in the networking world.
Vendors would probably say there are other reasons for not exposing their devices to be inspected or controlled programmatically. One would be security. Most network devices are pretty insecure, in terms of default passwords and configuration settings (although this has been changing SLOOOOWLY over time). I imagine a great many customers didn't particularly care to create tools and programs to manage network devices, servers, and other systems. They just wanted to configure the device and go on with their lives. Only in the last decade has it become apparent to people that Sun was right and "the network IS the computer". The network infrastructure has taken on a level of criticality that was reserved only for servers for a long time.
Finally, the rise of cloud computing and the idea of automated infrastructure has changed people's thinking about the flexibility of their systems. On-demand computing can now be realistically accomplished with commodity hardware and open systems, provided the infrastructure supports it. Many companies have been born to make this flexibility and elasticity a reality for the masses who would rather not deal with the intricacies of building their own. Amazon Web Services, Joyent, RightScale, Mosso a.k.a. The Rackspace Cloud, Enomaly, and countless others come to my mind immediately. They've taken on the challenge of providing this infrastructure for regular people. Not everyone is Google, Amazon, Yahoo! or Microsoft, with both the resources to devote to building these tools from scratch, never mind the inclination or need.
There's also a certain level of difficulty in implementing APIs correctly and efficiently that vendors were probably unwilling or unable to address. Market dynamics being what they are, the demand probably wasn't there for APIs as much as for new features, better performance, and lower costs. Even security was a higher priority! Finally (and this is largely related to the concept of lock-in), vendors probably didn't want to expose their devices to hacking and other tampering, or reverse engineering (via black box testing, etc.) by their competitors. If you're forced to deal with a command line, software application GUI (Java or Windows-based, many times these days) or web GUI, you were inherently limited in how much information about the internal workings of the device you could derive/describe.
However, with the exception of Juniper Networks, most systems and network devices still do not offer the programmatic option for people who are willing to build their own. Thus we have the menagerie of scripts and other homegrown tools which have to make do with clunky workarounds, scraping output from text commands or collecting SNMP data. Yes, it works, but it can hardly be considered optimal. These tools become somewhat second class citizens from a performance perspective, only able to issue so many commands in a given time quantum, and limited by the range of functionality exposed. Most of these scripts don't run with the highest levels of privilege, again for security reasons. (That is, a configuration management script for a Cisco Catalyst switch may run as a regular user as opposed to having "enable" privileges, and cannot change configuration settings on the switch, but I'm sure this varies too.)
However, I see this changing. I don't know if a company like Vyatta will lead the charge, but there's no reason for them not to. The question will be who follows (or leads, if not Vyatta)? Again, Juniper has already allowed a certain amount of access, which is a good start. However, I don't think the dominoes have really fallen as yet. In time, I believe more vendors will offer programmatic access to their devices through custom APIs. The ones who start this trend will do it as a differentiator, the way most innovation shows up commercially. Eventually, more vendors will offer this ability, at least for network devices (routers, switches, firewalls, IDS/IPS devices, etc.). Servers may not need programmatic access as much, although it would not surprise me to see a vendor, possibly an open source vendor, come up with a cross platform management layer that exposed a single, consistent API for multiple operating systems. Again, maybe this already exists but I can't think of who offers it.
What does all of this mean? It means, simply, that the ability to program your network will be within the reach of the average "man" and "woman" (or rather, system administrator and network engineer). This won't remove the business case for the cloud providers named previously, such as AWS or Joyent, but it will enable automated infrastructure for the masses. This will be a good thing, I believe.
Whew! That ended up being a lot longer than I thought it would, so I'm going to pause right here. In part 2 of this series, I'll go a bit deeper the investing implications of automated infrastructure and cloud computing, as I see them. Hopefully I haven't bored anyone to tears, but if I have, I apologize. I think a bit of context is required for this discussion, and there were some things that I wanted to make sure were said.
Until next time, gentle readers...
A few weeks ago, I attended the Structure 09 Conference put on by GigaOm Media in San Francisco, CA. Not a bad little conference. While I'm glad I attended, and I had a great time in the later sessions and the "meet and greet" held by Canaan Partners after, it wasn't quite as technical as I was hoping. Either that, or I missed the best parts. (I arrived about 3 hours late since I was driving through rush hour traffic on the 101 from "Man" Jose.) I did get more technical meat from O'Reilly Media's Velocity 2009 conference the previous 3 days, so it was all good. Besides, I met Paul Kedrosky of Infectious Greed fame and had a nice, though brief, conversation with Jonathan Heiliger, who was my personal hero for a great many years at the start of my career.
During the conference, I shot off this tweet about cloud computing. (Much of Structure seemed to revolve around this topic.) It seemed such a simple thing to say, and so disgustingly obvious that it wasn't even worth saying, but apparently it struck a chord with some folks. So I want to expand on this idea.
For ages, the supremely competent engineers and sysadmins out there have been developing custom tools to allow them to manage their systems and networks. Most of these tools have probably revolved around some combination of expect/TCL, Perl, and shell. The reason is simple - most device operating systems were not accessible programmatically, e.g. via an API. Most still are not. I attribute this to vendor lock-in. If the only way to interface with the device is by the vendor's prescribed methods (web based, software application, or command line), then you are forced to learn the vendor's products. As you become accustomed to how a given vendor's products work, you're going to be reluctant to invest the time and energy to learn a competing vendor's products. Voila! This is the biggest reason that so many networking products have command line interface syntaxes similar to Cisco's IOS and CatOS. This has been a huge contributor to Cisco's financial success over the past 20 years. Cisco's command line syntax has become de facto standard in the networking world.
Vendors would probably say there are other reasons for not exposing their devices to be inspected or controlled programmatically. One would be security. Most network devices are pretty insecure, in terms of default passwords and configuration settings (although this has been changing SLOOOOWLY over time). I imagine a great many customers didn't particularly care to create tools and programs to manage network devices, servers, and other systems. They just wanted to configure the device and go on with their lives. Only in the last decade has it become apparent to people that Sun was right and "the network IS the computer". The network infrastructure has taken on a level of criticality that was reserved only for servers for a long time.
Finally, the rise of cloud computing and the idea of automated infrastructure has changed people's thinking about the flexibility of their systems. On-demand computing can now be realistically accomplished with commodity hardware and open systems, provided the infrastructure supports it. Many companies have been born to make this flexibility and elasticity a reality for the masses who would rather not deal with the intricacies of building their own. Amazon Web Services, Joyent, RightScale, Mosso a.k.a. The Rackspace Cloud, Enomaly, and countless others come to my mind immediately. They've taken on the challenge of providing this infrastructure for regular people. Not everyone is Google, Amazon, Yahoo! or Microsoft, with both the resources to devote to building these tools from scratch, never mind the inclination or need.
There's also a certain level of difficulty in implementing APIs correctly and efficiently that vendors were probably unwilling or unable to address. Market dynamics being what they are, the demand probably wasn't there for APIs as much as for new features, better performance, and lower costs. Even security was a higher priority! Finally (and this is largely related to the concept of lock-in), vendors probably didn't want to expose their devices to hacking and other tampering, or reverse engineering (via black box testing, etc.) by their competitors. If you're forced to deal with a command line, software application GUI (Java or Windows-based, many times these days) or web GUI, you were inherently limited in how much information about the internal workings of the device you could derive/describe.
However, with the exception of Juniper Networks, most systems and network devices still do not offer the programmatic option for people who are willing to build their own. Thus we have the menagerie of scripts and other homegrown tools which have to make do with clunky workarounds, scraping output from text commands or collecting SNMP data. Yes, it works, but it can hardly be considered optimal. These tools become somewhat second class citizens from a performance perspective, only able to issue so many commands in a given time quantum, and limited by the range of functionality exposed. Most of these scripts don't run with the highest levels of privilege, again for security reasons. (That is, a configuration management script for a Cisco Catalyst switch may run as a regular user as opposed to having "enable" privileges, and cannot change configuration settings on the switch, but I'm sure this varies too.)
However, I see this changing. I don't know if a company like Vyatta will lead the charge, but there's no reason for them not to. The question will be who follows (or leads, if not Vyatta)? Again, Juniper has already allowed a certain amount of access, which is a good start. However, I don't think the dominoes have really fallen as yet. In time, I believe more vendors will offer programmatic access to their devices through custom APIs. The ones who start this trend will do it as a differentiator, the way most innovation shows up commercially. Eventually, more vendors will offer this ability, at least for network devices (routers, switches, firewalls, IDS/IPS devices, etc.). Servers may not need programmatic access as much, although it would not surprise me to see a vendor, possibly an open source vendor, come up with a cross platform management layer that exposed a single, consistent API for multiple operating systems. Again, maybe this already exists but I can't think of who offers it.
What does all of this mean? It means, simply, that the ability to program your network will be within the reach of the average "man" and "woman" (or rather, system administrator and network engineer). This won't remove the business case for the cloud providers named previously, such as AWS or Joyent, but it will enable automated infrastructure for the masses. This will be a good thing, I believe.
Whew! That ended up being a lot longer than I thought it would, so I'm going to pause right here. In part 2 of this series, I'll go a bit deeper the investing implications of automated infrastructure and cloud computing, as I see them. Hopefully I haven't bored anyone to tears, but if I have, I apologize. I think a bit of context is required for this discussion, and there were some things that I wanted to make sure were said.
Until next time, gentle readers...
Friday, July 17, 2009
They Went Thataway!
So CBRE says there is effectively no AAA paper in the CMBS market. The TALF program is only accepting AAA paper to be sold to investors. Did I miss something or does anyone else see a problem here? Seems to me there is a disconnect here.
It also doesn't help that the delays in the TALF implementation will mean a few more months of deterioration in the CMBS market before any paper is moved.
While I originally meant to publish this piece a few weeks ago, the thoughts still stand. Here's a Bloomberg.com article that I noticed just a few minutes ago. Everyone should think long and hard about this, but I don't see people giving this the consideration it deserves.
"Timberrr!" That could be the sound of the US economy taking another fall, and in very short order. SRS, as a short, looks promising, but what I really need is an unlevered fund. I'll be spending some quality time with ETFConnect to find one.
Until next time, peeps!
It also doesn't help that the delays in the TALF implementation will mean a few more months of deterioration in the CMBS market before any paper is moved.
While I originally meant to publish this piece a few weeks ago, the thoughts still stand. Here's a Bloomberg.com article that I noticed just a few minutes ago. Everyone should think long and hard about this, but I don't see people giving this the consideration it deserves.
"Timberrr!" That could be the sound of the US economy taking another fall, and in very short order. SRS, as a short, looks promising, but what I really need is an unlevered fund. I'll be spending some quality time with ETFConnect to find one.
Until next time, peeps!
Wednesday, July 01, 2009
Back in the Game
Wow!
It seems like forever since I posted. I know my readers probably feel similarly.
What happened, you ask?
The short answers is that both Velocity 2009 and Structure 09 happened. Both of these conferences, geared toward the Internet industry, occurred back to back last week in San Jose and San Francisco, respectively. Being employed in this industry, and extremely interested in the issues these conferences cover, it was imperative that I attend both. Along with, I spent some time working in my company's facility in San Jose, CA, which means that I can now officially claim a tax deduction for the airline flight to San Francisco, partial usage of the very nice rental car I gave myself, and my hotel room.
Unfortunately, my company did not see fit to send me to California to learn how to better serve our customers. Well, because, customers aren't that important anyway when you're a monopoly. You're going to get your pound of flesh one way or another, and 2 pounds on a good day. The tax deductibility of the 2 days I did work takes some of the edge off the fact that I was not fully able to enjoy my trip as a "vacation". I think I'll be returning some time in the near future, and I won't be working when I do.
I was in the Silicon Valley/Bay Area from 18 June until 25 June before taking off to Atlanta for a cousin's wedding. I have to admit, spending time in the Bay Area after such a long time away really made me consider moving back to California. There's just something about the thinking, the ecosystem, the infrastructure which has already been put in place and the people who are part of it. I don't generally like most Californians, but that could have a lot to do with spending so much time in southern California. NoCal and SoCal really are 2 separate states. For example, after Structure 09 concluded, Canaan Partners sponsored the post-event cocktail reception at which I met several very interesting people including Andrew Shafer of Reductive Labs and the great Paul Kredrosky himself. For some reason, this kind of experience only seems likely in Silicon Valley.
While I was gone, my positions in UCO and UNG didn't do too much, but they didn't move against me, which was welcome. I'm still monitoring them closely, probably even more closely now than I had been. The time is approaching when I have to unwind some of these positions. I still like the long term potential for natural gas, and I think oil is an obvious play long term. However, I also think short term technical factors may begin moving against both of these positions shortly.
While I'm at it, if anyone has suggestions for an oil ETF besides UCO, please chime in via the comments. I don't like the fact that UCO is an ultra (2x) ETF, for well known reasons. I want something with better characteristics and less inherent risk.
Anyway, that's what I did on my summer vacation. In the coming days, I plan to write a bit about some of what I did, as well as give my quarterly recap on my personal finances and goal achievement. 2Q2009 wasn't too bad on either front, and with a few tweaks to my debt payment plan, I think I'll be able to achieve my ultimate debt goal for the year.
Stay tuned, and thanks for sticking with me!
It seems like forever since I posted. I know my readers probably feel similarly.
What happened, you ask?
The short answers is that both Velocity 2009 and Structure 09 happened. Both of these conferences, geared toward the Internet industry, occurred back to back last week in San Jose and San Francisco, respectively. Being employed in this industry, and extremely interested in the issues these conferences cover, it was imperative that I attend both. Along with, I spent some time working in my company's facility in San Jose, CA, which means that I can now officially claim a tax deduction for the airline flight to San Francisco, partial usage of the very nice rental car I gave myself, and my hotel room.
Unfortunately, my company did not see fit to send me to California to learn how to better serve our customers. Well, because, customers aren't that important anyway when you're a monopoly. You're going to get your pound of flesh one way or another, and 2 pounds on a good day. The tax deductibility of the 2 days I did work takes some of the edge off the fact that I was not fully able to enjoy my trip as a "vacation". I think I'll be returning some time in the near future, and I won't be working when I do.
I was in the Silicon Valley/Bay Area from 18 June until 25 June before taking off to Atlanta for a cousin's wedding. I have to admit, spending time in the Bay Area after such a long time away really made me consider moving back to California. There's just something about the thinking, the ecosystem, the infrastructure which has already been put in place and the people who are part of it. I don't generally like most Californians, but that could have a lot to do with spending so much time in southern California. NoCal and SoCal really are 2 separate states. For example, after Structure 09 concluded, Canaan Partners sponsored the post-event cocktail reception at which I met several very interesting people including Andrew Shafer of Reductive Labs and the great Paul Kredrosky himself. For some reason, this kind of experience only seems likely in Silicon Valley.
While I was gone, my positions in UCO and UNG didn't do too much, but they didn't move against me, which was welcome. I'm still monitoring them closely, probably even more closely now than I had been. The time is approaching when I have to unwind some of these positions. I still like the long term potential for natural gas, and I think oil is an obvious play long term. However, I also think short term technical factors may begin moving against both of these positions shortly.
While I'm at it, if anyone has suggestions for an oil ETF besides UCO, please chime in via the comments. I don't like the fact that UCO is an ultra (2x) ETF, for well known reasons. I want something with better characteristics and less inherent risk.
Anyway, that's what I did on my summer vacation. In the coming days, I plan to write a bit about some of what I did, as well as give my quarterly recap on my personal finances and goal achievement. 2Q2009 wasn't too bad on either front, and with a few tweaks to my debt payment plan, I think I'll be able to achieve my ultimate debt goal for the year.
Stay tuned, and thanks for sticking with me!
Monday, June 08, 2009
How Dasan Is Investing Now
Those of you who follow the hardcore investors and finance types on Twitter will recognize the name Dasan. A very sharp and witty guy who manages a portfolio at an unnamed hedge fund, Dasan recently published an analysis of how he is currently investing and how his investment process works. Fascinating reading from an investment professional. Check it out!
Monday, May 11, 2009
Canary Red
This quick blurb about HSBC over at Bloomberg.com caught my eye. Why? Because for those who recall early 2007, HSBC was the first major bank to admit any problems with its subprime portfolio. We know how the rest of that year progressed. I have to wonder if they are leading the pack again. I guess only time will tell, but it is definitely something to keep an eye on.
Could that be the stench of death around the financials, yet again? Hmmm. I know my choice for leading contender to die.
Until next time, good people, stay safe...
Could that be the stench of death around the financials, yet again? Hmmm. I know my choice for leading contender to die.
Until next time, good people, stay safe...
Tuesday, May 05, 2009
Peter Thiel on Financial Markets and The Singularity
I will definitely watch this again, but a few things struck me about this presentation by Peter Thiel. (For the unaware, Thiel was the CEO of PayPal who sold the company to eBay. He runs Clarium Capital Management LLC, a global macro hedge fund, and does early stage investing, mostly through The Founder's Fund. He was one of the first investors in Facebook and a bunch of other well known Web 2.0 companies.)
First, Thiel really is nerdier than I expected. I was hoping there was a suaveness to him, a relaxed confidence borne of his intelligence and success both as an entrepreneur, an academic and an investor. No. There really isn't. He's as nerdy looking and sounding as one would expect from reading about him. I'm not sure what to make of this, and it really means ABSOLUTELY NOTHING, but it caught me off guard. He's also a very unpolished speaker. Again, this is not a problem or a bad thing, but I always find it difficult to listen to people who overuse "ummm" and "uhhh" and "you know" in their speech. In Thiel's case, it is probably a matter of his thinking faster than he speaks, and his speech having to catch up with this (disorganized and chaotic) thoughts. However, it only serves to obfuscate his message and, to me personally, makes it almost painful to listen to him. He should probably spend more time preparing and organizing his thoughts when he is to speak to crowds.
Second, I think Thiel has misunderstood Warren Buffett's investing strategy. Maybe Buffett, and by extension Berkshire Hathaway, has invested in The Singularity better than anyone else. However, I don't think that was his objective. Buffett and Berkshire have been doing the very logical thing - managing risks and probabilities. Insurance is the ultimate business of managing risks and probabilities. The insurance business is basically about probability, and this fits with Thiel's singularity thesis because it comes down to managing the fat tail risks.
Thiel makes the point, several times, that there are all of these potential outcomes in a non-Gaussian distribution of risks, from -- for example -- an investment boom being the beginning of "The New New Thing" which will revolutionize life on Earth to just being an extended investment mania. He uses the Japan bubble of the 1980s, the Internet bubble of the late 1990s, the real estate bubble in the US in the early part of this decade and the pursuit of the control of space in the late 1960s as is representative cases. In most of these cases, there was a span of time during which great wealth (or "wealth") was created, followed by a spectacular collapse -- boom and bust.
Thiel continues on to mention that Buffett, by way of Berkshire Hathaway, is investing in the The Singularity by writing insurance against catastrophic events -- the busts. However, I think Thiel has missed some things. First, Berkshire is not new to the insurance business. Second, insurance -- basically, writing puts against given outcomes, which I think of as the best description -- is a well known business with solid underpinnings. Buffett understands this, and uses this to his advantage. The Berkshire insurance businesses are cash generators, and Buffett has intentionally steered away from certain lines, or approached them carefully. For example, Geico only recently began writing renter's and home owner's insurance, after having been in the auto insurance business for a long time. Geico has also been known as the company that would only take on the best drivers (e.g. the lowest risk drivers) and dropping coverage for drivers after a single accident (cutting losses early). The cash thrown off by the Berkshire insurance businesses has fueled Berkshire's acquisitions of other lowly valued businesses (on a fundamental basis) as well as it's war chest, which in turn had driven it's AAA credit rating (until recently).
Even Warren Buffett's mistimed (?) derivatives bets are nothing more than insurance plays. They are bets on the probability of certain outcomes, including the level of the S&P 500 equity index in almost 20 years. While the positions are underwater now, and Buffett can be considered hypocritical for calling derivatives of all stripes "financial weapons of mass destruction", he is fundamentally making similar bets as any of the insurance lines his companies write.
I say all of this to say that Buffett doesn't invest in insurance businesses due to some recognition of or belief in The Singularity but simply because he recognizes that probability is on his side. Everything has risk, but insurance, such as it is (outside of the realm of catastrophe, for example), is well known and generally a cash cow due to the small payout in claims against the large revenue in premiums. Maybe Thiel knows this, but he seems to express a view that Buffett has some grandiose "black swan" perspective on investing. I, personally, think not.
Anyway, it is an interesting presentation and not a bad way to spend 20 minutes of your time. Will you gain any new insight here? Probably not. But you never know. Maybe something he says will land with you in a way other talks have not. Check it out if you have the time.
Until next time...
First, Thiel really is nerdier than I expected. I was hoping there was a suaveness to him, a relaxed confidence borne of his intelligence and success both as an entrepreneur, an academic and an investor. No. There really isn't. He's as nerdy looking and sounding as one would expect from reading about him. I'm not sure what to make of this, and it really means ABSOLUTELY NOTHING, but it caught me off guard. He's also a very unpolished speaker. Again, this is not a problem or a bad thing, but I always find it difficult to listen to people who overuse "ummm" and "uhhh" and "you know" in their speech. In Thiel's case, it is probably a matter of his thinking faster than he speaks, and his speech having to catch up with this (disorganized and chaotic) thoughts. However, it only serves to obfuscate his message and, to me personally, makes it almost painful to listen to him. He should probably spend more time preparing and organizing his thoughts when he is to speak to crowds.
Second, I think Thiel has misunderstood Warren Buffett's investing strategy. Maybe Buffett, and by extension Berkshire Hathaway, has invested in The Singularity better than anyone else. However, I don't think that was his objective. Buffett and Berkshire have been doing the very logical thing - managing risks and probabilities. Insurance is the ultimate business of managing risks and probabilities. The insurance business is basically about probability, and this fits with Thiel's singularity thesis because it comes down to managing the fat tail risks.
Thiel makes the point, several times, that there are all of these potential outcomes in a non-Gaussian distribution of risks, from -- for example -- an investment boom being the beginning of "The New New Thing" which will revolutionize life on Earth to just being an extended investment mania. He uses the Japan bubble of the 1980s, the Internet bubble of the late 1990s, the real estate bubble in the US in the early part of this decade and the pursuit of the control of space in the late 1960s as is representative cases. In most of these cases, there was a span of time during which great wealth (or "wealth") was created, followed by a spectacular collapse -- boom and bust.
Thiel continues on to mention that Buffett, by way of Berkshire Hathaway, is investing in the The Singularity by writing insurance against catastrophic events -- the busts. However, I think Thiel has missed some things. First, Berkshire is not new to the insurance business. Second, insurance -- basically, writing puts against given outcomes, which I think of as the best description -- is a well known business with solid underpinnings. Buffett understands this, and uses this to his advantage. The Berkshire insurance businesses are cash generators, and Buffett has intentionally steered away from certain lines, or approached them carefully. For example, Geico only recently began writing renter's and home owner's insurance, after having been in the auto insurance business for a long time. Geico has also been known as the company that would only take on the best drivers (e.g. the lowest risk drivers) and dropping coverage for drivers after a single accident (cutting losses early). The cash thrown off by the Berkshire insurance businesses has fueled Berkshire's acquisitions of other lowly valued businesses (on a fundamental basis) as well as it's war chest, which in turn had driven it's AAA credit rating (until recently).
Even Warren Buffett's mistimed (?) derivatives bets are nothing more than insurance plays. They are bets on the probability of certain outcomes, including the level of the S&P 500 equity index in almost 20 years. While the positions are underwater now, and Buffett can be considered hypocritical for calling derivatives of all stripes "financial weapons of mass destruction", he is fundamentally making similar bets as any of the insurance lines his companies write.
I say all of this to say that Buffett doesn't invest in insurance businesses due to some recognition of or belief in The Singularity but simply because he recognizes that probability is on his side. Everything has risk, but insurance, such as it is (outside of the realm of catastrophe, for example), is well known and generally a cash cow due to the small payout in claims against the large revenue in premiums. Maybe Thiel knows this, but he seems to express a view that Buffett has some grandiose "black swan" perspective on investing. I, personally, think not.
Anyway, it is an interesting presentation and not a bad way to spend 20 minutes of your time. Will you gain any new insight here? Probably not. But you never know. Maybe something he says will land with you in a way other talks have not. Check it out if you have the time.
Until next time...
Tuesday, March 24, 2009
The Missing Man
So I was reading some of the commentary about the new Geithner plan, and the one thing that struck me (particularly as I read this) is that we still haven't see anything cogent about the valuation of these "troubled assets".
At the end of the day, I think the banks ARE currently insolvent BUT I think they can survive this. The key will be getting those assets off their books. YES, they will be insolvent. Get over it. As Steve Randy Waldman said over at Interfluidity the other day, they were insolvent before, during the S&L crisis. Insolvency isn't the issue. A few years of reasonable earnings w/o dividend payouts and public markets recapitalization -- as James Surowiecki has advocated (see the Interfluidity post for the links to Surowiecki) -- and I think many (not all) of the current banks survive in some form. Obviously, the industry will see huge structural changes in other ways, but overall, I don't think we risk losing too many of the existing banks. Yes, the banking system needs to be fundamentally overhauled, and personally, I think Glass-Steagall needs to make a return, but that's a conversation for another day.
Aside: The ones I think we DO lose would appear to be interesting shorts. :) Figuring out those names is left as an exercise to the reader. That's what the comments are for! I'll start with WFC.
What worries me most is whether Geithner's new plan will attempt to do what Hank Paulson's original plan(s) attempted to do - bailout the banks with unrealistic valuations of these assets. I don't think too many private investors will be interested in overpaying to take these assets off the balance sheets of the banks. I know I wouldn't be interested in overpaying for distressed assets. The marks they carry are because they are distressed! So I am particularly curious to see when and how this question is answered. If anyone out there reading has anything to share, speculation or otherwise, please do share!
I already think this bounce is setting up a huge shorting opportunity. However, until this question is answered, we're still in what Upside would call a Wile E. Coyote moment, not realizing there's no ground underfoot but still running. If this question isn't answered well AND soon, gravity kicks in with a vengeance! Of course, that's not to say that gravity won't kick in just because. It is "The Market" after all.
Finally, realize that I am only speaking about this plan right now. So many people seem to have forgotten about the BIG elephant in the room, the REAL missing man. There will be a next leg down, I'm fairly certain. And the banks will continue to be insolvent. Whether that turns into a liquidity problem is To Be Determined. All bets are off on any of the existing private banking institutions surviving once the leg down kicks in.
Until next time...
UPDATE: Looks like I spoke a bit too soon, but still, I personally want more detail.
At the end of the day, I think the banks ARE currently insolvent BUT I think they can survive this. The key will be getting those assets off their books. YES, they will be insolvent. Get over it. As Steve Randy Waldman said over at Interfluidity the other day, they were insolvent before, during the S&L crisis. Insolvency isn't the issue. A few years of reasonable earnings w/o dividend payouts and public markets recapitalization -- as James Surowiecki has advocated (see the Interfluidity post for the links to Surowiecki) -- and I think many (not all) of the current banks survive in some form. Obviously, the industry will see huge structural changes in other ways, but overall, I don't think we risk losing too many of the existing banks. Yes, the banking system needs to be fundamentally overhauled, and personally, I think Glass-Steagall needs to make a return, but that's a conversation for another day.
Aside: The ones I think we DO lose would appear to be interesting shorts. :) Figuring out those names is left as an exercise to the reader. That's what the comments are for! I'll start with WFC.
What worries me most is whether Geithner's new plan will attempt to do what Hank Paulson's original plan(s) attempted to do - bailout the banks with unrealistic valuations of these assets. I don't think too many private investors will be interested in overpaying to take these assets off the balance sheets of the banks. I know I wouldn't be interested in overpaying for distressed assets. The marks they carry are because they are distressed! So I am particularly curious to see when and how this question is answered. If anyone out there reading has anything to share, speculation or otherwise, please do share!
I already think this bounce is setting up a huge shorting opportunity. However, until this question is answered, we're still in what Upside would call a Wile E. Coyote moment, not realizing there's no ground underfoot but still running. If this question isn't answered well AND soon, gravity kicks in with a vengeance! Of course, that's not to say that gravity won't kick in just because. It is "The Market" after all.
Finally, realize that I am only speaking about this plan right now. So many people seem to have forgotten about the BIG elephant in the room, the REAL missing man. There will be a next leg down, I'm fairly certain. And the banks will continue to be insolvent. Whether that turns into a liquidity problem is To Be Determined. All bets are off on any of the existing private banking institutions surviving once the leg down kicks in.
Until next time...
UPDATE: Looks like I spoke a bit too soon, but still, I personally want more detail.
Friday, March 06, 2009
What's Missing in the Market: Panic
You know, I could be short all day and not have a problem with it. Really. However, given the statistical history of the markets, there are so much better opportunities for making money being long in a rising market which has solid fundamentals AND technicals underpinning it. Everybody wants to be early, no one wants to be late. I, for one, can stand to be late, if it means probability is working in my favor. This is a war of attrition. Capital preservation is the order of the day, if you're not trading.
The one thing I am noticing, and I see it in today's closing, is the lack of absolute panic. There has been fear, true, but it seems like everyone is trying to call the bottom (except for the people I follow/listen to, who are just trading along). There's been a lot of knife catching, and I should know, as my trading report will show. But most of what I see is people just waiting - hoping? - for the turnaround to start "any day now" so they keep buying the dips, just to jump out later for a loss. It's such a Pavlovian response. It would be funny if it didn't indicate just how long and drawn out this tape will be.
Now, don't get me wrong...there are a lot of pieces which need to come together for a sustainable rally to take hold. Most of those pieces are non-existent currently, which is why a bottom is really no closer. Given all the factors I've seen, and even with my respect for Jeremy Grantham and John Hussman, I'm staying out of the long side right now (with the exception of my primary thesis around commodities). Long is so, so wrong right now. Doesn't even feel right. We get closer to a bottom, true, but I think all of the knife catchers will find that the knife still has yet to reach the floor. THAT'S when I plan to pick it up.
I just don't see enough panic to say that all of the suckers have been cleared out. Yes, TLT is racking up gains (though it is off its highs), and TBT is getting its ass handed to it most days. Savings are up, but they can go up more. People don't even realize what else is coming down the pike, and insurance is SO fucked up I'm shocked and scared (just when I thought I had a good handle on the scope of our problems). But there's still too much hope out there. A lot more people need to get crushed to clear out the dead and create space for rebuilding. A LOT MORE.
That is all.
The one thing I am noticing, and I see it in today's closing, is the lack of absolute panic. There has been fear, true, but it seems like everyone is trying to call the bottom (except for the people I follow/listen to, who are just trading along). There's been a lot of knife catching, and I should know, as my trading report will show. But most of what I see is people just waiting - hoping? - for the turnaround to start "any day now" so they keep buying the dips, just to jump out later for a loss. It's such a Pavlovian response. It would be funny if it didn't indicate just how long and drawn out this tape will be.
Now, don't get me wrong...there are a lot of pieces which need to come together for a sustainable rally to take hold. Most of those pieces are non-existent currently, which is why a bottom is really no closer. Given all the factors I've seen, and even with my respect for Jeremy Grantham and John Hussman, I'm staying out of the long side right now (with the exception of my primary thesis around commodities). Long is so, so wrong right now. Doesn't even feel right. We get closer to a bottom, true, but I think all of the knife catchers will find that the knife still has yet to reach the floor. THAT'S when I plan to pick it up.
I just don't see enough panic to say that all of the suckers have been cleared out. Yes, TLT is racking up gains (though it is off its highs), and TBT is getting its ass handed to it most days. Savings are up, but they can go up more. People don't even realize what else is coming down the pike, and insurance is SO fucked up I'm shocked and scared (just when I thought I had a good handle on the scope of our problems). But there's still too much hope out there. A lot more people need to get crushed to clear out the dead and create space for rebuilding. A LOT MORE.
That is all.
Friday, February 20, 2009
My Letter to Steny Hoyer about H.R. 1068, the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009"
Below, you will find the text of the letter I just e-mailed to Steny Hoyer, the Democratic congressman from the Fifth Congressional District of Maryland. It is unedited. Amazingly, I managed not to curse. I will be following this up with phone calls.
If you haven't heard, H.R. 1068 can also be known as the "Let Wall Street Pay for Wall Street's Bailout Act of 2009". Of course, this legislation, like all the crap coming out of DC these days, lands squarely on regular investors like you and me. These fuckwits really deserve a bullet for their intentional destruction of this once great nation. And if this is how Oregon's congressman likes to treat investors and traders, that state should fall into the Pacific Ocean along with California. What a bunch of losers!
I don't normally talk about politics here because I honestly could care less about the subject. It's all legal crime and evidence of how Americans are handing over their Constitutional freedoms to the cock knocker with the best sob story. However, this horrible excuse for legislation will affect everyone, myself included, who hasn't yet escaped from this sinking ship of a nation. This legislation needs to be murdered outright, not modified, not amended, but simply killed. It is terrible for anyone who owns, or would own, any kind of security. And we all know that once a tax is levied, the government has no incentive to get rid of the revenue. (It took 108 years to PARTIALLY kill the Federal telephone excise tax which was originally levied to pay for the Spanish-American War!) Item 8 under Section 2 is a blatant lie!
Anyway, I hope you enjoy. Without further ado...
If you haven't heard, H.R. 1068 can also be known as the "Let Wall Street Pay for Wall Street's Bailout Act of 2009". Of course, this legislation, like all the crap coming out of DC these days, lands squarely on regular investors like you and me. These fuckwits really deserve a bullet for their intentional destruction of this once great nation. And if this is how Oregon's congressman likes to treat investors and traders, that state should fall into the Pacific Ocean along with California. What a bunch of losers!
I don't normally talk about politics here because I honestly could care less about the subject. It's all legal crime and evidence of how Americans are handing over their Constitutional freedoms to the cock knocker with the best sob story. However, this horrible excuse for legislation will affect everyone, myself included, who hasn't yet escaped from this sinking ship of a nation. This legislation needs to be murdered outright, not modified, not amended, but simply killed. It is terrible for anyone who owns, or would own, any kind of security. And we all know that once a tax is levied, the government has no incentive to get rid of the revenue. (It took 108 years to PARTIALLY kill the Federal telephone excise tax which was originally levied to pay for the Spanish-American War!) Item 8 under Section 2 is a blatant lie!
Anyway, I hope you enjoy. Without further ado...
Representative Hoyer,
I am writing to lodge an official complaint about, and to implore you to do ANYTHING and EVERYTHING in your power to kill H.R. 1068., also known as the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009".
As you must be well aware, the first rule of taxes is "whatever you want less of, tax". I'm sure higher cigarette taxes discourage casual smokers from engaging in an activity that is harmful to themselves. The hardcore, committed smokers are willing to trade the tax money for their fix. The government collects tax revenue on that transaction. But I would posit that much smoking has been ended or prevented due to the increase in cost associated with taxes on cigarettes. Probably way more success has been had by increasing the economic cost of smoking than by highlighting the physical damage done by smoking.
Clearly, by proffering such an absurd piece of legislation, your colleague Rep. Peter DeFazio [D-OR] seeks to discourage securities trading and investing in the United States. I'm sure there are other countries, other stock/options/commodities/futures exchanges outside of the United States which would proudly take up that business, since you and your colleagues seem so interested in giving it away. So please tell me, is killing the trading of securities what you and the Democratic Party want for this country? This is "change that disgusts me", quite honestly.
First, I am a small trader. I already pay significant commissions through my broker, and short term capital gains taxes on my trading earnings. Fine. Imposing a 0.25% tax on sales and purchases would greatly reduce my ability to conduct my business of trading. In fact, it would actively DISCOURAGE me from this activity. I know I am not alone, and many small traders would either stop trading or seek ways to avoid owning the tax to the US Federal Government at all.
Second, this act would DECREASE market liquidity. If buyers and sellers are DECREASED in number, prices of securities will reflect that by going DOWN. You and any other congressional representatives who vote for this act will be contributing to the death of American stock markets. Prices will fall, buyers will strike, and sellers will spend more time and effort seeking to devise clever ways around paying in order to exit a losing position. How are any of these desirable? Liquidity will move to other exchanges around the world. Private companies will have less motivation to become publicly traded.
Taxing transactions will, by definition, reduce the number of transactions. That means less commission revenue for broker/dealers, clearing and settlement companies, administrators, and others in the financial ecosystem. It will also create market distortions by increasing the bid/asked spread on securities and creating more arbitrage opportunities for the savviest and fastest entities. Basically, this act, if signed into law, will force small players out of the market, decrease liquidity and price discovery, and hand more advantage to large players who can exploit the information available. Instead of democratizing investing and trading, it will further stratify that world, handing even more advantage to the already privileged and powerful.
Third, if this tax is imposed, and as I read the current legislation, it will be assessed against transactions of all sorts, including against securities held in retirement accounts. This would violate the existing tax provisions on tax deferred accounts such as 401(k), IRA/Roth IRA and other retirement accounts. That is how the current legislation is worded - very broadly. Do the Congress and the President want to increase taxes on already battered retirement funds? Wouldn't that DIS-INCENTIVIZE saving? Is that something the Congress, the Democratic Party, and the President want to do - reduce long term savings, especially retirement saving, by individuals? What about Rep. Donna Edwards [D-MD].
Fourth, I voted Democratic in the past election. The Democratic Party is clearly showing why it neither deserves nor wants my support. If this act becomes law, I will do my best to prevent Democrats from ever serving in economically important roles within local, state or Federal government ever again, because clearly you, Rep. Edwards, and the party you both represent are our ENEMIES - enemies of the people you say you are serving, enemies of the citizens of this once great country.
Finally, let me say that this incident is making me very clear where Rep. DeFazio's, Rep. Edwards' and your interests lie, and it is not with people like me. Should the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009" pass into law, another personal mission of mine will become to prevent you and your cohorts from ever "serving" US - we, the people - ever again.
P.S.: Do your pensions get assessed this tax? I'm sure you'll find some way to make sure your absurdly large pensions will be privileged and protected to, won't they? How is Congress any different from Wall Street, with similarly large golden parachutes? You make me sick!
Friday, February 13, 2009
Trading Report: First Swing Trade = WIN!
Anyway, I *think* that's the correct term. And it was a success!
On Wednesday, I bought 100 shares of TBT, the ProShares UltraShort Lehman 20 Year Treasury ETF, as a short play on US Treasuries. (Over the longer term, I think the outlook for Treasuries is grim, so TBT might be a decent longer term hold.)
While I originally planned to make the trade a day trade, I was compelled by market factors to hold the position through the close. (Basically, it closed marginally above my entry at $45.00.) I placed an initial stop at $44.75 so that should the ETF drop, my loss was capped at $0.25 per share, or $25 total. If the opportunity presented itself, I would reset my stop to capture some of the upside while not tracking the market all day.
Well, opportunity REALLY presented itself on Thursday, 12 February. When I checked in around 12:15 PM EST, TBT was around $45.62. Thus, I reset my stop to $45.30. After checking in again around 12:30 PM, I reset the stop to $45.60 (with TBT trading in the $45.90 area). By 1:45 PM, my stop was executed and all 100 shares were sold for $45.60 as TBT made its way back to the $45.20 - $45.20 range. While it eventually closed at $45.96, I didn't re-trade it.
So, for the entire experiment, a $60 gross profit (not including commissions or taxes). While it's not a lot, I am still in the early stages of trading, and I don't have huge amounts of capital so I have to be prudent. But I am happy with the initial results.
(And remember boys and girls, this is not investment or trading advice. I'm just relaying to you what I did. You need to make your own decisions, based on your own research. Don't blame me if you try something I did and it blows up on you. That's your own situation to deal with. I take responsibility for my own successes and failures. Do you do the same for yours?)
Until the next trade, peace!
On Wednesday, I bought 100 shares of TBT, the ProShares UltraShort Lehman 20 Year Treasury ETF, as a short play on US Treasuries. (Over the longer term, I think the outlook for Treasuries is grim, so TBT might be a decent longer term hold.)
While I originally planned to make the trade a day trade, I was compelled by market factors to hold the position through the close. (Basically, it closed marginally above my entry at $45.00.) I placed an initial stop at $44.75 so that should the ETF drop, my loss was capped at $0.25 per share, or $25 total. If the opportunity presented itself, I would reset my stop to capture some of the upside while not tracking the market all day.
Well, opportunity REALLY presented itself on Thursday, 12 February. When I checked in around 12:15 PM EST, TBT was around $45.62. Thus, I reset my stop to $45.30. After checking in again around 12:30 PM, I reset the stop to $45.60 (with TBT trading in the $45.90 area). By 1:45 PM, my stop was executed and all 100 shares were sold for $45.60 as TBT made its way back to the $45.20 - $45.20 range. While it eventually closed at $45.96, I didn't re-trade it.
So, for the entire experiment, a $60 gross profit (not including commissions or taxes). While it's not a lot, I am still in the early stages of trading, and I don't have huge amounts of capital so I have to be prudent. But I am happy with the initial results.
(And remember boys and girls, this is not investment or trading advice. I'm just relaying to you what I did. You need to make your own decisions, based on your own research. Don't blame me if you try something I did and it blows up on you. That's your own situation to deal with. I take responsibility for my own successes and failures. Do you do the same for yours?)
Until the next trade, peace!
Saturday, January 31, 2009
Change of Direction
This move is probably overdue by several weeks, if not months. Now is as good a time as any, so...
I am in the process of converting my brokerage account into a pure trading vehicle. All investment activities will occur in either my employer 401(k) OR in my self-directed Roth IRA. I plan to migrate all of my existing investment allocations to InvivoAnalytics' Satellite Portfolio into my Roth IRA over the course of the year. It will be a slow process of rebuilding in the Roth, but it's for the best.
I have liquidated all holdings in my brokerage account that are long term investment oriented holdings. I won't be switching to another broker (for now).
I am doing this because mixing the 2 objectives in a single account had become...messy. I have found it difficult to maintain focus, which has distracted me and slowed my decision making. Slow decision making has led to missed opportunities.
Converting the brokerage account for purely trading will also allow me to take more concentrated positions than I can currently. I believe this will allow me to grow my brokerage account faster. I am to the point where the balance in my brokerage account, while not huge, is large enough to actually do something "useful". In a sense, my account finally has some weight.
Finally, the long horizon investment holdings will sit in a tax advantaged retirement account. I've had this account open for a while, but it has been dormant. Increasing the activity in this account will lead to tax diversification, which is always a plus. The investment holdings will also be allowed to grow unencumbered by my need/desire to raise trading funds, not that I was sacrificing them anyway. However, now that the split is physical and not just logical, I no longer suffer from temptation to touch those long term holdings.
For the next few trading sessions, I will be essentially "paper trading" - researching and studying trades ahead of trading sessions, but not actually executing them. Instead, I will watch how my proposed trades perform and how I can adapt my trading system(s) before I start risking capital. Even though I have had more success than failures on the few trades I've made, and I do want to start trading to earn money for various purposes, I've decided to spend a bit of time on my education by doing this. It sucks, but losing real money would suck more.
Until next time...
I am in the process of converting my brokerage account into a pure trading vehicle. All investment activities will occur in either my employer 401(k) OR in my self-directed Roth IRA. I plan to migrate all of my existing investment allocations to InvivoAnalytics' Satellite Portfolio into my Roth IRA over the course of the year. It will be a slow process of rebuilding in the Roth, but it's for the best.
I have liquidated all holdings in my brokerage account that are long term investment oriented holdings. I won't be switching to another broker (for now).
I am doing this because mixing the 2 objectives in a single account had become...messy. I have found it difficult to maintain focus, which has distracted me and slowed my decision making. Slow decision making has led to missed opportunities.
Converting the brokerage account for purely trading will also allow me to take more concentrated positions than I can currently. I believe this will allow me to grow my brokerage account faster. I am to the point where the balance in my brokerage account, while not huge, is large enough to actually do something "useful". In a sense, my account finally has some weight.
Finally, the long horizon investment holdings will sit in a tax advantaged retirement account. I've had this account open for a while, but it has been dormant. Increasing the activity in this account will lead to tax diversification, which is always a plus. The investment holdings will also be allowed to grow unencumbered by my need/desire to raise trading funds, not that I was sacrificing them anyway. However, now that the split is physical and not just logical, I no longer suffer from temptation to touch those long term holdings.
For the next few trading sessions, I will be essentially "paper trading" - researching and studying trades ahead of trading sessions, but not actually executing them. Instead, I will watch how my proposed trades perform and how I can adapt my trading system(s) before I start risking capital. Even though I have had more success than failures on the few trades I've made, and I do want to start trading to earn money for various purposes, I've decided to spend a bit of time on my education by doing this. It sucks, but losing real money would suck more.
Until next time...
Tuesday, January 06, 2009
Quickie
Re-balanced the hell out of my 401(k) in the last 2 weeks. That would appear to be the best time to sell out of all the vested employer stock that the employer contribution took the form of. All of the excess is going into the money market option for the time being, so I will have some dry powder available after I finish re-allocating most of the cash.
:)
Also started building a small position in an energy ETN. Will start looking for a (roughly) equivalent ETF but so far, this is position is rocking! Up approximately 20% in 2 weeks. It's actually a bit more than that, but I haven't calculated the exact amount since I purchased at 2 different entry points. Funniest part is that I bought this with a time frame of 12 - 18 months, even though it is a bit aggressive as an investment. I never thought I'd see this kind of performance this quickly though!
:)
Also started building a small position in an energy ETN. Will start looking for a (roughly) equivalent ETF but so far, this is position is rocking! Up approximately 20% in 2 weeks. It's actually a bit more than that, but I haven't calculated the exact amount since I purchased at 2 different entry points. Funniest part is that I bought this with a time frame of 12 - 18 months, even though it is a bit aggressive as an investment. I never thought I'd see this kind of performance this quickly though!
Wednesday, November 26, 2008
Saving and Investing Seminar at Howard University on Wednesday
Yours truly has been invited to speak at Howard University next week. Specifically, for the Saving and Investing Seminar being presented by the Student Council of the College of Engineering, Architecture and Computer Sciences (CEACS). (Don't blame me. I didn't make up the name.) The president of the student council is one of my former "students" from my technical advisory days, so I guess he trusts me with the minds of his peers.
*grin*
I have to admit to having a very palpable feeling of fear at the thought of speaking before a group of college students. This is a bit weird, as I have done these types of engagements in the past (just with smaller groups). I guess the fear has to do with being tapped as some sort of "expert" on finance topics. While I appreciate that, I am just feeling a bit nervous about the whole thing, as this is the first time that I have been asked to speak.
Don't misunderstand. I love sharing what I do know. I like helping people prepare for all of the potential issues that may arise. I want to help people move to a position where they don't have to worry about money. Simple math shows that speaking to a group is way more effective at spreading my message (me - message?) than individual consultations. So this would seem to be a natural progression for me. Still, I am (slightly) worried.
I do look forward to this event though. Personally, I take the fear as a signal that I should do this, that it is to be embraced and not avoided. That mantra has been serving me well this year. We'll see how it works out in this instance as well. So if you happen to be in the DC metro area next Wednesday around 7:00 PM, drop by the Lewis K. Downing School of Engineering building at Howard University to hear what I have to say. There will be a special guest as well, in the form of the estimable Ginger from Girls Just Wanna Have Funds. So if saving, investing, (personal) finance, and other such subjects appeal to you, you are welcome to come hear what we have to say. Make sure to introduce yourself as well. I know I personally like to know who is deriving benefit from this blog, and what I can do to increase its value to everyone.
Peace!
*grin*
I have to admit to having a very palpable feeling of fear at the thought of speaking before a group of college students. This is a bit weird, as I have done these types of engagements in the past (just with smaller groups). I guess the fear has to do with being tapped as some sort of "expert" on finance topics. While I appreciate that, I am just feeling a bit nervous about the whole thing, as this is the first time that I have been asked to speak.
Don't misunderstand. I love sharing what I do know. I like helping people prepare for all of the potential issues that may arise. I want to help people move to a position where they don't have to worry about money. Simple math shows that speaking to a group is way more effective at spreading my message (me - message?) than individual consultations. So this would seem to be a natural progression for me. Still, I am (slightly) worried.
I do look forward to this event though. Personally, I take the fear as a signal that I should do this, that it is to be embraced and not avoided. That mantra has been serving me well this year. We'll see how it works out in this instance as well. So if you happen to be in the DC metro area next Wednesday around 7:00 PM, drop by the Lewis K. Downing School of Engineering building at Howard University to hear what I have to say. There will be a special guest as well, in the form of the estimable Ginger from Girls Just Wanna Have Funds. So if saving, investing, (personal) finance, and other such subjects appeal to you, you are welcome to come hear what we have to say. Make sure to introduce yourself as well. I know I personally like to know who is deriving benefit from this blog, and what I can do to increase its value to everyone.
Peace!
The 51% Solution
This is what it comes down to in investing -- being right just a bit more often than being wrong, and when we're right, pressing our advantage. Easy in theory, but extremely complex and nuanced in practice.
A big point that many professional traders emphasize is that the greater your advantage (and we're talking in basis points here, realistically - 5+ bps - against your opponents), the more you need to press. Even Charlie Munger will tell you that when an opportunity comes along, you need to put as much weight behind that trade as possible. (See #6 from the following list of his rules for investment success, about asset allocation.)
Ask John Paulson.
A big point that many professional traders emphasize is that the greater your advantage (and we're talking in basis points here, realistically - 5+ bps - against your opponents), the more you need to press. Even Charlie Munger will tell you that when an opportunity comes along, you need to put as much weight behind that trade as possible. (See #6 from the following list of his rules for investment success, about asset allocation.)
Ask John Paulson.
Tuesday, November 11, 2008
Quote of the Week
From Felix Salmon at Portfolio:
"If you want to save money, save money. Don't place too much trust in the market to make your money grow, since there's a good chance the market will end up moving in entirely the wrong direction."
"If you want to save money, save money. Don't place too much trust in the market to make your money grow, since there's a good chance the market will end up moving in entirely the wrong direction."
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