Graham Was Wrong. Women, Dissonance, and The Inverse Nature Of

Ben Graham got it wrong. It’s not Mr. Market. The market is a ♀, female.  A sexy, borderline personality disorder, tornado of emotions.  Incapable of long-term planning, living in the present. A Beautiful Disaster. Ben Graham et cetera say that in the short term, the market is a voting machine. That would be too simple. It’s a highly volatile, disorderly, driven-by liquidity demand, perception machine. I digress, a topic for another post. Let’s talk about estrogen.

What do women have to do with the market, you ask? Everything, I say. Understand the behavior of females, understand the behavior of the stock market. Notice I said the behavior, not words. If you think that females are in any way rational, caring realists, you’re wrong. I like to call this the Caring Woman Hypothesis (CWH for short). CWH, like the Efficient Market Hypothesis, EMH, is a rational fantasy. Nice in theory, but doesn’t work in practice. You catch her stealing, she won’t confess. Meet Virginia. Nerds, both in finance and romance, like equations. If I do X for her, she will give me Y. If bonds go up, stocks go down. Behind this illusion lies loosely controlled chaos. It doesn’t surprise me that they are stuck teaching “how the stock market works,” rather than showing us. Or that they have fat, ugly wives. This is why nerds are not good with women. I am the Professor’s Broken Heart.    

Women are manipulative and scheming self-rationalizing machines. To survive, they had to be and still are. Study evolutionary biology and see the light. The incongruity between what a woman says, and what she does, this inverse nature is the key to understanding both them and the stock market. This is why she calls, because she hates you. This is why stocks are Papier-mâchés of shit and go parabolic. The Costanza Effect.  Unintended Consequences. Figure it out. Women don’t know the extent of their own cognitive dissonance, so please, for the sake of your future illegitimate children, don’t speak to them of these things. Women say they want a gentleman provider of caring disposition. This is the small part of their rational mind speaking, and it's true to a certain extent. The problem is – women are also of a sexual nature. They need two things: Emotional Security and Sexual Excitement, and when something down under tingles, all else is thrown aside to live in the moment. That’s when their self-rationalizing mechanism kicks in. My girlfriend is different! Every guys says that. Short-term, it's all about sex. In the stock market, the short-term is volatile and unpredictable, like sex. Long-term, it's about security and stability, like marriage. Stock market - cash flows, survival, and macro. Watch the movie Blue Valentine, and cry for the guy. I did.

View the market through a woman's lens. What she says, isn’t what she wants, and what she wants, is for you to decide. If nothing else, this will make or break the trader. Buffett always said temperament is the key to investing, and I believe it. The “inverse nature of.” If in doubt, stay out. If certain, all out, with an out. All else fails, always against. Apple just had a record quarter? The retail trader is buying. The Professional is thinking.  As Niederhoffer said in The Education of a Speculator, “Better to go against. What looks good today is encapsulated by the market tomorrow and will change the expected profits, the probabilities, and the path of least resistance in subsequent periods.”

Women are often characterized as “emotional.” Emotions, for all their heartache, have been one of my best indicators. Soros got backaches, but I’ve found the inverse nature in my physical manifestations as well. When I feel a gut-wrenching hurricane in my stomach, I’m buying. To be so petrified, so scared of loss, this is the perfect inverse indicator to go long. When I feel like I’m drunk on puppy love, wanting to skip in the flowery fields of optimism, that’s when I need short exposure. Really, it comes down to this. If you’re not uncomfortable in a trade, you’re doing it wrong. If there’s not some level of discomfort in a relationship, it’s as good as dead. Comfort is the death of the speculator. And relationships.

Dissonance is the Name Of The Game. Women are the Representation. More on this at a later date.

Sunday Night Soul - Interstate Love Song

Stone Temple Pilots...

McClendon and Chesapeake, There Is a Trade Here

Apparently, Aubrey McClendon is full of shit. He says he eats his own cooking, but he doesn't. He got fucked in 2008 with margin calls and looked like a dumbass. Then he took $1.1B in personal loans against his stakes in CHK wells. He also decided to run a $200M hedge fund on the side. He has brass balls of steel and thinks he can do whatever he wants. Fair enough. 

However, the negativity surrounding CHK is reaching extreme levels. Everyone is bearish natty gas and everyone is bearish CHK. Their Q1 numbers were not good, they're going to be investigated for securities fraud, natty is still getting destroyed, and their CEO acts like a rich, drunk high school kid with a Mustang GT. Yes, there are solid reasons to be bearish natty. And CHK. But, if CHK is ultimately an asset play, this stock should go much higher once they sort this shit out. They have a lot of debt and may have to raise equity later this year. There are red flags popping up all over the place and people are saying it's Enron Round 2. I'm not sure, but I do know this - this may be one of the best trades of the next five to ten years.

When extreme moves happen based on rare events, there is always a trade to be made. The question is, which way? Is this reflexive or non-reflexive situation? Getting long when uncertainty is high is generally a good trade. The level of discomfort at the thought of going long CHK arouses me, so I'm keeping an eye on it.

Value Investing: Investing For Grown-Ups?

A paper from Aswath Damodaran worth a read. Value investing (especially of the quantitative kind) has become too popular for its own good. Buffett was right to close down his fund when he did. His thoughts, shared letters to investors, and the performance of the Rea-Graham fund are worthy of a post. So are James O'Shaughnessy and Jeremy Siegel. They are both full of shit.

Value investors generally characterize themselves as the grown ups in the investment world, unswayed by perceptions or momentum, and driven by fundamentals. While this may be true, at least in the abstract, there are at least three distinct strands of value investing. The first, passive value investing, is built around screening for stocks that meet specific characteristics – low multiples of earnings or book value, high returns on projects and low risk – and can be traced back to Ben Graham’s books on security analysis. The second, contrarian investing, requires investing in companies that are down on their luck and in the market. The third, activist value investing, involves taking large positions in poorly managed and low valued companies and making money from turning them around. While value investing looks impressive on paper, the performance of value investors, as a whole, is no better than that of less “sensible” investors who chose other investment philosophies and strategies. We examine explanations for why "active" value investing may not provide the promised payoffs.

An Ultimatum to Taco Bell

*Enraged, I recently wasted an hour of my life writing a letter to Taco Bell. It is posted below*

Dear Taco Bell,

                There I was, smoking a cigarette and listening to Bach on his birthday, satisfied with my existence, when I got a text. I took a drag and read it:

“Yo I got the worst news ever today!”

“What’s that?”

“Taco Bell doesn’t have the Beefy Crunch Burrito anymore!”

With high urgency, I drove to the nearest Taco Bell across the interstate to confirm this sheer lunacy. It couldn’t be true.

“Hi, I’d like two beefy crunch burritos and a Medium Coke Zero.”

“Sorry, sir, we don’t have those anymore, the promotion was terminated.”

TERMINATED.

Oh my, oh my. My desire, flaming with dreams of Beefy Crunch Burritos, was replaced by a dark energy, permeating anything and everything. A tornado formed in my brain, furious winds whirling my thoughts in a funnel. You see, I was planning on getting shit-faced this Friday on yeast excrement, capping off the night with Beefy Crunch Burritos. Now, I walk the Boulevard of Broken Dreams, stark raving mad, planning Taco Bell’s destruction.

And I have a plan.

Make no mistake - I am on to you, Taco Bell. You are feeding on the powerless, playing hot and cold, a Coquette in a sea of victims. The Coquette is a seducer, turning a cold shoulder, delaying gratification, satisfying for a while, withdrawing, only to return, just barely. Having studied history, I know that countless men have been seduced by their bullshit, and I am calling you out. You let the public have your Beefy Crunch Burrito for a while, then, without warning, snatch it away. You then try to replace it with a fucking Dorito taco. That’s like replacing your kids brown bag lunch with a flaming bag full of shit. Beyond reproachable.

Please replace your Head of Marketing immediately, and drown him in a pool of Doritos. Tell him - I see through your vanity, you perfect tease. You are a master seducer, but I have called your bluff, held a mirror to your face, and you see it is ugly. Toying with the emotions of your customers will end, now. You can’t light people’s hearts on fire and not get burned.

So this is what’s going to happen. On the 1st of June, 2012, I plan on Saturday Night Paralysis, getting drunk and disorderly on Firewater and Antifreeze. After I am thoroughly inebriated, I am heading to the nearest Taco Bell with a chemical smile, and there better be two Beefy Crunch Burritos with two names on it. One for me, one for my lady of the night. By June 1st, the Beefy Crunch Burrito will become a permanent item on the Taco Bell menu. If not, with a sweeping affirmative action, I will unleash the fury of Faulkner and power of Pain on your asses. I am not clowning around. If you so choose to ignore my threat, understand that masked vigilantes, riding Dark Horses, with fists full of rage, will crusade against Taco Bells across the World, casting Fire Sauce into the eyes of Taco Bell employees, blinding them. I will be there, The Lionhearted, leading the crusade, twirling my Fire Sauce Revolver with lightning speed, shooting to kill.  Your entire company will crumble under the weight of lawsuits, shortage of labor, or blindness.

I expect an answer to this letter within a week, and the demand to be met by June 1st. Will I wait? Yes I will. Give us your Beefy Crunch Burrito, I’ll give my heart to you. Do contemplate and get back to me.

(Un)faithfully Yours,

Chinaski