“It ain’t braggin’ if it’s true!”
Gotham Research, one of StreetBrains’ key brands, has had a very profitable ’08. Some highlights include:
On 5/14, Gotham closed its position from 12/13/07 on Hercules Offshore (HERO), up 26.61%.
On 5/15, they closed a position on EMCORE Corp (EMKR), up 23.075% from 4/3/08. Additionally on this day, Gotham closed their position on FelCor Lodging Trust Inc. (FCH) from 2/27/08 which was up 18.93%. Gotham also closed a spread on Occidental Petroleum Corp. (OXY) vs. Ultra Petroleum Corp. (UPL) up 6.97% from 1/25/08.
On 5/20/08, Gotham closed on Royal Gold Inc. (RGLD), up 13.32% from 5/2008; Seabridge Gold (SA), up 14.56% from 5/9/08; DryShips Inc. (DRYS) from 1/25/08 up 92.08%.
On 5/21/08, Gotham closed spreads on Altera Corp. (ALTR) vs. SPDR trust (SPY) up 24.60% from 10/25/07; and Platinum Underwriters Holdings (PTP) vs. PartnerRe Ltd. (PRE) up 11.33% from 10/19/07.
Wednesday, May 21, 2008
Wednesday, May 14, 2008
2nd Degree Burn: The Information Loss Superhighway
Surfing is often considered a territorial sport. It’s likely that passionate enthusiasts are drawn to the ownership of a hot spot, compelled to keep it to themselves or within a tight group.
Before paddling out this past weekend, a fellow surfer came up to me and explained that I couldn’t surf his break and that I would have to find somewhere else to go, down the beach about a half mile. Looking up and down the unobstructed 18 miles of shoreline, I thought about how ridiculous this was, especially considering that he had no idea where I was intending on heading out in the first place. Also, I didn’t recognize him; having known this spot for years, this triggered a warning sign in my head.
We stood on the beach talking, motioning through our wetsuits, trying to come to some sort of understanding. I kept the focus on his total lack of solidarity while he was most concerned in why I was picking this particular zone to paddle out. After a few minutes, it was clear that he was just waiting for me to tell him where to get in the water because he didn’t even know the break and was ultimately looking to see what I was going to do.
I was going to paddle out where I originally intended, directly where he didn’t want me to go. Since he was terribly stubborn about it, I knew he would do the exact opposite of me just to have a quarter mile stretch all to himself (probably the only thing he wanted in the first place). Instead of asking me straight out what was good in the break, he tried to strong-arm me into giving him information.
He ended up paddling out where he had originally wanted me to go. I could have told him about the dip in the shoreline over there that made the waves short and the rip current strong. And I could have told him about the sandbar that would have killed any swell energy close to shore. But why would I want him to come back? Why would I want him to know what I know? He hadn’t earned it.
This got me thinking about protecting information that you value and respecting it enough to not risk contaminating it by providing it to others who haven’t done the legwork.
Insights in the Hands of Expert Networks
If your expert network isn’t yet causing a headache for your compliance department, then they probably have you wondering, “How can they potentially compromise my investments ideas?”
‘Information loss’ is the nice way of saying, “You just flushed your best ideas out to sea.” In speaking with an expert network, you probably let them in on your insights, giving them a starting point from which they can begin to help you build support for your idea. In this process, there is no definitive standard in place to keep your ideas out of the hands of others. In trying to grow your ideas and generate appeal for them, you’ve essentially released them to the market, uncertain of how they are being assessed and used. Your ideas are lost. You’ve opened the door on your security, your intellectual assets now in full view.
If one day you pick up the phone and gather some insights from an expert network participant based on your impending investment decisions, take pause and think about how vulnerable your idea is to being compromised.
Communicating your ideas to expert networks is a risky venture that can potentially put your private insight on the Street, making your unique idea fodder for the masses.
As we mentioned last week, expert networks are valuable in theory, but when weighing the risks, there can be many uncertainties.
You wouldn’t sit in the middle of Bobby Van’s Steakhouse spewing your next best idea in earshot of your competition. Why would you openly discuss this information with an expert network?
‘Information loss’ is going to happen in any business. It’s the reason why painters don’t talk about their brushstrokes; why scientists don’t share their notebooks; and why Street Brains doesn’t email reports through highly accessible PDF documents. You want to make sure that limited means limited.
In working with an expert network, an expert has to take into account any insights he’s gathered from his conversation with you – that information is now part of his knowledge and expertise. When the expert picks up the phone to discuss it with others seeking his “expertise,” your conversation with that expert may very well help to shape that expertise. If your goal is to generate alpha – as is the case for most institutional investors – you put it seriously at risk when you rely on a source that is not accountable to you.
Before paddling out this past weekend, a fellow surfer came up to me and explained that I couldn’t surf his break and that I would have to find somewhere else to go, down the beach about a half mile. Looking up and down the unobstructed 18 miles of shoreline, I thought about how ridiculous this was, especially considering that he had no idea where I was intending on heading out in the first place. Also, I didn’t recognize him; having known this spot for years, this triggered a warning sign in my head.
We stood on the beach talking, motioning through our wetsuits, trying to come to some sort of understanding. I kept the focus on his total lack of solidarity while he was most concerned in why I was picking this particular zone to paddle out. After a few minutes, it was clear that he was just waiting for me to tell him where to get in the water because he didn’t even know the break and was ultimately looking to see what I was going to do.
I was going to paddle out where I originally intended, directly where he didn’t want me to go. Since he was terribly stubborn about it, I knew he would do the exact opposite of me just to have a quarter mile stretch all to himself (probably the only thing he wanted in the first place). Instead of asking me straight out what was good in the break, he tried to strong-arm me into giving him information.
He ended up paddling out where he had originally wanted me to go. I could have told him about the dip in the shoreline over there that made the waves short and the rip current strong. And I could have told him about the sandbar that would have killed any swell energy close to shore. But why would I want him to come back? Why would I want him to know what I know? He hadn’t earned it.
This got me thinking about protecting information that you value and respecting it enough to not risk contaminating it by providing it to others who haven’t done the legwork.
Insights in the Hands of Expert Networks
If your expert network isn’t yet causing a headache for your compliance department, then they probably have you wondering, “How can they potentially compromise my investments ideas?”
‘Information loss’ is the nice way of saying, “You just flushed your best ideas out to sea.” In speaking with an expert network, you probably let them in on your insights, giving them a starting point from which they can begin to help you build support for your idea. In this process, there is no definitive standard in place to keep your ideas out of the hands of others. In trying to grow your ideas and generate appeal for them, you’ve essentially released them to the market, uncertain of how they are being assessed and used. Your ideas are lost. You’ve opened the door on your security, your intellectual assets now in full view.
If one day you pick up the phone and gather some insights from an expert network participant based on your impending investment decisions, take pause and think about how vulnerable your idea is to being compromised.
Communicating your ideas to expert networks is a risky venture that can potentially put your private insight on the Street, making your unique idea fodder for the masses.
As we mentioned last week, expert networks are valuable in theory, but when weighing the risks, there can be many uncertainties.
You wouldn’t sit in the middle of Bobby Van’s Steakhouse spewing your next best idea in earshot of your competition. Why would you openly discuss this information with an expert network?
‘Information loss’ is going to happen in any business. It’s the reason why painters don’t talk about their brushstrokes; why scientists don’t share their notebooks; and why Street Brains doesn’t email reports through highly accessible PDF documents. You want to make sure that limited means limited.
In working with an expert network, an expert has to take into account any insights he’s gathered from his conversation with you – that information is now part of his knowledge and expertise. When the expert picks up the phone to discuss it with others seeking his “expertise,” your conversation with that expert may very well help to shape that expertise. If your goal is to generate alpha – as is the case for most institutional investors – you put it seriously at risk when you rely on a source that is not accountable to you.
Friday, May 9, 2008
Holding the Hot Potato: The Expert Network Burn Factor
Should we be shocked to learn that our buy-side friends are a little concerned over the compliance problems that expert networks pose? In theory, it sounds nice to be able to shop for experts who will laud your investment ideas, pushing your good measure with their stamp of approval. However, what happens when that network lets you down? The paper trail won’t lead back to an analyst and the expert network surely won’t be sweating the mistake. No one wants to be holding the potato when the music stops, but without a doubt, it winds up in buy-side hands.
Integrity Research shows that 45% of surveyed buy-side compliance professionals are somewhat or very worried about compliance problems that may arise from their use of expert networks.
It’s only a matter of time before we see the crackdown. Without a stringent vetting process, expert networks will continue to cause compliance problems for their clients. How do you qualify an expert? How is he deemed reliable? What is keeping him from supplying potentially dangerous information to institutional investors?
45% of compliance professionals may be asking themselves those questions, but what about the other 55? Are they not banking on a backlash?
Institutional investors have good reason to worry about their relationships with expert networks. When something goes wrong, if a mistake is made and the investor loses money, the investor can’t just turn to those experts and say, “He did it.” When using the expert network, an investor is forced to ‘proceed at their own risk’ and take responsibility for any errors that result. As is usually the case with the financial markets, this is a useful – and often lucrative – way to operate…right up until the point where a big trade blows up based on faulty information.
Remember: If you wind up with a hot potato, the game’s over.
Integrity Research shows that 45% of surveyed buy-side compliance professionals are somewhat or very worried about compliance problems that may arise from their use of expert networks.
It’s only a matter of time before we see the crackdown. Without a stringent vetting process, expert networks will continue to cause compliance problems for their clients. How do you qualify an expert? How is he deemed reliable? What is keeping him from supplying potentially dangerous information to institutional investors?
45% of compliance professionals may be asking themselves those questions, but what about the other 55? Are they not banking on a backlash?
Institutional investors have good reason to worry about their relationships with expert networks. When something goes wrong, if a mistake is made and the investor loses money, the investor can’t just turn to those experts and say, “He did it.” When using the expert network, an investor is forced to ‘proceed at their own risk’ and take responsibility for any errors that result. As is usually the case with the financial markets, this is a useful – and often lucrative – way to operate…right up until the point where a big trade blows up based on faulty information.
Remember: If you wind up with a hot potato, the game’s over.
Thursday, May 1, 2008
Farewell to Desk Jockeys: Show Me The Money!
The era of desk jockeys seems to be coming to a close as institutional investors push research providers to go far beyond critiquing company earnings and writing up ratings based on quarterly estimates. With a struggling economy breathing down their necks, investors are putting the pressure on analysts to show them the money and give them the edge. But what’s really changing? Can the research world adapt?
Some might argue that independent research providers (IRPs) have been waiting a long time for this opportunity to shine and truly show how their value stacks up against their Wall Street brethren.
Bloomberg News recently published an article by Peter Robison (“What’s Analyst Worth, Not a Penny as Estimates Miss”) which discussed how Wall Street analysts were missing estimates based on a trend of inaccuracy and anti-sell mentality. The problem for those analysts is unfortunately often well outside of their control, and rather dictated by their firms and compliance rules – they are expected to sit at their desks and write, and to ‘fill in’ a research report template. These strangle-held analysts are seldom able to think outside of the box or to expand the scope of their analysis to include information that can set their research apart from their Wall Street competitors. This scenario presents tremendous opportunity for independent analysts who deliver insights that “fall through the cracks” in the Wall Street research silos.
Most independent analysts know that sifting through earnings reports, judging company profiles and keeping an eye on trends is only the bare minimum – a starting point. While waiting on GE earnings, you might find a Wall Street analyst locked up to the point that he’s flicking the top of his Dwight Schrute bobble-head and running his eyes to a rearview monitor mirror every time a coworker passes by.
On the flip side, you’d find an independent analyst walking the factory floors, speaking to government officials, competitors, customers, and any and all sources able to pave the way to the most actionable investment insight. These analysts acquire unique credibility in their sector while always delivering more to their clients.
“Necessary Evil”
Obviously, those who consider analysts a “necessary evil” have never had the kind of relationship that they should be having with their analysts. Reading that, it would seem as though receiving potentially profitable information is a chore. Cut the cord – if you’re not happy, then you should only need to take the trash out once. If an analyst doesn’t show you the money, then it’s probably time to show him the door.
Some might argue that independent research providers (IRPs) have been waiting a long time for this opportunity to shine and truly show how their value stacks up against their Wall Street brethren.
Bloomberg News recently published an article by Peter Robison (“What’s Analyst Worth, Not a Penny as Estimates Miss”) which discussed how Wall Street analysts were missing estimates based on a trend of inaccuracy and anti-sell mentality. The problem for those analysts is unfortunately often well outside of their control, and rather dictated by their firms and compliance rules – they are expected to sit at their desks and write, and to ‘fill in’ a research report template. These strangle-held analysts are seldom able to think outside of the box or to expand the scope of their analysis to include information that can set their research apart from their Wall Street competitors. This scenario presents tremendous opportunity for independent analysts who deliver insights that “fall through the cracks” in the Wall Street research silos.
Most independent analysts know that sifting through earnings reports, judging company profiles and keeping an eye on trends is only the bare minimum – a starting point. While waiting on GE earnings, you might find a Wall Street analyst locked up to the point that he’s flicking the top of his Dwight Schrute bobble-head and running his eyes to a rearview monitor mirror every time a coworker passes by.
On the flip side, you’d find an independent analyst walking the factory floors, speaking to government officials, competitors, customers, and any and all sources able to pave the way to the most actionable investment insight. These analysts acquire unique credibility in their sector while always delivering more to their clients.
“Necessary Evil”
Obviously, those who consider analysts a “necessary evil” have never had the kind of relationship that they should be having with their analysts. Reading that, it would seem as though receiving potentially profitable information is a chore. Cut the cord – if you’re not happy, then you should only need to take the trash out once. If an analyst doesn’t show you the money, then it’s probably time to show him the door.
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