Month: September 2011

Yesterday at TechCrunch Disrupt, Mike Arrington asked LinkedIn founder and CEO Reid Hoffman what he would do if he were $YHOO CEO.

Here’s a snippet:

And so, I think part of where Yahoo has not developed as much as it can, because I think it has, great assets, is, taking key things, Mail, Messenger, even Yahoo Finance, groups which I think like have been not invested in as heavily, because the reason there isn’t as good as the revenue stream and the PNL against them, but it’s something that could actually be a really central product that a lot of people use. They could be enhanced the next level and that’s one area where you’re doing essentially the tech innovation. I think another area is innovating on the business model.

Hoffman would make a great $YHOO CEO (check out his bio here).

But the importance of sharing this interview is not how many great ideas Hoffman or anyone else might be able to entertain during a conversation. As $YHOO leadership has allowed some of the greatest properties in web history to whither over time, there are so many opportunities for improvement one coversation between two smart guys only and barely scratches the surface.

Take for example Flickr, a $YHOO property that Thomas Hawk declared dead last month. Well, Flickr is not quite dead yet but it is suffering from advanced osteoporosis. How difficult would it be for them to fast follow Instagram and create a mobile and highly social mobile photo sharing app? Its not too late and this is only one of a thousand applications that are waiting for a leader with vision and a set of cohones.

The entire interview is well worth a watch and embedded below:

This is a great clip of The Nightly Business Report from October 19, 1987 (Black Monday) when the Dow Jones Industrial Average ($DIA) dropped 22%.

Its so well done and funny at the same time… Some highlights…

– Neil Cavuto (1:57 in) hustling the man on the street interviews in the financial district doing a great job and looking younger than Justin Bieber.

– Larry Wachtel quipping on cascading.

– James Baker trying to talk down the $USDX

– $GLD closing up 4% at $485/oz a six month high.

– Fed Vice Chairman Manual Johnson speaking mid day of “healthy expansion with little inflation” (6:25) trying to calm the markets. LOL.

– But my favorite comes from Paul Kangas (9:37 in) who proves that we have been blaming computers for crashes (flash or otherwise) for at least 24 years.  He notes while making attributions for the action:

“combined with all of those wonderfully innovative computer driven strategies”

 

This is not a post about what happened 10 years ago today – far safer to lament the past.

It is not a post about remembering friends or where we were and what we were doing – you will have enough of this elsewhere.

It is not a post about what has happened since or the serious problems our country has that are directly or indirectly related to 9/11.

It is not a post about standing on the promenade in Brooklyn Heights and watching the second plane hit the tower or gathering up your things and heading as far into Brooklyn as you can because you are freaking out.

No, this is a post about today and the future.

Its a post about surviving hardship, removed from you or very near and over which you have no control, recovering and growing stronger.

Its a post about thriving despite geopolitical nightmares or your father’s quickly deteriorating health…

Many of us focus so much on every nuance of the world outside of our immediate sphere that we forget where we live – where we relate to those closest to us, find support and provide it to those we love – the soil from which resilience takes root.

Guys like A Random Walk Down Wall Street author Burton Malkiel will always disparage chart reading.  He writes:

Technical analysis is anathema to the academic world. We love to pick on it. And while it may seem a bit unfair to pick on such a sorry target, just remember: it is your money we are trying to save.

You gotta love it when the academics get snarky.

But there is plenty of empirical evidence suggesting that charts do have predictive value.

Problems come when traders project their own subjectivity onto the screen for reasons related to confirmation or some other cognitive or emotion based bias rather than maintaining a cold and objective posture. (That’s a key point I just made there.)

The following is a classic piece of research by Brock, Lakonishok and LeBaron entitled Simple Technical Trading Rules and the Stochastic Properties of Stock Returns. It is well worth a look this weekend by those who are serious students of the voodoo finance and doubters alike.

 

This is a long term trade and I am detailing it earlier on than I did the gold trade I chronicled on StockTwits for years and wrote a postmortem on here.

My thesis is one of extreme value of a set of assets that have been mismanaged for many years and trying to get ahead of larger activists which is beginning to play out now. Run better, I view $YHOO properties as having a ton of value that might be unlocked over time.

I am long a 1/2 position of $YHOO shares and have managed my position so that my cost basis is 14.65.  My first purchase came from selling 16 puts for .45 after the stock got hit on the Alibaba news and have sold near dated covered calls and naked puts lower which have expired since.

I sell the near dated puts incrementally when the stock sells off over multiple sessions in order to either capture the premium or build my position.  Ultimately, if I don’t get put, I am ok missing a run as new opportunities will always present themselves over time, I capture the premium and I am very patient.

Also, I like the theta trade of near dated out of the money options trading well above normal implied volatility levels if I am willing to be long the stock and have the available risk allocated capital.

I plan to sell Sept. 16 calls at .2 or above this afternoon (maybe a touch lower than that at the close) on half the position if the price gets there which expire in 6.5 trading days in order to lower my basis further.  I am willing to sell half the position at or around 16.2 next Friday.

I may make further attempts to add to the position on weakness again by selling near dated out of the money puts.

Some comments on recent events:

1. The way that the board and Carol Bartz handled her firing serves as a perfect representation of the mishandling of the company from the top down.

2. Eric Jackson did a great job summarizing the activist case last night on Bloom and you should watch it here.

3. Loeb built a 5.1% stake in the stock during and after it was getting crushed.  Simply amazing trading there to accumulate so much without jamming it higher and without being noticed.  All the while, crafting his message. Amazing work and plan.

4. Loeb’s letter to the board is spot on and in my opinion will resonate and usher in a battle that will last longer than one might expect.

Yeah, watching it back just now I surprised myself a bit that I mentioned Dennis Crowley for CEO of Yahoo! ($YHOO)

But then again, why not?

First of all, he is awesome and has built a great company in Foursquare while Yahoo! is starving for vision and a bold initiative.

Second, he will understand as well as anyone or better how to socialize the site and reward optimal user behaviors.

Third, the price to buy out talent like Twitter’s Costolo is much too high (Yahoo! would likely have to buy Foursquare to get Crowley).

Paddy Power, the giant Irish book maker has Crowley at 9 to 1 odds for next Yahoo! CEO well behind favorite and Yahoo! exec Ross Levinsohn but not the long shot by any means so perhaps it is not so crazy  after all…

This is a post about how a system responds to extreme stress.  In this case the system is the US equity markets and the stressor is the 9/11 attacks…

On September 10, 2001, the day before the attacks, the SP500 ($SPX, $SPY) closed at 1092 down 435 points or 28% from the March 2000 high above 1500 while the NASDAQ Composite closed down 3350 points or 66% from its March 2000 high.

It was clear to all but the last believers that the NASDAQ ($QQQ) bubble had burst and that the wealth effects created by the inflation of the internet bubble had been lost by all but those who’d sold their stocks much earlier.

The Federal Reserve had begun dealing with the steep and rapid economic and market downturn by lowering rates and loosening monetary policy.

An article titled Fear of Recession Ignites Discussion of More Tax Cuts appeared on the 10th in the New York Times and read:

Administration officials said the president had not decided to back any particular proposal. They said he believed that previous steps, including the tax cut he signed in June, should spark a recovery before long. If it does not, they said, he might eventually seek further actions.

It is critical to examine the environment and the state of the market at the time it is exposed to an extreme stress such as the 09/11 attacks, because how it responds is directly affected by these factors. Further, the manner in which it responds quickly gets habituated and hence more and more difficult to alter over time.  It becomes ensconced in the response whether it is helpful or not.

If a market is strong and well supported, it will respond with more resilience and recover more quickly. It will cope more adaptively with the stressor.

But, if a market is already weakened and lacking support, it will not possess the resources to cope as effectively and will cling to and habituate maladaptive coping strategies.

Since September 10, 2001, the SP500 has risen a mere 6.6% (well under 1% annualized). And for all of that sideways action it has been a hell of a rollercoaster. The $SPX fell another 300+ points after 9/11 to 770, doubled from there to 1560, dropped by more than 50% to 670, doubled again to 1370 and more recently has fallen back yet again to yesterday’s close at 1165.

That’s a lot of risk for so little return over a ten year period.

Before the attacks, the US was already relying too much on monetary policy and rates to deal with economic problems.  These were already our drugs of choice.  The extreme stress caused by the attacks and the subsequent anthrax scare served to increase our vulnerability and the collective perception of urgency to self medicate rather than adapt reinforcing the feedback loop.

It is little wonder that we continue to rely on similar remedies today, ten years later, despite continued evidence that such measures are not in our nation’s long term economic interests.

The stress of the 9/11 attacks continues to act as one significant casual factor of this maladaptation.

John Bogle screwed a lot of people in the late 90’s and early 2000s with his grandfatherly buy and hold indexing shtick.  People were comforted by him and trusted him and loved the idea that it could be that easy.  Absurd.

Bogle published Common Sense on Mutual Funds in 1999 and was all over financial television and the magazines hawking Vangaurd Index Funds. Meanwhile, if you bought the SP500 ($SPX, $SPY) in 1999 with your retirement money and dollar cost averaged, not only havent you grown your nest egg but you are likely in the red.

Yet holding trades for extended periods of time can be extremely profitable if you are smart about it and put in the time and effort required. This is how you build real wealth.

But it requires vision and finding big opportunities, researching them so that you are the expert, trading around them intelligently, managing risk well and staying with them, despite adversity and your own impulse to take profits too soon, for extended period of time while the story unfolds.  Not easy.

Its not this lazy fantasy that anyone can do it which will only be true during fleeting periods of abundance and good fortune for everybody.

There are real experts out there like Todd Sullivan who can help you and provide ideas but at the end of the day it is your money on the line, those who want to beat you are cunning and there is no net.

Everything including buy and hold is a trade.

I have watched the StockTwits streams closely for a long time and for the most part the behavior of our members is exemplary.

In my opinion, there is no wall between real world communites and online communites rather online communites are a convenient and valuable extension of the real world, a part of it, which allows people to connect and share ideas more easily (a philosophical post for another day).

From time to time though, I do observe people gloating and mocking others for their mistakes or for their mannerisms.

Stuff like: “Where are all you $NFLX bulls now. Got awfully quiet.  Yeah, I thought so.”

or: “Hey double dippers, bite this. $$”

We delete these messages as we view them as disruptive to constructive market focused discourse.

I have a couple other observations as well.

1. The taunt or flame says more about the character of the poster than it does anything else. Likely, he is frustrated with some other relationship set in his life and is redirecting it towards someone less immediate.  Not so flattering.

2. It is just noise and adds nothing of value to the stream.  I have never seen anyone make money from taunting.

For the reasons stated above, if you are a guilty party, please refrain.

The screenshot below is from p. 205 of Popular Mechanics circa February, 1913. I thought the story titled Automobile Equipped with Wireless Telephone was incredible.

Talk about visionary.

I found little on Google about the inventor E.C. Hanson except that he patented a few items including a “radiotelegraph system.”