Where Do YOU Fit? Visit at the Bunny Ranch

“He knows nothing; he thinks he knows everything – that clearly points to a political career–George Bernard Shaw

Not in the right fit? know your aptitudes?

There is a private research institute, Johnson O’Conner Research Foundation, that studies human aptitudes. An interesting article here:  http://www.profutures.com/article.php/746/

Podcast on Johnson O’Conner Aptitude Testing: http://www.insidepersonalgrowth.com/2010/10/podcasts/podcast-234-johnson-oconner-research-foundation-with-anne-steiner/

A Book on Your Natural Gifts: http://www.amazon.com/Your-Natural-Gifts-Recognize-Self-Fulfillment/dp/0939009560/ref=sr_1_1?ie=UTF8&qid=1331574008&sr=8-1

Just remember–aptitudes are natural gifts (you may even take them for granted) versus interests. I may want to be an accountant but my low aptitude for graphoria (working quickly and accurately with pen, paper and numbers) will make me less likely to be happy or to succeed at the profession.

Articles of Interest

Stock Market Warnings? http://www.hussmanfunds.com/wmc/wmc120312.htm

More on the Hussman Funds: http://www.hussmanfunds.com/index.html

When Did the Constitution Cease to Mean Anything: http://brontecapital.blogspot.com/2012/03/when-did-us-constitution-cease-to.html

John Stossel on legalizing prostitution: http://www.lewrockwell.com/blog/lewrw/archives/107425.html

So, money is legal in America; sex is legal in America; ergo, sex for money is illegal. Logic?

5 responses to “Where Do YOU Fit? Visit at the Bunny Ranch

  1. Hey John,
    What do you think about using a short position as a leverage and hedging tool?

    • Dear Arden:

      That is a difficult question. Shorting is a very specialized activity and it is not the flip side of value investing. In many years of investing my shorts have netted break-even, but the chance to redeploy capital lower prices for long positions. But for all the research, small, diversified positions (sometimes I do a basket of shorts), I do not think it is worth it.

      I rarely short, except in rare occasions (I am short 20 year bonds, but as a long term position–years).

      Why complicate life, hold more cash and wait for the obvious.

  2. Thanks for your reply, I understand your point, but to be more exact- if say I think valuation of the total market is a bit high, and I hedge my positions so that I’m 100% long 100% short, is my portforlio less or more risky?

    On the one hand I don’t depend on the total market valuation, on the other I am leveraged. I should I approach this?

    What does a fund manager mean when he says he’s “fully hedged”, like John hussman said about his funds recently? (he inspired the thuoght of shorting, but I dislike his attempts at forecasting)

  3. Well, I will tell you what Joel Greenblatt would say…..he said his magic formula stocks beat the market and his anti-magic formula stocks (those in the lowest deciles) way underperformed over time, but in the short run –1 to 3 years, your longs can go down while your shorts go up. He says the two best types of shorts are frauds and companies about to run out of money.

    Believe me, it can happen–look at 1997 to 2000, so your risk is higher.

    But if you are a stock picker, theoretically, it MIGHT be a good strategy.
    A book you should read is Short Selling Strategies, Risks, and Rewards by Frank J. Fabozzi. It is a collection of research on short selling by various authors and practioners.

    If your short positions move against you while you are long then as a means of leveraging long positions, short sales present much more risk than long margin.

    It seems hedge fund operators like Dan Loeb can be 80/20 long/short to 60/40. Rarely do I see 50%/50. Why? I don’t know.

    I don’t know about John Hussman. Have you gone through his articles/annual report. He may explain it in there.

    Good luck.

  4. Tomorrow, I will post

    Toxic Convertible

    Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as death spiral convertibles or floorless convertibles.

    ——————————————————————————–

    Death Spiral
    A loan that investors give to a publicly-traded company in exchange for convertible bonds. The convertible bonds give the investor a right to buy shares in the company at a low, agreed-upon price. However, issuing these bonds creates more shares outstanding when they are converted, which results in a drop in the share price. The low share price encourages more bondholders to convert their bonds to equity, which causes a further drop in price and the process continues. Because of this disadvantage, companies only engage in death spirals if they badly need cash.

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