Archive for November, 2012

Insider Information and Specific Risk…..Yours

Wednesday, November 28th, 2012

November 28, 2012

I believe almost anyone would agree that insider information in the hands of the counter party to your trade constitutes a ridiculously acute tilt of the ” playing  field ” against you.

Illuminating the potential for abuse in this type of situation, an article in the November 27 edition of the NY Times, Business Section, indicates a new industry with a business model that assists hedge funds and other wealthy investors to find ” experts ” ( often a current or former employee of a potential investment ) to consult with them with  the goal of gaining knowledge that may influence the hedge fund’s decision to buy or sell.

Everyone knows there is a line relating to insider information that may not be crossed and officially all sides recite their awareness and adherence to ethical and legally correct behavior.  But, it seems to me, that the mere act of connecting expert and edge seeker in a fee arrangement places everyone needlessly close to a dangerously thin line.

The leading firm engaged in finding experts for a fee is Gerson-Lehrman.  Some clain this business model is tailor made for insider trading.

My question to you is this.  Isn’t there already more than enough risk for the individual investor.  Would you like to know whether the counter party to your trade has exercised an opportunity to purchase decision making information at a fee of $1,000 per hour. ?

For me, this is just an additional reason to stay away from the  specific equities  jungle and focus on SPY where macro knowledge, good mechanics and a reasonable time horizon  level the playing field.

So far during 2012 the price of SPY is up 12.5% ( $125.47 – $141.14 ).  Want more risk than owning the USA’s  top 500 market caps ! ? …Then consider sector ETFs where the potential for return is higher, but so is the risk….examples for 2012,  Brazil / EWZ  (negative 9.3% ), Utilities/ XLU ( negative 15.4% ),  Home Builders/ XHB  ( positive 54.3 % and Biotech/ FTB ( positive 39 % ).

Just one caveat….If you decide to venture into sector ETFs please observe the rule of no more than 5% of your investible capital in any one sector. 

Richard Maurice Gore

A Surprise Dividend from “SPY “

Sunday, November 25th, 2012

 

November 23, 2012

Throughout my working ( W2 ) career, I was always  nagged by the  idea that I had given short shrift to an enjoyable and valuable source of information….The New York Times.

I was very aware and respectful of people who could spend almost an entire Sunday luxuriating  their way through one section after another.  I was certain the result was a superior ability to assimilate, categorize , recall  and articulate what was read and understood.  Unfortunately for me, time has always been precious currency , and the time it took to assimilate the Times was tuition I could not afford.

Weekdays, I didn’t come close to completing the paper despite a two hour plus Amtrak/ Chappaqua/ Grand Central round trip commute.  And,  after I moved my business from Manhattan to Somers with a Katonah / Bedford Hills commute by car, I barely had time to finish the Sports section before leaving Dunkin Donuts for work.

Once I retired, I was in a rush to fill the business time void and to compensate the loss of my extra wide  parking space, by focusing on the big question…could a retired private person such as I make a  ongoing living from financial markets.  Bottom line….I was the person George Bush had in mind when he pushed for privatizing Social Security.

But guess what !….despite a BA in Economics, an advanced degree in International Business and five years of very expensive training by Citibank for an overseas banking career, I still lost more than $500,000 during my first several years of trading despite giving a wide berth to speculative equities and ideas.  I’m convinced Wall Street is behind the idea of privatised Social Security in its quest for fresh blood.  To be very  kind, you would need to hope the Republican Party is innocently  playing  into Wall Street’s hands.

But, all this is behind me.  My ” learnin ” is over and I still have sufficient capital to use to make a huge difference in my future life.  I am absolutely  imbued with an awareness that I am ” of ” the financial market. .  I don’t feel trapped between low interest rates and inflation. I have found my niche and I feel serenely calm and optimistic.

This is what ” SPY ” and related mechanics have given me.  If someone with $1,000,000 can make $45,000 in five months of working with ” SPY ” with very little trading and still collect a 2% cash dividend while Treasuries are priced to perfection. Well, that is a path I want to follow.

And, if you can add lots of free time to the equation, then SPY is also yielding a precious time dividend that allows its recipient  to be defined as a capitalist.  And, that time  benefit includes a leisurely reading  the NY Times every day.

Richard Maurice Gore