MartinKronicle

A lot of fundamental analysis on GOOG recently since they’ve decided to bail on China. Stories on how MSFT’s Bing and BIDU might grow faster with GOOG now out of the way in China.

As you can see from the chart above, BIDU (blue line) has outperformed GOOG (red line) since early 2006 had you made the trade or investment at that time.

Besides outright trades, professional traders can trade the equity spread pairs trade to gauge the relative outperformance of one over the other.

In this case, you could go long BIDU and short GOOG at the same time. As of today’s close, BIDU was up $13.62 and GOOG up $8.33 on the day.

The volatility for BIDU is $16.10 or 2.62% and it’s $11.33 or 2% for GOOG despite the differences in share prices.

This trade is not over by a long shot. Like with commodity spreads, all you need is GOOG to do is go down more than BIDU, or BIDU to increase more than GOOG to make money. Of course, you can lose by having both go against you. Proceed at your own risk.

Great bookreview in the Sunday NYT about ability and talent.

…Now here comes David Shenk with “The Genius in All of Us,” which argues that we have before us not a “talent scarcity” but a “latent talent abundance.” Our problem “isn’t our inadequate genetic assets,” but “our inability, so far, to tap into what we already have.” The truth is “that few of us know our true limits, that the vast majority of us have not even come close to tapping what scientists call our ‘unactualized potential.’ ”

At first it would seem that Shenk, the author of thoughtful books on information overload, memory loss and chess, has veered into guru territory. But he has assembled a large body of research to back up his claims.

MM: I know a lot of people who are very intelligent, but they don’t apply themselves or they have no ambition. This might be one of the reasons why people watch market porn on TV – for ideas to trade. Sorry, it doesn’t work that way. You have to do your own work.

If you don’t believe that you can develop your own trading ethos, I will share with you that you’re not going to find one quick solution and be done in 3 months of reading. You may be inspired by certain material, that’s true. But that type of material is hard to come by and will just motivate you to work harder. There are no weekend seminars that will convert you into greatness.

To become a great trader, you need to work for years and years at it. Persistence and determination have paid me much larger dividends than any natural ability I may have had.

Greece blames speculators on it’s own bad behavior and horrible choices. Say the whole world is corrupt and they sold products without giving adequate disclosures about the risks, Greece had the ability to say “no,” but apparently they didn’t.

Like the Alt-A borrowers, I believe that some were taken advantage of, but even someone with basic math skills would know that they couldn’t pay back the loans despite early term teaser rates.

It’s always easier to blame someone else, or the market for your losses. You put the trade on, you own it.

It’s kinda funny watching politicians accuse Wall St. of double-talk.

What could be funnier? Gene Simmons of KISS selling life insurance.

Had a great albeit demanding challenge teaching in NYC this past week. The CFAs are very smart, and they ask very detailed questions. I have to be over-prepared in terms of knowing the material.

Here is some feedback from the class:

Michael,

Thanks for the excellent program you gave yesterday, effectively distilling a lot of experience into a short talk. I’ll be spending some time going over your website, and particularly interested in any suggestions for trading system design software and data as well as brokerage services Thanks again, especially long term info on (xyz instruments) and great reading list!

Here is an excerpt from the new book The Big Short by Michael Lewis as published in Vanity Fair.

The main character is Michael Burry, who like many traders, is idiosyncratic, driven, intelligent, and hard-working. In Burry’s case though, the market for what he was looking for didn’t exactly exist when he formulated his initial thesis. This to me is a much more interesting read than Liar’s Poker, which I hated.

The faint ticking sound of these loans would grow louder with time, until eventually a lot of people would suspect, as he suspected, that they were bombs. Once that happened, no one would be willing to sell insurance on subprime-mortgage bonds. He needed to lay his chips on the table now and wait for the casino to wake up and change the odds of the game. A credit-default swap on a 30-year subprime-mortgage bond was a bet designed to last for 30 years, in theory. He figured that it would take only three to pay off.

The only problem was that there was no such thing as a credit-default swap on a subprime-mortgage bond, not that he could see. He’d need to prod the big Wall Street firms to create them. But which firms? If he was right and the housing market crashed, these firms in the middle of the market were sure to lose a lot of money. There was no point buying insurance from a bank that went out of business the minute the insurance became valuable. He didn’t even bother calling Bear Stearns and Lehman Brothers, as they were more exposed to the mortgage-bond market than the other firms. Goldman Sachs, Morgan Stanley, Deutsche Bank, Bank of America, UBS, Merrill Lynch, and Citigroup were, to his mind, the most likely to survive a crash. He called them all. Five of them had no idea what he was talking about; two came back and said that, while the market didn’t exist, it might one day. Inside of three years, credit-default swaps on subprime-mortgage bonds would become a trillion-dollar market and precipitate hundreds of billions of losses inside big Wall Street firms. Yet, when Michael Burry pestered the firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs had any real interest in continuing the conversation. No one on Wall Street, as far as he could tell, saw what he was seeing.