Quants Quench

A very instructive and entertaining paper by Amir E. Khandani and Andrew W. Lo:
What Happened To The Quants
In August 2007?

The pointer has been from The Trading Digest.

Bill Miller Video

Bill Miller interview

BT&T Timelife

On 2007-12-27 came this announcement from BT&T Timelife AG:

Successful CHF 30 million class action suit against Lernout & Hauspie / KPMG
BT&T TIMELIFE AG is receiving an amount of about CHF 30 million from a successful class action suit against the Belgian software company Lernout & Hauspie, which filed for bankruptcy in 2001 due to accounting fraud, as well as against their auditing firm KPMG.
The Net Asset Value of BT&T TIMELIFE AG will be adjusted as of December 28, 2007 – proportional to the value increase through the financial returns from the class action suit – by CHF 1.53 per share from CHF 1.43 per share to newly CHF 2.96 per share.

On 2007-12-28 there was an insider transaction purchase of 182'480 securities amounting to CHF 179'378.00 (CHF 0.98 / security).

The share price later on closed at CHF 1.50 for a nice 53 % intraday profit. For the whole day the stock increased a whopping 89 %. Thought the whole market capitalization is still less than CHF 21 million.

Nestle Insider Transaction

Wow, good timing, Mr. Brabeck-Letmathe?!

According to the SWX Swiss Exchange:

Issuer	Nestlé AG
Transaction date	12.12.2007 by an executive member of the board of directors / member of senior management
Type of transaction	Sale of 20'000 securities amounting to CHF 11'000'000.00 (CHF 550.00 / security)
Type of security	Equity securities
ISIN	cf. remarks on the product
Remarks on the product	Exercise de Management Stock Options

Or are there any other executive members of the board of directors?

The all time high of Nestle was CHF 550.50 at 2007-11-15 and this sale was less than 1 permille below it. Anyway, today's price is still only -4.82 % below that sale price.

Jon Tait

An inspiring interview at StockTickr from 2006-10-18:
Interview with Jon Tait, the Fickle Trader

Oil Reserves

Who has the oil?

Greatest Oil Reserves by Country, 2006

Trading Psychology

Brett Steenbarger: Two Kinds of Traders

Now here's the interesting part: The first group of traders almost universally asks me to help them tame their emotions. They have problems with impulsive trading, failing to honor risk limits, failing to take valid signals due to anxiety, etc. The second group of traders, having researched successful strategies, almost universally asks me to help them take maximum advantage of their edge. They want help taking *more* risk and trading larger positions.

The trading psychology literature focuses strongly on the first group of traders, because much of the universe of retail traders falls into this category. At many investment banks and hedge funds, however, visual trading is practically non-existent. If you don't have a model with a demonstrable edge, you don't trade. Such traders tend to have solid analytical strengths, but are not necessarily risk-takers.

Riding Bubbles?

Here is a paper by Eric Kole, Nadja Guenster, and Ben Jacobsen: Riding Bubles

Here is a summary/comment about the paper: Bubbles: Ride, Watch or Play the Pop?

Cataclysmic Countrywide

Here is a background article by Art Detman for the FTSE Global Markets Magazin about Countrywide Financial.

Buffett too Old?

Gannon to Barron’s: Berkshire Fairly Valued…As a Buffettless Empire!

However, the age angle is overdone in most media reports. People look at Buffett (like Bill O’Reilly recently did) and say “this guy’s old; he’s going to be dead soon”.

There are a few problems with this logic when applied to Buffett’s future services to Berkshire. One, CEOs don’t usually die in office. Even great CEOs retire long before they reach 77 – and 86 is never even contemplated.

Buffett will work for as long as he’s able. Taking Barron’s actuarial life expectancy of nine years, it’s obvious that Buffett is still expected to last longer at Berkshire than the average public company CEO appointed today. CEOs don’t make it much more than five years on average; so, Buffett’s expected future service time is actually above-average not below average.

Investment Banks Carnage

Investment or other big bank current share price drawdowns (drawdown = percentage below all time high), as of 2007-12-14:

US       |  ATH Date|   ATH| Price|Down %
Morgan S.|2000-09-11|109.37| 50.30|-54.01
Citigroup|2000-08-28| 58.88| 30.70|-47.86
Bear St. |2007-01-12|171.51| 95.29|-44.44
Merrill  |2007-01-24| 97.53| 56.84|-41.72
JP Morgan|2000-03-23| 65.67| 45.20|-31.17
Lehman B.|2007-02-02| 85.80| 62.24|-27.46
BoA      |2006-11-16| 54.90| 42.16|-23.21
Goldman  |2007-10-31|247.92|210.67|-15.03

Europe
Fortis   |2007-04-10| 35.35| 18.47|-47.75
RBS      |2007-03-06|  7.19|  4.39|-38.94
Soc. Gen.|2007-05-04|158.42|100.67|-36.45
Barclays |2007-02-23|  7.90|  5.32|-32.66
ING      |2001-07-02| 39.95| 27.06|-32.27
UBS      |2007-06-01| 80.00| 55.25|-30.94
CS       |2007-04-30| 95.45| 69.95|-26.72
Unicredit|2007-04-26|  7.68|  5.72|-25.52
Deutsche |2007-05-11|117.96| 89.15|-24.42
HSBC     |2001-01-25| 10.84|  8.39|-22.60
BNP Par. |2007-05-23| 94.25| 74.64|-20.81
Santander|2007-10-31| 15.00| 14.69| -2.07

Domestic
N. Rock  |2007-02-09| 12.51|  0.92|-92.65
Countryw.|2007-02-02| 45.03|  9.80|-78.24
IKB      |2006-04-21| 33.13|  7.96|-75.97

Joe Cool

Dr. Joseph Ackerman (source DPA/Manager Magazin)

Anchoring

A good post on anchoring...

Stock Market Psychology Blog: Behavioral finance and beyond - For Smooth Sailing, Winch up Your Financial Anchors

Andrew Hurst

Andrew Hurst of Reuters on Banks in general, European and Swiss Banks in particular...

"andrew hurst" - Google News

Buffett Owned UBS

Correction. Buffett said USB (U.S. Bancorp). So no news here...
---

We've owned UBS. Some of them are black boxes. Some of them are too hard to figure. If they have enormous positions in mortgage-backed, or CDOs, or even in some forms of derivatives, they may be fine but I can't know that. I like 'em fairly simple and somebody's characterized what's going on now as a flight to simplicity. And there's a good reason for that. You should only buy what you understand. And I can only understand simple things, so, ergo, I look at simple businesses.

Warren Buffett's Complete CNBC Interview: Video and Transcript (2 of 2)

UBS Stops Proprietary Trading

UBS, which is hiking its Tier 1 capital to 12 percent in a 19.4 billion Swiss frmanc injection has ordered a halt to proprietary trading -- which involves investment banks committing their own money to investments and trading positions.

Source Reuters: UBS Investment Bank Faces Challenge to Recover

Option Selling

The Art of Option Selling
by Barclay T. Leib

UBS Losses

UBS strengthens capital base and adjusts valuations
Sounds really great for investors:).

Hear Ospel ("we took 10 billion of risk out of the balance") and Zuberbühler ("there have been no death casualties") at this DRS interview.

SEC EDGAR Forms

Here is the official description of all SEC EDGAR form types.

Here is the link to search the EDGAR database.

An overview of the different kind of information provided at the EDGAR database is given at this guide.

Trading Books

From StockTickr.com:
What Books Do Successful Traders Recommend?
July 9th, 2007

The 13 Basis Point Portfolio

The 13 Basis Point Portfolio
by Matthew Hougan

Private Banking Study 2007

The International Private Banking Study 2007
by Prof. Dr. Teodoro D. Cocca and Prof. Dr. Hans Geiger

Ackermann in Zurich 2

A report by Sven Egenter from Reuters:
Deutsche Bank CEO says credit crisis not over yet

British Sub Prime Humor

The Long Johns - The Last Laugh - George Parr - Subprime


Pointer from Michael Covel.

Paul Tudor Jones

Paul Tudor Jones II interview by
Joel Ramin
January 13, 2000

I applied to Harvard Business School, got accepted and was about to go. I literally was packed up to go and then I thought, 'this is crazy', because for what I'm doing here, they're not going to teach me anything. This skill set is not something that they teach in business school. So I didn't go, I stayed, but I was really bored because there wasn't the personal interaction that was something that I craved and having colleagues and being in a clean atmosphere and that was when I started my fund. All through growing up I've been involved in team sports and fraternities and in school I was involved in a whole variety of activities all of which were team oriented and when I was on my own I was printing money every month, but I wasn't getting the psychic satisfaction from it
...
Q: Are you more naturally bearish or bullish?

Paul Tudor Jones: Bearish, I think. I would have difficulty asking anyone to pay 10 or 20 times earnings for my earnings capability for the rest of my life. I would think you're crazy to do that even though it might be a great deal, so the concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE's? If it's going up you're supposed to be long it. But there's no question that it's just easier for me to leverage with some degree of conviction the short side of some markets.
...
Q: Let's play a word association game. I'll say a word and you say whatever comes to mind.

Q: Technical analysis

Paul Tudor Jones: Made well over half the money that I've made in my lifetime.

Q: Fundamental Analysis

Paul Tudor Jones: Made the rest.

Q: Are you better at one or the other?

Paul Tudor Jones: Probably technical analysis.

Q: Market efficiency

Paul Tudor Jones: No such thing.

Q: Long Term Capital Management

Paul Tudor Jones: Icarus.

Q: Black Monday

Paul Tudor Jones: It was like watching a natural disaster from the sidelines. I was intimately involved in that day, but the macro implications of what was happening overwhelmed any personal considerations that I had.

Q: Warren Buffet

Paul Tudor Jones: His aversion to paying taxes made him a great investor.

A good summary of hiw rules can be found at Wikipedia.

Jim Simons

Bloomberg: Simons at Renaissance Cracks Code, Doubling Assets (Update1)

``There are just a few individuals who have truly changed how we view the markets,'' says Theodore Aronson, principal of Aronson + Johnson + Ortiz LP, a quantitative money management firm in Philadelphia with $29.3 billion in assets. ``John Maynard Keynes is one of the few. Warren Buffett is one of the few. So is Jim Simons.''
...
With his myriad positions in different markets, Simons likens his approach to the extensive farming he once practiced in Colorado, using center pivot irrigation to grow wheat on thousands of acres.

``Every little stalk of wheat was not doing so great, but most of them were, so you're working on statistics,'' Simons says.

By contrast, he says, the traditional focused investing practiced by Warren Buffett is akin to intensive farming, in which each individual plant really counts. ``It's two completely different ends of the spectrum,'' Simons says.
...
Scientific exploration underpins all of Simons's work. ``What motivates me?'' he says. ``I'm ambitious and I like to do things well. I love to create something that really works. We have lots and lots and lots of strategies, and each new one gives me a lot of pleasure, to see something new that works.''
...
Former employees say observers may gain as much insight into Renaissance's performance by scrutinizing a more obvious factor: Simons has succeeded in building a pretty good business model. First, it's a firm run by and for scientists.

``I've always said Renaissance's secret is that it didn't hire MBAs,'' says Berlekamp, who blames the herdlike mentality among business school graduates for poor investor returns.

Programming and modeling are treated as the heart of the firm's advantage -- not an expense. ``If you needed a lot of computer power, the decision was based on whether you needed it, not the budget,'' says Peter Weinberger, former chief technology officer at Renaissance and now a software engineer at Google Inc.

Decisions are made quickly and feedback is constant. ``One of the things about Renaissance is that there's a feeling of urgency,'' says Frey, who left to teach applied mathematics and statistics at Stony Brook in 2004.

``We always believed that there was a wolf at the door, that somebody would get there before we did.''

Joe Ackermann in Zurich

If you are located in Zurich, you might take notice of this event:

Die Bedeutung von Schwellenländern in der globalen Strategie der Deutschen Bank
2007-12-05, 18:15
Karl Schmid-Strasse 4, 8006 Zürich; KO2, Raum: F 180