Dirty Dozen, Long Only Portfolio, End of June 2017

One change to the Dirty Dozen portfolio, selling Chipotle (CMG) on July 3rd.  Amgen, Gilead, and Twitter remain on the sidelines for now. Starbucks, which was bought on June 1, isn't looking particularly well, but we will have to wait another month before deciding whether it should be sold.

Changes in 2017 include selling Twitter in January, while getting long Chipotle and Tesla in February, Facebook in April, and Starbucks in June. The Chipotle sale in July, after five months of holding, will more or less be a "scratch" ... no loss, no gain.  

TV Shows Watched -- Sense8

My buddy Theo recommended this one to me.  A Netflix Original series. Whoever did the opening credit music also did the House of Cards opening credit music, more or less exactly the same song, maybe a two-for-one deal for Netflix.

This is by the Wachowski brothers, you know, the Matrix guys. It's a similarly mend-bending alternate reality, parallel reality, time twister, whatever kind of deal. Features eight! different people on eight different continents (I know, I know) who all share this bond with Darryl Hannah, their "birth mother" of sorts. I love D. Hannah because she's exactly my age (ok, ten years older) and still looks great, though she doesn't have much screen time here.

The show is intriguing enough to watch another episode, though I have a sinking feeling.

Blonde lady from The Ring

OK, the eight guys on eight continents thing is a little overwhelming. Why didn't the Wachomatrix brothers make it six or even four? There's a black character and an Asian character and a transgender character and a gay Latin lover character (talk about Sesame Street), but all the gay sex doesn't grate too badly ... it's the gratuitous violence I can do without. I will soldier on to episode three.

Great package (stuck a sock in it)

One of the characters is a Korean woman who is corporate chieftain by day (her Dad's company) and cage fighter by night. Somehow the eight linked characters can zap around the globe taking one another's places. Another character is in Kenya? maybe and the Korean girl takes his place in a fight. Time space flipperoo just when you need it. Not sure how many more of these episodes I can get through, but season one ain't 22 shows long at least! To be continued...

Nice sheen of sweat but she ain't ripped

Driving for Uber

Uber will be legal in my neck of Appalachia starting at midnight tonight. I've applied to be an Uber driver and am still waiting for the text or email that tells me I'm approved to drive. I have already submitted the scary driver profile pic and am anxious to go! 

I'm still waiting.... 

All clear.... 

The Cost of a Cardiac MRI

Earlier this year I had a cardiac MRI. You slide down the MRI tube and they inject gadolinium through a vein in your left hand. There's a cold sensation that runs the length of the left side of your body, which is fine until it reaches your head (brain). You sort of want to cry out, but you also don't want to be a wimp about it, and it passes. 

Here's the bill: $7,056. I always think about medical bills in terms of Mercedes payments. You can see that my cardiologist pays about $2,846 a month for his S600, so the cost of the cardiac MRI will make almost exactly two and a half car payments for him. Guess who doesn't want a Single Payer healthcare system in America? 

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Notes for Chat with Traders, Episode 107

Episode 107 ... Anthony Saliba (110:14)

• Options in China as the last frontier
• 120MM retail investors in China
• Jan 1998, last day of floor trading in Australia
• Lives in Milan but has house in Chicago
• Helped exchanges around the world make switch from open outcry to screen-based trading
• Only ASX gave Saliba's company credit for successful transition
• Believes options are a great product
• Was a stockbroker right out of college, 21 years old, in Indianapolis
• Era of Jimmy Carter, Stagflation
• Read a lot about options
• Closing prices came in the newspaper the next day
• Clients did call and ask where prices closed
• Bally was the hot stock of the day
• Client invited him to trade on floor in Chicago (CBOE)
• Guy he caddied for also worked on CBOE
• Partnered with guy he caddied for, made half a million dollars by 1981, bought him out
• Had a mainframe available that he could plug into for theoretical values
• Teledyne another hot stock of the day (IBM, Honeywell, Hewlett-Packard)
• He would trade bigger than peers because he'd use spreads
• Personal computer became a thing in 1984, hired a programmer to write software
• On the CBOE floor for 13 years
• Glossed over almost busting out early on
• Started out with $50,000 dropped quickly to $15,000 over five weeks
• Filled with loathing and despair
• Started out with someone else's money, "Julian Good"
• Switched from Teledyne to Boeing, trading one lots
• Goal of making $200-$300 a day
• Wrestler and cross country runner in high school, so he's disciplined
• Went back to Teledyne pit but using his Boeing pit discipline
• Made six figures a month or more
• Punting is anathema to him, just chip away day after day instead
• Realized trading not as easy as he thought, lots of introspection
• Son of a carpenter
• When you get hurt (lose money), trade smaller and chip away 
• Still trading Teledyne in 1984
• Short squeeze in Teledyne, rallied 50 points, Saliba got scared by this
• Leon Cooperman the Teledyne analyst at Goldman Sachs in 1984
• Teledyne eventually hit $320 a share in three months
• Tried to trade currency options like he did equity options, got killed
• Sep. 1985 move in Yen (4-5% rally), he got his ass kicked
• Had Quotrek machine by his bed
• No respite when you trade currencies
• Lost $2MM in two years trading currency options
• He likes to give back, loved the CBOE, did marketing trips to regional brokerage offices
• Edmund Andrews wanted to write story about an options market maker
• By chance, Andrews happened to be in Chicago day after 1987 crash
• Andrews followed Saliba around on Oct. 20, 1987 (day after crash) ... Saliba was age 32 then
• Andrews' story on cover of Success magazine, January 1988 [I will look for this in library]
• CBOE didn't like it, market makers supposed to be low profile
• Looking in pictures like the cat that had eaten the canary (this was frowned upon)
• Lot of people on the floor who never knew what they were doing
• He saw the structure of the market differently from others
• Some were slaves to the Greeks: delta, gamma, vega
• Others were trading directionally using technical analysis
• Saliba tried to create low-cost spreads with easy-to-understand risks
• Left floor in 1991
• Not a quant guy
• Not good at math in school
• But he's very disciplined ... later on used a lot of automation
• "Necessity is the mother of invention" 
• Youngest brother works for Goldman Sachs (in options)
• "Staying spread is staying alive"
• In 1988 tried to train a group of traders, frustrating, wanted to automate it
• Spent money on programmers to build simulator, cost more than he expected, had to figure out how to sell it to others 
• Germany was on Unix using Sun systems
• Saliba arrived in Frankfurt (Deutsche Bank) 1989, trained them all
• Charles Cottle "The Risk Doctor" his partner in this venture
• Mentions Shelly Natenberg book
• Teaching the mechanics of options making, better risk management
• Had no Holy Grail that he was exposing by teaching others
• Traits of a good trader:

1. Discipline (stick to a plan),
2. Creativity (coming up with a plan),
3. Humility (willing to scrap a plan),
4. Good sense of humor (can't take it too seriously when you miss things),
5. Intelligence,
6. Diligence

• "Swivel chairing" -- one platform for idea generation, one for trade execution
• Markets are less forgiving today than when he started out
• Discipine: sticking to risk and size guidelines, sticking to the plan
• Can't determine why you make or lose money if you don't stick to plan
• Why did pros he know miss the Trump win that night? It was a shock, Saliba was scared too, not sure correction overblown
• Night of Brexit, Saliba identified it as hand-wringing and should be bought
• He has always adapted, hates the term "re-inventing" oneself
• Has developed and sold a lot of software products that solve problems 
• Wife says he has too many ideas
• Kissed a lot of frogs on the way to the princess (talking about investments, not his wife)
• Has lots of very diverse investments now (golf courses, insurance, healthcare, etc.)
• Nephew and brother have found a lot of deals for him
• He was born poor (but in America, not in a global sense), father lived hand to mouth, had seven kids
• Upbringing helped him respect the value of things
• Don't be a curmudgeonly scrooge type, but you have to stay grounded when you make big money
• He wouldn't have been as driven as he was without being born poor
• His own kids are entitled, don't have his drive or hunger
• "Success skips a generation"
• Millennials don't have the hunger, they ask "what does the world owe me?"
• Saliba is gracious, humble, honest ... and says some nice things to Aaron in parting

Cost of Homemade Rice Krispies Treats

The kids were interested in the price difference between store-bought Rice Krispies Treats and homemade ones. OK, their father was interested in the price difference and got the kids involved.

First we bought a 40-bar box of Rice Krispies Treats for $7.49. We've never done this before; it was purchased strictly to find out how much each individually wrapped bar weighs, and the answer is around 21 grams, so that's 420 grams for $7.49 or $0.01783 per gram ... a little under two cents per gram.

If you eat enough of these, you'll look like the guy on the box

Next we bought a four-stick package of President butter for $5.99, or about $1.50 a stick. The recipe calls for three tablespoons of butter, which is 3/7 of a stick or $0.64 worth of butter.

We bought four sticks in a box (no picture available)

Then we bought a 10 ounce package of Jet-Puffed Miniature Marshmallows for $1.69. The recipe calls for one whole package.

The glue than binds

Lastly we bought an 18 ounce box of Rice Krispies for $3.69. There are around 18.75 cups of Rice Krispies in an 18 ounce box and we can round down to 18 given the spillage that occurs when the kids make Rice Krispies Treats.

Kellogg's, baby ... no store brands allowed! 

So the total cost per batch was $0.64 (butter) + $1.69 (marshmallows) + $1.23 (cereal) = $3.56. The yield of our first homemade batch was 431 grams, giving a per gram cost of $0.00825 ... it would be even lower if not for the spillage allowance.

The bottom line is the store-bought Rice Krispies Treats cost more than twice as much as homemade ones. 

I will update the post with the yield that we get from future homemade batches to see how much variance there is batch to batch. 

UPDATE: the second batch we made was 460 grams, giving an even lower per gram cost of $0.007391! 

TV Shows Watched -- Quantico

On Netflix. Another form of War Porn ... glorifying the security state and its agents (this time, the FBI). Fomenting fear in the little guy about threats from radical Islamic crazies, which are low probability to nonexistent in reality, but we have a military/security-industrial complex to maintain, and the entertainment-industrial complex is happy to lend a hand.

I probably wouldn't have made it through the first episode, but it stars this stunningly beautiful Indian girl ("subcontinent not Injun," as my friend Carl likes to say) named Priyanka Chopra, and I just like looking at her. She's not good looking from every angle, so they're careful how they shoot her, and she looks kind of dumpy/hippy from behind so they're careful not to get that shot too much, but she has great boobs or wears some kind of shapely push-up bra which makes her chest look outstanding.

The rest of the cast is really white ... there is one token black woman, who is the assistant director of Quantico, but that's it. The story itself is far-fetched and frankly dumb ... it's got mainstream, middle-brow, middle America broadcast TV values, second rate acting, a crummy musical score, all of which grate, but as I said, Chopra is just too gorgeous -- that hair, those eyes, those lips -- *not* to watch. 

It's 42 minutes an episode so clearly "made for commercial TV."  I'll suffer through the second episode and continue my report below. 

Sexy FBI profiler unwittingly screws an unshaven fellow agent in a rental car (why would his car from California be at the airport? One of many sloppy mistakes.)

In episode two a token Hispanic agent (female) is introduced as well as a token homosexual analyst, to round out the Sesame Street cast. In episode one we learned that one of the agent recruits is pretending to be gay, and now he has to deal with an actual gay guy around (awkward).

There's some unrealistic violence, a fistfight between Chopra and the Hispanic woman agent (Latina? is that the politically correct term?) -- annoying. Musical score continues to drive me nuts. I'd like to soldier on but season one has 22! episodes ... I really don't know how many I can get through. 

Chopra doesn't look so great in profile, but I may have misjudged her ass in episode one, so I will continue to study it in episode three. She has a great, sexy low voice and is not a native English speaker, fluent of course, just with a lovely non-native accent.  It's nice to see this beautiful foreign woman, speaking accented English, starring in a TV show aimed at middle America. 

All units be on the lookout for a stunningly beautiful Indian girl with amazing hair, full flips, and FBI training

Quit after finishing episode three. Dumb, improbable story ... second-rate broadcast TV vibe, and I got tired of looking at Chopra ... and the musical cues were driving me nuts! 

Exactly how I felt by the end of the third episode. Time to quit Quantico! 

Notes for Chat with Traders, Episode 108

Episode 108 ... John Netto (55:25)

• Placed first sports bet at age 8
• He lost the first bets he placed but didn't discourage him
• Doesn't bet on sports anymore
• Father conservative, imparted importance of saving and investing
• Remembers the 1987 crash, he was 13 then, age 42 now
• Oliver Stone's movie Wall Street made strong impression on him
• Stone didn't realize he was turning kids onto the market instead of off
• He wasn't a bookie, he was a liquidity provider (in high school) [has a sense of humor]
• "The Netto Number" -- redefining alpha [they didn't explore this idea]
• Claims creating "Progressive Points Spread," not a binary outcome on sports betting
• Poor grades in school but worked hard on his bookie business
• Grew up in East Bay Area, Interstate 80
• Recorded Stardust casino opening odds delivered via radio
• Dec 1992 graduated high school and joined the Marines, 18 yo 
• Classic underachiever, poor grades, low self esteem in high school, so Marines transformed him
• First assignment in Japan, in two years
• Learned Japanese language, passionate about it, 1994 (no Google translate)
• Assigned to Tokyo (embassy detail?), continued to study Japanese, two more years 
• Came back to US in 1998
• Opened eTrade account
• Studied Chinese at Univ. of Washington
• Wouldn't say he's "fluent" in Japanese (smart to say that), it was just "effortless"
• 2200 hours to become "professionally competent" in Level 4 language (like Arabic, Chinese, Japanese)
• Had horrific sense of timing in the markets at first
• He had no process then, just impulsive
• Thought he should just do the opposite of what he naturally did 
• Truth is that throwing darts at the wall with good money management, you'll do ok
• But held his losers, cut his profits short
• Left Marines in 2002, joined prop trading group
• Joe DiNapoli's book really helped him
• Still uses DiNapoli's Fibonacci ideas
• Managing risk not a problem for someone with Marine-like discipline once he had a process
• Trades futures markets and options
• Uses eight monitors
• "Protean" trader ... highly adaptable
• Developed multiple strategies: mean reversion, relative value, momentum, trend following, breakout systems -- uses all of these
• Key is knowing which strategies to apply to current market environment
• "Global Macro Edge" -- name of his book
• He's a fast talker
• Three keys to be successful trader: operations, analytics, execution
• (He has a lot of set-phrases memorized, clear military training)
• Hired programmers to automate things, on a contract basis
• His wife helps him organize things [she must be an angel]
• Hires people based on word of mouth
• Wants people certified on certain APIs
• "Prow-ess"
• When to lever things up and lever things down -- that's what it's all about
• "Market Regimes" -- technical, fundamental, sentiment
• Spends a lot of money on bespoke research (~$80K a year)
• Makes $500-600K a year trading [on how much capital? Netto says $1MM in capital]
• Spends $26,000 a year on his Bloomberg Terminal
• Uses CQG as well
• Great asymmetrical trades (paying 5 to 1) come with a great deal of discomfort
• Wrote a 580 page book, self-published? (yes, self-published) 
• Low volatility for years now ... have to adapt to that
• Make your lack of capital your biggest strength, small positions can be an advantage
• Trades from home in Las Vegas
• Has patents on his process, but won't talk about it
• Global Macro guys can be brilliant but don't know how to manage risk
• Importance of getting out of your comfort zone
• Want to be a little bit afraid in a trade
• Be aware of your emotions, feelings, instincts
• Does daily "Qualitative Self-Assessment" -- preparation, focus, routine
• Journal everything constantly
• Be in tune with yourself
• You need to be uncomfortable to hold your winners
• You need to feel the nnnngggggg, but power through it [I know what he means]
• Overconfidence > complacency > mistakes > losses
• Respect the market
• Embrace your losses
• If you're not losing money, you're not taking the risk necessary to succeed
• Separate discomfort from fear, confidence from complacency
• Boy he talks fast, sort of an interesting rapid-fire military cadence throughout  
• Twitter: @JohnNetto

Notes for Chat with Traders, Episode 109

Episode 110 ... Edward Thorp (65:15)

• Ham radio license at age 13
• Fascinated with all things science at age 10, 11
• Born in 1932
• Sold Kool-aid to WPA workers, turned 5 cents into 6 cents
• Early reader, loved books
• Started talking in full sentences
• Precocious youth
• Learned how to make gunpowder from encyclopedia
• Parents worked in War Industry, kids weren't supervised, family very poor
• Delivered newspapers, bought chemicals from corner druggist
• Won scholarships to fund education
• Studied chemistry at UCLA
• Switched to physics, working on PhD
• Switched to math, got his PhD in two years instead
• Got job at MIT teaching, spent two years there
• Wife hated Boston winters, moved to New Mexico, then UC Irvine
• Independent thinker
• Interested in whether roulette wheels could be gamed
• Found out people playing blackjack and running games didn't understand what they were doing
• MIT had an IBM 704 computer
• Taught himself Fortran 2, early 1960, test his card counting ideas
• Saw how to beat blackjack in multiple ways from computer results
• Saw blackjack as a math problem
• Bet big when you have an edge, bet small when you don't
• Everyone thought he was a crank
• Casinos said they'd send a cab for him
• Manny Kimmel wanted to bankroll Thorp
• Kimmel owned parking lots in NYC
• Didn't know Kimmel was mob-connected
• Kimmel an experienced gambler
• Doubled $10,000 bankroll on their first trip to Vegas
• Thorp more interested in academics than gambling
• Casinos continued to scoff, so he decided to write a book about it
• April Fool's Day 1964, changing the rules of blackjack, no doubling down , no pair splitting
• Eventually rescinded those rules
• Still are people who make a living counting cards
• Thorp never interested in money, liked to be around smart people who knew a lot
• Thorp not a conventional guy, unique thinker, Depression-era type of man [vanishing bunch, alas]
• People steal your ideas so he published quickly
• Claude Shannon sponsored his paper for National Academy
• Claude Shannon was a gadgeteer ... wanted to help build wearable computer to beat roulette
• 1950s terrible in casinos, 1960s awful, same in 1970s -- mafia violence
• Casinos improved in 1980s when they went corporate
• Played baccarat, won regularly, they drugged his drinks
• Also tampered with his car so accelerator stuck -- apparently tried to kill him off
• Casino owners hated Thorp and card counters in general, wanted to kneecap him
• Money made from gambling and book sales, tried to invest it, but didn't do well
• Studied investing all summer 1964
• Discovered warrants in 1965 
• Figured out how to price warrants, buy warrant and short stock, or buy stock and sell warrant
• Wrote a book about his warrant findings called Beat the Market
• Beat the Market inspired Black and Scholes, pricing uncertain payoffs
• 1973 Black Scholes paper on options pricing, Thorp says he had exact formula years earlier
• CBOE opened in early 1970s, options finally tradeable on an exchange
• Playing poker or blackjack great training for investors or traders
• "An edge" -- winning money at a fairly predictable rate
• "Mathematical Expectation"
• Managing your bankroll -- gambling is the master teacher
• Kelly Criterion -- maximizing expected growth
• Play 100 hands an hour, for 100 hours, that's 10,000 hands -- a lot of bets
• "Maximum Expected Return"
• KC a compromise between timid betting and overly aggressive betting
• Find a situation where you have an edge, use Kelly Criterion to manage your bet size
• Warren Buffett on one end of having an edge, HFT on the other end
• Don't pursue money or success ... do what you love and enjoy, then money and success will follow
• A Man for All Markets -- a memoir ... what's important in life
• Don't just pile up money, enjoy the people you love

Techies and Medics

Glassdoor released yet another list of jobs that pay over $100K; they are:

1. Finance
2. Medic
3. Tech
4. Tech
5. Medic
6. Medic
7. Medic 
8. Medic
9. Tech
10. Tech
11. Tech
12. Medic
13. Tech
14. Medic
15. Medic
16. Tech 
17. Medic
18. Tech
19. Tech
20. No idea?

See why there's no Single Payer healthcare system in America?