Friday, November 24, 2006

Aquamarine Fund Diary, Buffett, and Owning a Business

You can tell from the volatility breakout in my blog posts...that I have some time on my hands.  :)

Found some great posts by the Aquamarine Fund Diary.  Here's a post on Warren Buffett and the Chicago Graduate School of Business - trip to Omaha.  I really liked the following bullets:
  • Associate with people who are better than you. Marry up, employ up,
    work for your heroes. Associations rub off. Tell me your heroes, I’ll
    tell you how you’ll turn out. People in the room (us) have IQ, energy,
    and smarts to burn. No bad results will be due to deficiencies in this
  • Take one hour. Think of the one classmate who you’d like to own 10%
    of for the rest of their life. 10% of all of their future income. What
    do you think about? The person who others admire and want to work with.
    Person who works hard and gives others credit. It’s simple. Select
    those qualities for yourself.
  • "Now the fun part” who would you want to short? The guy who turns other people off.
I also liked this interview of Tom Murphy in The Wisdom of Tom Murphy.  In the full interview Murphy  encourages
"people, particularly those who are young but also experienced enough to know what's going on, to try starting a business because the rewards of being your own boss are wonderful."
Okay, readers...if you own your own business...give up the goods on how you came to the realization you wanted to run a business instead of working for whatever company you were working for.  Why did you feel the risk was worth taking?  And what business did you choose...something you were familiar with?  Something new?

And for those working for others...if you have thoughts of running a business someday...what type of business would you like to run?  And why?


Thursday, November 23, 2006

Quote of the Week - We're Just Ants!

"If you study an ant colony, you will find it has a life cycle — it’s robust, it’s adaptive. However, if you ask any individual ant what’s going on, they have no clue. They’re working with local information and local interaction. I think there’s a very clear parallel to markets. How do markets get to be efficient? The answer is it’s an interaction among a lot of diverse investors. The aggregation mechanism to bring the information together is the stock exchange, and then what emerges from that is the stock market.

The important takeaway is it’s impossible to understand the market by interviewing individual investors because each investor only has a partial piece of the picture. It’s the aggregation that allows the full picture to emerge. What the ant colonies teach us is that in markets, cause and effect are very difficult to pin down. Sometimes we like to think that the experts on TV or the pundits quoted in the Wall Street Journal know what’s going on. They’re really just ants." -- Michael Mauboussin
The above quote comes from Mauboussin's article, "Guppies, ants, and golf swings: Mental models for investors." This quote really defines the methodology I have adopted in trading. Forget how you feel about the stock. It doesn't matter. Forget how you feel about the doesn't matter. Who cares if we're in a housing bubble, USD is going lower, inflation, deflation, yakkity-yak...don't come back. The only thing that matters is what the market thinks.

The market is really just a glorified voting system. You may believe Google, Starbucks or Milli Vanilli is road kill. But, if the vast majority of participants believe it's the next best thing...then it is. I know, I know better....but you're just one vote...amongst millions of voters. Know matter how strongly you feel about's just a drop in the bucket.

So, why fight it? I ask's ya's!?! Just go with it. Embrace your inner ant.


Happy Thanksgiving!!!

Just want to wish everyone a Safe and Happy Thanksgiving!  This will be our first Thanksgiving in Missouri and we're really looking forward to it.  Plus, it will be our son's first Thanksgiving.

The best part is I have 4 full days of complete rest ahead of me.  Definitely time for catching a movie or two.  And many other things I've put off for far too long.

I leave you with a rather interesting thread over at the Trading Blox Forum on Pre-emptive money management.  Provides food for thought on volatility based position sizing.  Is volatility predictable?  If so, should we adjust our position size to anticipated changes in volatilty?  Since our current position size is based on historical volatility.

This also begs the question as to the use of historical volatility in position sizing.  Is past volatility a good measure of future volatility?  Should we use a shorter time frame for measurement?  Or longer?  Or weight the average?  Seasonality may be a poor choice to predict changes in price but what about changes in volatility?

Is all this getting way to complicated?  Would we instead be better off just randomly choosing a number?  And one more question...when do your best returns occur?  During periods of high volatility?  Or low?  How about your worst returns?

As always, something to explore.

Later Trades,


Wednesday, November 15, 2006

Quote of the Week

"There's a great story about a famous local trader at the Chicago Board of Trade (CBOT).  One day, he was on the floor of the CBOT and a U.S. inflation number came out that was totally unexpected.  Pure pandemonium ensued.  When all the noise died down, he walked out of the pit having made $10 million and said, "By the way, what was the number?" -- humorous story shared by Dr. John Porter in the book, Inside the House of Money
It's official...the new trading system is in production.  A week earlier than the deadline.  Much of the work was done in R.  In fact, a few times in the project, I just don't know what I'd do without the fantastic little language.  Python and Ruby was used as well.  Along with Wealth-Lab.

That's it from my part of the world...where I'm eagerly anticipating my first Missouri snowfall. 

And enjoying the cool vlog, WallStrip.  It's the first stock market show I've seen where the highlighted stocks are chosen from a valid investing concept.  Who'd a thunk it?  Smart!

Later Trades,


Monday, November 06, 2006

Quote of the Week

"Implied volatility is based on historical volatility, but who cares about historicals? They're irrelevant. The point is, things can happen for the first time that aren't in your distribution so they can't be priced. If it's never happened before, how can you hedge yourself? The only way to hedge the unknown is to cut off tail risk completely." -- Jim Leitner from the interview in Inside the House of Money