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Buy 600 AMZA at $7.61. At the current purchase price and assuming the continued monthly dividend of $0.11/share, that is a 17.4% yield [subject to taxes, see next article]. I like the monthly payout of $66.00/share on the position. It fits nicely with my strategy for this position.

An added bonus is the ability to use Options. To be fair, the market currently is really shallow and illiquid. I’m hoping that will change. Currently I have 2 orders in, but I’m not overly optimistic of getting a fill.

This is for a longer term position.

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NEW YORK — After seven straight draws, we’ve finally witnessed a decisive result at the World Chess Championship.

Sergey Karjakin of Russia, the challenger, claimed the first full-point on Monday against titleholder Magnus Carlsen of Norway.

Game 8 was dense and difficult, and with the white pieces, Carlsen may have pressed too hard beyond what at one juncture looked like another draw.

The opening was a fairly staid and initially symmetrical Queen’s Pawn game — nothing surprising for Carlsen, who has in the WCC so far adopted a strategy of boring openings, aiming to test Karjakin in the middle and endgames.

Carlsen had dodged a few bullets in previous games, but his approach caught up with him in Game 8. Karjakin barely made the so-called “time control,” executing the first 40 moves in 100 minutes with just ten seconds to spare.

Perhaps sensing the challenger’s stress, Carlsen pressed on past several drawing chances, but blunders on both sides made for a tense spectacle until Carlsen’s commitment to the win with white became his undoing on move 52.

Here’s the decisive position:

Carlsen Karjakin Game 8

There’s simply too much for Carlsen to cover: the incoming potential knight check of the white king on g4, the black pawn on a2 tying down the white queen because that pawn threatens to put a second black queen on the board, and the black queen locking down the g1 square.

It’s the definition of a hopeless position and evidence of how a draw can swing to win very quickly at this level. FM Mike Klein and GM Robert Hess break the whole thing down in far more authoritative detail than I can at

Carlsen has real trouble now, and he knows it. He stormed out of the postgame press conference when Karjakin was delayed. With only four games remaining, Carlsen must win one to tie and another to retain his title, without going to tiebreaks. This is the big risk of racking up a lot of draws — the pressure is on the player who’s behind to catch up, with games running out.

It was looking as if they 2016 World Chess Champion would be a drawfest. But just like that, it’s a whole new ball game. Karjakin now leads 4.5-3.5. Luckily for Carlsen, Tuesday is a rest day, with play to resume Wednesday at 2PM ET.

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US stocks are more or less, back to their starting point prior to Brexit.

Clearly, no-one actually has any idea what will happen and what effect that will eventually have. So stocks are probably going to fluctuate in a sideways range until some form of consensus is formed.

This, if correct, opens up a number of trading strategies that are effective in sideways markets. The increased volatility, if it remains, is obviously going to be an issue, but is potentially manageable.

Obviously in this market, one needs to remain extremely flexible, as positions are likely to be very vulnerable to news flow over the next few days certainly and likely couple of weeks.

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There has been and still is the idea that ‘diversification’ is a risk management tool, and to a certain extent, it is. However, diversification linked to leverage, changes that assumption into something very different.

Diversification, of uncorrelated markets, or securities, say Nike common stock and London mortgage securities, would seem prima facie, unrelated or uncorrelated. However a trader who holds these same securities as another trader, now correlates those securities as any trader who holds them becomes linked to every other trader who holds those securities.

When leverage forces you to sell, you sell what you can, not what you should.

Now when selling what you can, that may very well be Nike, and now you have a rush for the exits in Nike, of every trader on margin, who holds London mortgages [or whatever]. In times of stress, all markets and securities are correlated by the traders who hold them. Diversification is a chimera.

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He pressed upon me the importance of understanding the macro environment. “Many people describe themselves as stock pickers,” he would say, “but you have to consider the economic, social and political context in which the stocks are being picked.” He encouraged me to meet as many people of influence as I could. For him, networking never stopped. He would test his ideas on those he respected, and if he ran into a strong opposing opinion, he would reflect on it seriously and sometimes change his position. While he never lacked conviction about his ideas, he was open-minded and flexible. “Nobody owns the truth,” he would tell me.

As I look back on the titles of my essays about him over the last 15 years, they provide a chronicle of the market’s glory days and pitfalls. In my first essay about him in June 2002, nine months after the attacks on the World Trade Center, he was “upbeat.” He believed that although terrorism was a continuing threat to investors and an incident could destabilize markets for a period of time, the world economy was huge and had plenty of momentum, so he was very positive.

Some of what he said in 2002 rings especially true today. “All the portfolio managers I know in America are complaining about how hard it is to make money. No powerful themes are emerging that they can put big money into. The only way to perform is to trade, but the friction costs are great. Portfolio managers in New York still don’t understand the importance of global interdependence.” So when many investors were still cautious, he said, “I see an opportunity to make some serious money here: I bought gold on leverage, sold the dollar short, put money in European hedge funds and invested heavily in Russia. I am excited and very busy and I expect to make a killing.” And he did.

In 2003 he talked about the opportunities in China “which is on its way to becoming the manufacturer of everything the world wants, but, as it moves up the technology scale, it will seek political influence. The U.S. is abdicating its political and economic leadership position. You Americans think of yourselves as the brains of the world. You cannot provide jobs for your 300 million people as a service organization. Nine-tenths of your population simply cannot find gainful employment cutting the grass, doing the laundry and cleaning the houses of the one-tenth that the world holds in awe.”

In 2004 Edgar was down on Europe and the United States, but bullish on Asia where he saw an expanding middle class. At that time he was beginning to understand the importance of monetary policy in determining the future course of stock and bond prices. He suspected that even though the Fed was likely to be accommodative, inflation was going to stay low, despite the theories of Milton Friedman of the University of Chicago.

In 2005 he was bullish on bonds because of the build-up in liquidity around the world. Few people expected interest rates on U.S. government paper to decline as much as he did. He thought U.S. stocks would do well as a result. He was, however, worried about the debt accumulation taking place at the government, corporate and individual levels. In 2006 he was focused on the migration of economic opportunity from Europe and the United States to Asia, and the prospect of stagflation in the mature developed countries, but he was still bullish on the United States. He sensed a movement to the left in America (he should have lived to see Bernie Sanders), but he didn’t think it would undermine the capitalist spirit of the country. He was positive on India and concerned about the rise of Islam. He was buying gold.

By 2007 he was growing cautious. The title of my essay that year was “The Smartest Man Is Wearing Rain Gear.” The title in 2008 was “Overcoat Time for The Smartest Man.” He was nervous about the debt incurred by marginal borrowers to buy assets that he considered overvalued. As a result, he pulled out of all the hedge funds where he was locked up beyond one year. By 2008 he was recommending cleansing the U.S. economic system through bankruptcies and a devaluation of the dollar to revive manufacturing, but said that America was not ready to go through a period of severe pain. In any case, he expected the standard of living to remain flat in the West and rise in Asia. He was beginning to cool on globalization.

In 2009 he was bullish again because of the sharp sell-off in world markets. He did caution correctly that growth would only be 2%. While he was positive on the U.S. and Europe, he thought there would be stronger growth in Brazil, Russia, India and China. In 2010 he was worried that the debt in the U.K. and the U.S. had reached a point where the problem could only be cured by fiscal discipline or inflation or a combination of the two. He thought warning signals would be higher interest rates and inflation, but so far we had not seen either. He was cautious in 2011 and his only investments were in Swiss francs and gold. He was still talking about the high level of government debt everywhere, the possible decline of the dollar and the uncertain stability of the European Union. He continued to be positive on China and India.

Edgar suggested a title for the 2012 essay: “Dancing Around the Fire of Hell.” I paraphrased it, but his view that year was that the debt problems were still there, even though various governments had figured out a way to postpone their consequences. He complained that too many investors think “incrementally,” without looking at the broad range of problems facing the markets. He was troubled about Greece, but thought its problems were indicative of flawed financial planning everywhere. He anticipated higher interest rates and inflation. He owned a few stocks like Apple and IBM, and had some gold and energy investments.

In 2013 he was bullish on Europe, which was a very contrarian idea at the time. He was impressed with the operating efficiencies that had been put in place by European companies. He had sold his gold and was cool on emerging markets. He was concerned about the Middle East and the confused policy approach of the United States in that region. He was buying Yahoo and Google because of the possibility of open-ended earnings. By 2014 he was totally committed to innovation stocks, believing they represented a new industrial revolution; that theme continued in 2015. He did not expect the markets in Europe and the United States to do much, but he continued to believe technology offered opportunity. He thought governments around the world had proven ineffective at problem solving. His conclusion in 2015 was that there were more risks than opportunities, but you could still make money in technology and biotechnology.

My purpose in reviewing Edgar’s thinking over the past 15 years is to show how he consistently tried to integrate his world view into the investment environment. That was his imperative. He wasn’t always right, but he was always questioning himself and he remained flexible. When he lost money, it tended to cause minimal pain in relation to his overall assets, and when one of his maverick ideas worked, he made what he called “serious money.”

Edgar was a mentor for me. Over the years I’ve learned that mentors fall into two categories. There are those you work with every day who are continuously guiding you to improved performance. The late Barton Biggs, my colleague at Morgan Stanley, falls into that category. He developed the concept of impressionistic strategy, writing his essays in the first person as though he was in a conversation with investors rather than in a totally objective style similar to an academic paper. He was totally devoted to his work and he never wasted time. He would take an hour out of each day to exercise, and he loved sports like tennis, golf and touch football, but when he wasn’t exercising, he was reading and writing, and his output included essays and two books with a third in process when he passed away.

The second type of mentor is one whom you see intermittently. These individuals provide guidance because of who they are and what they do. Edgar fell into that category and I am forever grateful to him for what he taught me. He was fond of breaking rules. Suspicious of diversification as the hiding ground for those without conviction, he believed in concentration: If he liked a country, a sector or an asset class he was willing to put considerable money into it and exclude representation in other areas more popular with institutional investors. He sought high rewards and was willing to tolerate high risk in the process, once buying an office building in Iraq and selling it a short time later after it had doubled. He was not a trader, but he knew that a good investment had three phases: the period when you are waiting for an offbeat, but promising, idea to work; the period when everyone agrees with you and the stock or asset performs well; and the final period when the asset may still be appreciating but it is time to look for something else because the additional gains will be small. It can be dangerous to overstay a position. I still have not learned this lesson. He was particularly skillful at selling his mistakes quickly. Happily, I have learned that lesson.

But he taught me much more. He took great pleasure from knowing smart people and exchanging ideas with them. In the Morgan Stanley days when Steve Roach, our head economist, and I would come to Geneva, he would organize a dinner for us at his home and invite a dozen of the leaders of the Swiss financial community to discuss the important issues of the day with us. The Benchmark lunches that I put together in the Hamptons each summer are an outgrowth of this. He taught me to look at houses and objects of art as permanent possessions, not items to be sold at some point. I should buy them because they would enrich my life and I should not sell them because they had appreciated in value, because then I would be parting unnecessarily with something I loved and there would be emptiness as a result. My heirs could do the selling.

He taught me the value of trust and the joy of friendship and the futility of envy. He was proud of his own success but also an admirer of the success of others who were his friends. He never talked about missed opportunities except when he was criticizing himself. He was his own toughest critic and he encouraged me to be the same. Even if you are an intelligent risk taker, you will make many mistakes. Recognize them early, but never stop taking risks, because that is where the real opportunities are and your life will be more stimulating as a result.

Edgar enjoyed his cigars and his 1982 Bordeaux collection and his circle of influential people. He worked at the bank until the end because that was the way he could enjoy each day as much as possible. My life is better as a result of having known him and I will always be grateful for that. He wrote a book about his life and called me one day to ask me to write the foreword to it, which I did. Afterward he wrote me a thank you note that I quote here.

“I am grateful for what you have written. I do not deserve your nice words as my professional life has been directed to give the best of my capabilities.”

“It was nice that you accepted to write and realize the friendship and feelings you have towards me. I do value your qualities and feel proud of having you as a friend.” He was modest and generous to the end. Every mentor should follow his lead.

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I’m not a huge fan of this quote from Paul Tudor Jones. Some of the best investors of all time have made a fortune adding to temporarily losing positions. And while this is true, it is equally true that the worst investments and the worst investors have added to losing positions, not knowing when to call it quits.

Let’s use Twitter as an example. If you bought 100 shares of the IPO at 26, and added 10 shares on each of the 25 times the stock closed at an all-time low, you would have tripled your original position, and would be down 30% on your investment.

Thinking a stock can’t go any lower, and then acting on that intuition is a strategy that will leave your account dilapidated. There’s a lot of ways to lose money in the market, and 99% of investors who continually lower their cost basis will do just that.

Possibly in individual stocks. Less so in ETF’s which are a basket of stocks. This would be a very profitable strategy in SPY, QQQ or any other index based ETF since any starting point you care to name through to today.

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Here are two doors you can walk through:

Door number one – you spend 15 years putting $1000 into an investment every month, with the possibility of seeing that investment get cut in half twice.

Door number two – you spend 15 years putting $1000 into an investment every month, with the same annual performance of what’s behind door number one, but no drawdowns.

Which would you choose?

On the surface, you’d choose door number two. Of course you would, who wouldn’t?

But it’s the wrong choice. The trick here is to remember that you’re adding to the investment at a rate of $1000 per month. That’s when you realize that door number one, with it’s twin 50% crashes, is the better option.

It’s the harder choice to live with, of course, but that’s what the money’s for. Had you done this over the disappointing period for stock returns between 2000-2014, you would have lots of money to show for your troubles. Much more money than had you chosen the steadier option.

Eric Nelson at Servo Wealth explains how this is possible, by looking at an investor who chose to buy $1000 worth of the S&P 500 each month over the 15-year period versus the investor who chose to buy the more stable Vanguard Short Term Bond Index.

Despite only saving $180,000 cumulatively, your total ending portfolio value was $352,202—twice as much as you saved—for a rate of return on your contributions of +8.5% per year!     How can this be?  The S&P 500 only averaged +4.1%.  But not all of your savings averaged 4%.  Some money went in after 2001 and 2002 and 2008 and 2011 when shares were extremely depressed and subsequently earned returns of +12%, +15% and +20% or more…

We can see the opposite effect when we observe the outcome of dollar-cost-averaging the same amount into the low-risk bond fund.  Remember, it had the same annual compound return over the 15-year period.  But the amount of accumulated wealth was only $228,294, almost $130,000 less than what you netted from the S&P 500.

Josh here – The magical part is that the two investment choices both did around 4.1% annually on average. But by taking advantage of the short-term declines – systematically (which is the key) – investors can learn to embrace the volatility that ends up punishing some, but rewarding others with higher than average returns.

Conditioning yourself to love drawdowns is not easy – and the more money you have at risk, the harder it is. Younger people with 401(k) plans and newer brokerage accounts can use the power of DCA (dollar cost-averaging) – this is one critical advantage they have over their parents and grandparents. If they take advantage of it, the magic of compounding doesn’t take very long to appear.

Don’t flee from volatility, understand how it helps you and make it your bitch.


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Opened a gamma-scalping position in AAPL. As earnings have already been and gone, I won’t have this event to aid the position, however, with the general market pretty volatile and likely to stay that way, this trade might work out quite well. We’ll see.

I’ll monitor the trade on a 15 day basis and reset positions based on that chart metric. Obviously brokerage costs are a factor and you don’t [or can’t] reset on a daily basis.

I had a couple of scalping trades in GOOG today that went well. I didn’t bother posting them as: [a] they only lasted 300 seconds and [b] they were very small trades. However they were both winners. The intra-day trades [seem] easier than the swing trades that I tried last week.

The gamma-scalping is a market neutral trade. It would seem, that if you are going to swing trade, you need a market neutral strategy, the swings are difficult to predict.

Market pundits are advancing arguments that we are entering a bear market. Rallies into bear markets are fast, frequent, vicious and doomed to failure. Trying to hold swing positions in that environment is difficult and usually very expensive, as you will be stopped out of many positions on whipsaws.

I was planning on taking a ride tonight, but I have somehow caught a flu-bug. Currently I’m feeling pretty rough.


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When the stock market rose 30 percent in 2013, plenty of fund managers had a triumphant year.

Almost anyone can post good numbers in a bull market, though. It’s like sprinting downhill with the wind at your back: The chances are good that you’ll be pleased with your own performance.

Outperforming most other people consistently, year in and year out, is obviously a much more difficult feat, in any competition. But how rare is it, exactly, for stock market investing?

A new study by S.&P. Dow Jones Indices has some fresh and startling answers. The study, “Does Past Performance Matter? The Persistence Scorecard,” provides new arguments for investing in passively managed index funds — those that merely try to match market returns, not beat them.

Yet it won’t end the debate over active versus passive investing, because it also shows that a small number of active investors do manage to turn in remarkably good streaks for fairly long periods.

The study examined mutual fund performance in recent years. It found that very few funds have been consistently outstanding performers, and it corroborated the adage that past performance doesn’t guarantee future returns.

The S.&P. Dow Jones team looked at 2,862 mutual funds that had been operating for at least 12 months as of March 2010. Those funds were all broad, actively managed domestic stock funds. (The study excluded narrowly focused sector funds and leveraged funds that, essentially, used borrowed money to magnify their returns.)

The team selected the 25 percent of funds with the best performance over the 12 months through March 2010. Then the analysts asked how many of those funds — those in the top quarter for the original 12-month period — actually remained in the top quarter for the four succeeding 12-month periods through March 2014.

The answer was a vanishingly small number: Just 0.07 percent of the initial 2,862 funds managed to achieve top-quartile performance for those five successive years. If you do the math, that works out to just two funds. Put another way, 99.93 percent, or 2,860 of the 2,862 funds, failed the test.

The study sliced and diced the mutual fund universe in a number of other ways, too, each time finding the same core truth: Very few funds achieved consistent and persistent outperformance. Furthermore, sustained outperformance declined rapidly over time. And the report said, “The data shows a likelihood for the best-performing funds to become the worst-performing funds and vice versa.”

What should investors make of these findings? There is one clear implication, said Keith Loggie, senior director of global research and design at S.&P. Dow Jones Indices.

“It is very difficult for active fund managers to consistently outperform their peers and remain in the top quartile of performance over long periods of time,” he said. “There is no evidence that a fund that outperforms in one period, or even over several consecutive periods, has any greater likelihood than other funds of outperforming in the future.”

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This seems to bolster the case for index-fund investing. After all, if a fund manager with a great year can’t be counted on to outperform other fund managers later, it’s reasonable to ask: Why bother trying to beat the market at all?

A separate series of annual S.&P. Dow Jones studies has found that over extended periods, the average actively managed fund lags the average index fund. All of this may be enough to persuade you to abandon actively managed funds entirely.

But the story is more complex than that: The study also demonstrates that active managers can actually beat the market. Remember those two funds that did so consistently over the five years through March? The study didn’t identify them, but at my request Mr. Loggie did.

They were the Hodges Small Cap fund and the AMG SouthernSun Small Cap fund, which were also the top two general domestic funds over the last five years through June, according to Morningstar performance rankings conducted recently for The New York Times.

Each fund has rewarded shareholders spectacularly, turning a $10,000 investment to $35,000 over those five years, the Morningstar data shows. By contrast, the same investment in a Standard & Poor’s 500-stock index fund would have become more than $23,000. While hardly shabby, that’s not nearly as good.

I called the managers of the two funds. Both had good things to say about index funds, and about their own brand of investing.

Craig Hodges, manager of the family-run Hodges Small Cap fund, said that index funds are fine for many people, but that the intensive scrutiny his team applies to the often-neglected small- and midcap parts of the market should enable the fund to outperform the overall market in the future. “We won’t do it all the time, of course,” he said. “We’ll have bad times. We’ll make mistakes. But over the long run, I think we can keep doing very well.”

Michael W. Cook, the lead manager of the SouthernSun Small Cap fund and the founder of the firm that runs it, had a similarly nuanced view.

Index funds deserve to be core holdings for many investors, he said, and despite his own fund’s exceptional record, it may not be a good choice for everyone.

“One thing you don’t want to do is just read about performance numbers — ours or anybody else’s — and put money into an investment,” he said. “Chasing past returns doesn’t make sense.”

Asset allocation is crucial, Mr. Cook said. Before putting money into a fund like his, he said, ask yourself: Do you really need more small-cap stocks in your portfolio? These smaller companies can be volatile, and they may well decline in price. Janet L. Yellen, the Federal Reserve chairwoman, warned last week of “stretched” valuations for small-cap stocks.

That said, Mr. Cook spoke with the conviction of a true believer about patient, shoe-leather stock-picking discipline. He looks to buy shares in “businesses that we can own for a lifetime,” he said. “We spend a lot of time understanding businesses we buy. And we keep checking them and their competitors and their industries. We need to really understand them.”

Mr. Cook has closed his fund to new investors so that he can maintain control over the portfolio’s quality, he said. If the fund eventually reopens, and you want to consider investing in it, he said, “You shouldn’t expect that we’ll perform at the very top every quarter — we won’t do that, I’m pretty sure.” He said that he was happy about the last five years, but that they didn’t prove much.

Over the long haul, which is probably 50 years or more, he said, he will look back at his fund’s track record, and he hopes he will be able to conclude: “We had a good approach. We worked hard and we did well for investors.”

In the meantime, though, past performance doesn’t guarantee future returns.


Imagine you’re John Templeton, George Soros, and Paul Tudor Jones all rolled up into the worlds greatest trader. Since 1990 you were able to beat the S&P 500 every year by forty percent. If the market was up 10%, you were up 14% and if the market fell 10%, you were down only 7.15%

Beating the S&P 500 in any given year is a challenge. Beating the S&P 500 every year for nearly a quarter century is extraordinary. Beating the S&P 500 every year for nearly a quarter century by forty percent is all but impossible.

Typically when people look at performance numbers for active trading strategies, they look at gross returns and don’t pay attention to taxes. I wanted to see just how damaging paying taxes on short term gains would be to a taxable portfolio.

Going back to 1990, had you invested $10,000 in the S&P 500 and held on through 2013, you would have amassed $76,266 (assuming taxes are paid annually on dividends).

If the best trader of all time invested $10,000 in 1990 and beat the S&P 500 every year by forty percent, net of taxes he would have amassed only $69,197, less than the buy and hold investor (not even factoring in trading costs).

These numbers are pretty astounding but I want to emphasize that the point of this exercise is not to suggest that trading is for fools, or that it can’t be done. I want to demonstrate that taxes on short term gains can be a huge impediment to accumulating wealth. Had the best trader of all time achieved these same returns in a tax deferred account, he would have amassed almost $192,000!

Nobody can argue that buy and hold is rife with drawdowns, does nothing to stroke your ego and is extremely boring, however, for taxable accounts, you’d be hard pressed to find a better alternative.

What if you had started the experiment in 1999/2000?

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