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Distant Voices, Altered Lives
“What was I like when I was little?”
I knew the answer to the question already. After all, I had asked it plenty of times before, and the response was comfortingly consistent.
“Oh, you were a gentle baby.”
As a child, I found great reassurance knowing that even during the phase of life that infantile amnesia prevented me from remembering, I was a gentle person. I’m not sure why it was so important, but all my life I have embraced gentleness as a crucial part of my identity, and I wanted to know from my mother that I had always been sweet-natured. I wished it for myself, and for her. (more…)
Who Do I Think I Am?
This year will be the 8th year I’ve been writing this blog. I never imagined when I started writing what would become Slope of Hope in 2005 that I would have this many readers and that the blog would be such a big part of my life, but I have been feeling the urge to tell people just who you are dealing with, since this blog is still very much a personal expression.
You are going to find a lot of dichotomy and contradiction in this post, because that’s what I’m like. I spend half my days wishing someone would sneak up behind me and shoot me in the head, and the other half of my days feeling just OK. I'm never really happy – – – it’s been years since I’ve been anything close to that – – – but at part of my life I can spend not wishing to be wiped away.
The darkness of my mindset is pervasive; I have written countless private notes to myself to try to sort out my feelings; one snippet reads like this:
• No good deed goes unpunished. So hang on to everything you’ve got. Giving always backfires.
• Most of “success” is dumb luck – being in the right place at the right time. Lots of good, smart people don’t get shit, and lots of mindless, stupid people make fortunes.
• The way you live and what you get aren’t correlated. Evil, obnoxious people can get all they want, and decent, hard-working people can live with deprivation.
• The human desire to consume useless shit is almost insatiable, since most people are devoid of any real soul or understanding.
I sound like a barrel of laughs, don’t I? But I have to be honest with you. I can feel very bitter at times, and if nothing else, I owe my readers some honesty.
Revisiting a Losing Market-Neutral Trade
In a post here in December ("Market Neutral Investing in China's Fast Food Industry"), I mentioned a market neutral trade I had entered going long Yum! Brands, Inc. (YUM), the largest fast food operator in China, and shorting Country Style Cooking Restaurant Chain, Ltd. (CCSC), a start-up fast food chain in China. I figured the bigger potential there was on the short side.
Reasons I shorted CCSC as part of this trade
- + Its chart looked weak, with the stock trending down since its IPO last fall
- + Its valuation looked pricey relative to its earnings, even after adjusting for growth estimates.
- + Anticipated selling pressure when the 6 month IPO lockup period expired for insiders.
Getting Stopped out for a Loss
I used double digit trailing stops on this trade, and got stopped out of CCSC at $25.38, for a loss of 11.3% on the short side on Jan 4, so I sold out of YUM as well, at $48.21, for a loss of 4.8% on the long side. Total loss of 8% on this market neutral trade. Below is a chart of both stocks from when I entered the trade, on December 2nd, 2010, until when I exited, on January 4th, 2011.
Hindsight is 20/20
Had I used wider stops, I might have stayed in the trade long enough to profit from it. Below is a chart of both stocks from when I entered the trade, on December 2nd, 2010, until Monday, May 9th, 2011. Note the selloff at the beginning of March: the company released earnings on March 2nd, missing analysts' estimates.
This wouldn't have applied in the case of CCSC, since it doesn't have options traded on it, but a suggestion that has come up recently from a couple of Portfolio Armor users is extending its algorithm to find optimal calls for hedging short positions.
Recall that with Portfolio Armor (available as a web app, and an iOS app) you just enter the symbol of the stock or ETF you’re looking to hedge, the number of shares you own, and the maximum decline you’re willing to risk, (your threshold). Then the app uses an algorithm developed by a finance Ph.D. candidate to sort through and analyze all of the available puts for your position, scanning for the optimal ones to get you the level of protection you want at the lowest cost.
Adding the ability to hedge short positions with optimal calls is something I'm considering adding, if enough users request it. If we do add that functionality, we'll probably raise the price, to offset the development cost, but those who subscribed to the web app beforehand would be grandfathered in at the current cost. I don't know if we'd add the functionality to the iOS app too, but there again, if we do, current users would get the upgrade without paying more.
