Starting Over

After graduating from college with a physics degree in the mid eighties, I went to work in meteorology at the Trenton Air Force Base located in Trenton, Ontario. It was an interesting job, but after a few years carrying my lunch in a brown bag to work, I had enough.

By the time I finally quit my job I had decided I wanted to make money trading. I enrolled in the York University MBA program and learned more about business and trading. Aside from getting me a few good interviews, the education program was a waste of time. The cramming was plentiful, but I had no time for thinking.

Anyway, I’ve done pretty well in business overall.

The younger people reading this blog might have an interest in finding out what I would do if I had to start over again. Here is some of the stuff I would do.

• I would adopt the tenets of the 5 laws of stratospheric success (Amazon.com link).
• I would seek out the dream builders and try to help them build their dreams and learn from them. Current dream builders in finance that I admire are Michael Bellafiore, Steven Spencer, Thomas Peterffy, Phil Pearlman, and Howard Lindzon, but there are plenty of others. Figure out what you can contribute to the effort. When I invested in Innovative Fibers, Benoit Lavigne, the company's CEO, had big dreams about fiber optics and you felt he was going all in with this project. My investment helped him in small ways in the pursuit of his dreams. You can be helpful in many different ways.
• I would learn physics or engineering and complement it with some kind of computer science education.
• I would read Seth Godin, Chris Brogan, and other luminaries on a daily basis.
• Education: I would learn from the money makers not the teachers. I would not get an MBA. I would not get a CFA. Actually, through my experience I would plant the seed to develop an education platform at a very early stage in my financial career. Here is what John Templeton had to say about the education system before he passed away. The traditional is toast.
• I would start trading my money right away.
• I would learn about APIs as soon as possible.
• I would learn to write better.
• I would start a blog as soon as possible and write down everything. You are media.
• I would be obsessive about compounding everything at a high rate. Knowledge, money, relationships, platforms, content, etc.-everything that has value. -everything that moves you forward.
• I would learn about trading and investing from the best with no pre-conceived views on the subject. I would be a sponge, absorbing everything. Then I would develop my own trading recipes.
• I would seek greatness and promote it with any chance I have.
• I would not build a career; I would build a platform.
• I would start a business as early as possible.
• I would adopt a minimalist lifestyle right from the get-go.
• I would turn off my trading screen more often.

I would isolate myself more frequently to cultivate hunches; write everything down; play more often especially in the trading sandbox; make plenty of mistakes; frequent liquid networks (Twitter, Stocktwits, etc.); experience creative flow as frequently as possible; and build platforms. I would let others build on what I’ve built. I would mash-up, create, invent, and re-invent.

It is so much fun to be a rebellious kid with big dreams! You are young. Go for it!

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Taking Advantage of an Analyst's Changed Recommendation

How I Fade Traded $SOHU. Guest Post by Aris David.

Written by Aris David. Follow me on Twitter and StockTwits.

This post was inspired by Michael Bigger’s post: Taking Advantage of an Analyst’s Changed Recommendation.

The biggest mistake I made here was not that I closed half my position @ 76.20 for $1 gain, but that I didn’t stick to plan of letting the other half go to $77 (as I said in the tweet). The reason I closed at 75.20 flat was I thought the market was selling off violently. I didn’t take notice on the fact that there were some good economic data from China and US Jobless claims that could reverse the sell-off in the last few hours of trading. As I write this blog SOHU is trading at $78.

Elevate It!

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Last week, Sean McLaughlin (@chicagosean) posted "The Dreaded Winter Trading Doldrums." In this post, Sean asks the question, So what's a guy to do?

I answered: Write. You see, back in September, Sean interviewed Everett Bogue and posted the discussion in "Minimalism in Trading: An Interview with Everett Bogue," which is a must-read post for any trader.

McLaughlin expanded his minimalism content with his post "Diversify Your Information Intake, Minimize the Noise."

So what’s a guy to do?

I think McLaughlin is up to something by standing at the intersection of trading and minimalism. Extreme consumerism and high overheads handcuff traders when they suffer trading setbacks. Trading setbacks often occur when opportunities are plentiful. Warren Buffett understood at a young age that minimalism frees investing and trading capital.

My answer to Sean is to elevate this good stuff: leave base camp and climb to the summit. Write more awesome posts about minimalism in trading, or an e-book or something of that nature. Figure out how big that niche is and determine whether you can create a movement. Sean might be working on this already.

What does this post have to do with you? If, like McLaughlin, you have created some awesome stuff in your life—and most people have—consider moving it up to a higher elevation.

Is there anything I have posted in the past that you want me to elevate? Which post has resonated with you? If you have enjoyed this post, it would be awesome if you share it.

Write Everything Down

Written by Michael Bigger. Follow me on Twitter and StockTwits. This post contains two amazon.com links.

Are We Traders or Investors?

Written by Michael Bigger. Follow me on Twitter and StockTwits.

There is so much debate these days about trading versus investing. Recently, I have heard some people say investing does not work and the only way to go is trading. At Bigger Capital, we trade very actively, yet we think this is nonsense.

We view investment as an activity that creates true wealth—basically, creating much output with relatively little input. We have been very successful investing. We made more than 600 times our investment on Innovative Fibers (a private investment). We did extremely well buying securities such as Amazon, Crocs, and others when no one wanted to own them because we held a long-term view about those securities that turned out to be correct.

Yet, we know that regardless of a security's intrinsic value, its price will fluctuate a lot in the short term. We view trading as taking advantage of those fluctuations. We are pretty good at that too.

Very few securities qualify for our investment capital. We usually commit to an investment once every three to five years. When that happens, we commit for size. In the meantime, we are very happy trading.

So I guess we are both of these animals. We trade and invest.

In addition, we are a business builder. We are building trading businesses, which, in a sense, is also an investment. You see the pattern here. The lines between trading and investing are often blurry. So if someone shows you the next Innovative Fibers and you decide to pass because you are a trader, please give me a phone call.

Watching my Back on Sketchers

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

It’s no secret; I have a love affair with shoe stocks. Not the sexual kind of affair, just trading.

Recently, I bought a medium size trading position in Sketchers ($SKX) on its gap down after announcing disappointing earnings and some merchant cancellation of orders which inflated inventories.

After I tweeted about buying the stock, I got a few replies about not buying falling knives and other similar advice from the trend type of traders. There is nothing wrong with trading the trend. If it floats your boat, I am cool with that. But I have my own trading methods and they have made me a shit load of money. So I am not about to start taking advice from unidentified (no name, no picture of themselves) traders. Show me the money and show me who you are and I will listen.

That being said, I got a great DM from someone I trust who is very active on Stocktwits. The DM warned me about the management at $SKX. That type of information I care a lot about and I decided not to increase the position and instead investigate further based on this.

Oh…and about trust…If you feel comfortable giving advice about trading stocks, you should feel comfortable putting a picture of yourself on your avatar. It is all about trust and about seeing there is a real human at the other end.

How We Secured Institutional Fresh Money

Written by Michael Bigger. Follow me on Twitter and StockTwits.

This flowchart illustrates the steps we took to build one of our algorithmic trading businesses. You can learn more about how we got the insight for the business by reading the section titled The Coolest Financial Tools on biggercapital.com.

1. Insight, late 2008

2. Experimentation, early 2009
We began experimenting with the following two goals in mind: (1) we wanted the strategy’s target volatility to be 6 percent, and (2) we wanted the strategy’s Sharpe ratio to be greater than 2.

3. Trading in the sandbox, mid-2009.
We tested the strategy before we put money into it. This was the time to correct any major problems.

4. Trading our own capital, summer 2009 to present.
During this stage, we've been ironing out any remaining kinks and developing a track record before approaching institutions.

5. Raising capital, summer 2010.
We began approaching institutions with one year of trading results.

6. Received first investment allocation from an institution, with more in the pipeline, September 2010.We will be closing a second allocation on November 10. We will use this track record to raise more funds.


Does that process make sense to you?

Shorting before the Season

Written by Michael Bigger. Follow me on Twitter and StockTwits.

In our trading portfolio, we usually increase our short position in market futures just before the earnings season starts. As you know, the market often overreacts to perceived negative news, especially when companies report earnings. These situations create single-stock liquidity gaps, and we want to take advantage of them when the odds favor a quick return to more normal prices. Having a short market position in our back pocket helps us exploit the liquidity gaps without increased market exposure.


In these setups, assessing the degree of overreaction is paramount.


On October 18, Apple (AAPL) reported earnings that beat the Street estimate nicely. The stock proceeded to drop from 318 to 296 in the after-hours market. We used this opportunity to lean against our $SPY short and buy $AAPL below $300. We unwound $AAPL on October 19 at around $312.

Here is our Twitter stream related to this situation:

What are the methods you use to put yourself in a position of strength?

Another Cool Financial Tool

Written by Norm Winer. Follow me on Twitter and StockTwits

On October 14, @fledglingtrader left a comment on our blog in response to a short piece we wrote about a UTX-GE spread we put on earlier in the month. @fledglingtrader referred us to the website Catalystcorner. Catalyst Corner provides free research reports on companies with significant milestones or catalysts on the horizon that have potential to move the stock.

Additionally, the site has created a tool for analyzing pair trades, which it also provides free of charge. The user can create a pair trade by choosing a long stock, a short stock, and a long dollar amount. The pair trading tool then generates a one-page fact sheet that contains the number of shares to buy and sell, a basic comparison of the two stocks’ fundamentals, a statistical analysis of the behavior of the pair over the user-defined time period, and four graphs showing price history and moving averages. In addition, the site provides a twelve-page e-book introduction to pair trading in PDF format. This tool provides the user with a quick and handy means for evaluating pair trades. In fact, we’ve already used the pair trading tool to analyze two new trades we are contemplating.

You might want to start using this tool to exploit rich opportunities available in trading spreads. 

Trading The Expedia Divergence

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Early Tuesday afternoon, I had the following exchange about Expedia ($EXPE) on Twitter:

 

$EXPE was down $1 on the day when I bought it. At the same time, $AMZN and $GOOG were up sharply.

 

Do you see the divergence pattern here? Our expectation was for $EXPE to rally after the seller was done dumping the stock. This happened at around 2pm. We unwound our position late in the day for a profit.