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The Alibaba Trade
A company known as Alibaba will IPO in the USA this Friday. Trading Alibaba will be risky for a variety of reasons. My guess is that even at a high valuation, there might be mania and the price will go up. However, rather than guessing there might be a more “arbitrage-like” trade. This is a copy of a letter I wrote to several friends of mine on May 9, 2014. Some of it may apply today as well. Fact 1: Yahoo (YHOO) owns 22.6% of Alibaba. That means, Yahoo is worth Yahoo + 0.226*Alibaba Market Value. Fact 2: YHOO must sell 40% of its...
read moreFlash Crashes and Market Design
In my book, The Crisis of Crowding, I spoke about the crowding of market makers in the Flash Crash and the sudden disappearance of market liquidity. This led to people buying Apple stock (Ticker: AAPL) for $100,000 per share and selling Accenture (Ticker: ACN) for 1 cent. Many other trades occurred at ridiculous prices. Since the writing of the book, there have been several other mini crashes where liquidity in the market seemed to vanish. Many people believe that improvements in technology and traders known as high frequency...
read moreShould you put your money in real estate?
The real estate market has picked up this year and in some cities, like San Francisco, there is a shortage of inventory and lots of people making frenzied bids on property. This has led to higher home prices in most cities in 2012 and that trend has continued in 2013 (see Table 1). Many people are asking two questions. First, should I go buy a house now? Second, if I don’t want to buy a house, should I invest in real estate? The difficulty in answering both questions is that it involves predicting the future, as well as knowing the...
read moreDazzling Guest Speakers in Finance and Business at University of San Francisco in April
In April, the School of Management of the University of San Francisco will host three great speakers in finance and business. If you are in the San Francisco community and would like to attend, please contact Margot Frey (mafrey@usfca.edu – 415-422-2084) or Andrew Heitman (aheitman@usfca.edu). 1. April 16, 2013 5:30–7:00 p.m. Room 516 Agora Common Area Jeremy Howard CEO & President of Kaggle Using Data to Make the World a Better Place. The Story of a Startup and an Ambitious Dream 2. April 23, 2013 5:30–7:00 p.m. Room 516 Agora...
read moreAn Indicator of Bubbles in the Housing Market
The housing bubble of 2008 was created by a crowd rushing into the housing market. Some have argued that there was no way to determine whether there was a bubble in housing, yet in the Crisis of Crowding, a few simple measures are shown that help indicate that the housing market had become relatively very expensive by 2007. The measure is very simple. It considers mortgage rates, housing prices, and the average income of people to determine whether buying a house has become relatively more or less expensive for the average person. The...
read moreA New Book Review on the Crisis of Crowding
http://www.cfala.org/i4a/pages/index.cfm?pageID=4052#Crisis
read moreThe So-So Returns of Losers in January 2013
In a previous blog, I wrote about the strategy of buying the previous year’s losers and selling the previous year’s winners. So how did the strategy do in January 2013? Not so well, but it didn’t hurt either. The long-short return was 4.44%. Two companies in the loser portfolio were gone by the end of January. One was Theratechnologies (THER), which was delisted from Nasdaq but continued to trade. The other company was Lodge Net Interactive (LNET), which received a cash infusion and is now in Chapter 11 bankruptcy...
read moreDon’t Blame Lance, Blame Yourself
Lance Armstrong is again a hot topic, given his confession to doping this week. Many people say it doesn’t matter…he’s done. I was never a big Lance Armstrong fan. I never bought his bracelets and I never got into the hype. And despite all his denials over the years, I always believed he was doping. Cycling is a sport that is so loaded with doping that it’s hard to imagine that anyone could possibly win 7 Tour de France titles in-a-row without having doped. In fact, in the 1940s, before doping was sophisticated,...
read moreWhen Losers are Good Company
A few years ago, when I helped create portfolios for retail customers, my research group considered offering customers the possibility to buy the worst performing stocks of the previous year. The logic is not too different from the Dogs of the Dow strategy. If you remember, the Dogs of the Dow strategy buys the highest dividend yielding stocks at the end of the calendar year and holds them for one year. Often times, these are stocks that had poor returns relative to other Dow stocks. The rationale for buying them could be that although...
read moreThe Amazing Walt Disney
Today I went to visit the Walt Disney museum in San Francisco. The museum is so appropriately situated in the Presidio area with a splendid view of the Golden Gate bridge. Although I knew about Disneyland, Mickey Mouse, and Mary Poppins, I learned a few special things today and I thought I would share. First, I learned that Walt Disney and Roy Disney (brothers) didn’t always have it easy. Their first animation company (Laugh-O-Gram) went into bankruptcy in 1923. After that, the brothers moved to LA and started a new studio. Even then,...
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