{"id":1470293,"date":"2024-06-09T14:30:00","date_gmt":"2024-06-09T18:30:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1470293"},"modified":"2024-06-09T14:30:00","modified_gmt":"2024-06-09T18:30:00","slug":"kill-your-good-ideas","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/kill-your-good-ideas\/1470293\/","title":{"rendered":"Kill Your Good Ideas"},"content":{"rendered":"

Kill Your Good Ideas<\/span><\/p>\n

\n

Submitted by QTR’s Fringe Finance<\/a><\/em><\/p>\n

As\u00a0always,\u00a0<\/em>I\u2019m stoked to be able to bring you content from one of my favorite investors, Chris DeMuth Jr. Chris took the time to share his up-to-the-minute thoughts on the market for\u00a0Fringe Finance\u00a0<\/em>subscribers this week.<\/p>\n

Chris writes the\u00a0Vale Tudo\u00a0<\/em>Substack, which can be found\u00a0here<\/a>\u00a0and the Sifting the World Special Purpose Research Substack, which can be found\u00a0here<\/a>.<\/p>\n

All information contained herein is opinion only of Chris DeMuth & does not constitute investment recommendations. Nothing is a solicitation to buy or sell securities.<\/em><\/p>\n

Kill Your Good Ideas<\/strong><\/h2>\n

Implied volatility is quite low.<\/p>\n

<\/a><\/p>\n

This doesn\u2019t seem to comport with the number of discreet issues that have a material (at least 1%) chance of happening and far greater (at least 5%) chance of spooking the market if concerns grow.\u00a0<\/p>\n

Internationally, growing Russia coordination with China risks bolder moves from both.\u00a0 This could cause the Ukraine conflict to spill beyond Ukraine\u2019s borders into the Baltic states or Poland.\u00a0 It could also increase the tempo and likelihood of a Taiwan invasion.\u00a0 Domestically, profligate peacetime (relative to a hot world war) spending could lead to a failed government bond auction.\u00a0 With a bipartisan consensus on unlimited deficit spending, the bond market has become the loyal opposition.\u00a0 It is complacent so far, but when it turns it can do so abruptly and without warning.\u00a0 For a pandemic to devastate the economy far beyond what Covid caused, it needs to have both contagion and lethality; Covid was contagious but not particularly lethal.\u00a0 Covid caused more hysteria than death.\u00a0 But bird flu has the possibility of being far more lethal and as contagious as the seasonal flu.\u00a0 Politically, we are in an unstable political year with the most unpopular president in the history of polling getting challenged by the second least popular president in the history of polling.\u00a0 It is entirely plausible that the presumptive challenger gets convicted with multiple felonies, loses a close election, then has the charges thrown out on appeal.\u00a0 His followers might not respond with equanimity.<\/p>\n

In short, lots could go wrong.\u00a0 I wouldn\u2019t want to be short volatility here.\u00a0 What to do?\u00a0 Instead of buy writing marginal positions, just sell them.\u00a0 The best hedge is to own positions that don\u2019t need a hedge.\u00a0 If yours do, consider selling half and hope you\u2019re (and, er um I\u2019m) wrong.\u00a0 March 2020 was a great time to have poise, capital, liquidity, and simplicity so that you could focus on offense.\u00a0 Any one of the above potential events could lead to an opportunity at least as pronounced as the Covid lows.\u00a0 Whatever you do \u2013 don\u2019t freak out at the precise moment everyone else does.\u00a0 Once it is in the press, it is in the price.\u00a0 So prepare ahead of time so you can be a counterparty for those freaking out.\u00a0 How much liquidity will it take?\u00a0 More than your counterparty.\u00a0 If you get margin calls on the low, then your preparation failed.<\/p>\n

\ud83d\udd25\u00a040% OFF FOR LIFE:<\/strong>\u00a0Using\u00a0this coupon entitles you<\/a><\/strong>\u00a0to 40% off an annual subscription to\u00a0Fringe Finance\u00a0<\/em>for as long as you wish to remain a subscriber.<\/p>\n

In addition to sizing discipline on my\u00a0best ideas<\/a>, I\u2019m skipping my marginal ones.\u00a0 If you load up on your good ideas now, then it will be harder to take big swings at your best ones if volatility spikes.\u00a0 For one example, Marpai, Inc. (MRAI) is a good long idea at $0.60, crushed by over 30% for Nasdaq delisting with zero impact on its fundamental value.\u00a0 Bragg (BRAG) is a good long idea; it is a takeout candidate worth a substantial premium to today\u2019s market price to any number of strategic buyers.\u00a0 But now\u2019s not a great time to start any good long ideas with leverage and certainly not leverage anywhere close to your margin limit.\u00a0<\/p>\n

Remember \u2013 your broker can change margin requirements whenever they want and they will use that right at the worst possible time for you.\u00a0 Interactive Brokers (IBKR) is perhaps the most ruthless, but Goldman Sach (GS) and others will also force you to sell when you least want to.\u00a0 The relevant Goldman partners are multimillionaires and IB\u2019s founder is a multibillionaire precisely because they hate risk to themselves and will do absolutely anything whatsoever to avoid it.\u00a0 As a leveraged client, you are not their partner or friend; you are their counterparty and on the other side of their ruthlessness when it comes to such risks.\u00a0<\/p>\n

Instead of paying for leverage from your broker at the firm level, use the corporate balance sheets and capital structures to get any desired leverage at the position level.\u00a0 Brokers are surprisingly dumb about this.\u00a0 Underleveraged balance sheets (e.g. at recent demutualizations) are given far too little margin and massively leveraged balance sheets (e.g. equities in bankruptcy) are often given the same or more.\u00a0 Take advantage of this inefficiency.\u00a0 For example, I like owning bitcoin but love owning the most leveraged\u00a0miner<\/a>.\u00a0 For even greater leverage, they have a warrant (CORZZ) that is leveraged to the company which is in turn leveraged to bitcoin.\u00a0<\/p>\n

<\/a><\/p>\n

Skip the crisis.\u00a0 I often think about what I\u2019d do the day after a horrific event.\u00a0 I would drive safely after a car crash.\u00a0 I would invest prudently after a market crash.\u00a0 But I\u2019m perfectly capable of imagining such events, skipping them, and acting on them before they occur.\u00a0 Do you have any positions with stop losses (pre-planning to sell something lower because it declined)?\u00a0 Sell them now and skip the loss.\u00a0 If you prepare, then you need not predict or at least not with any particular precision.\u00a0 As Cat Stevens sang and as I mentioned\u00a0here<\/a>,<\/p>\n

<\/a><\/p>\n

Oh baby baby it’s a wild world<\/a>, it’s hard to get by just upon a smile.\u00a0 Oh baby baby it’s a wild world.<\/em><\/p>\n

– Cat Stevens on the log normal nature of capital markets<\/p>\n

Something isn’t normal in the market today. In fact, it wasn’t normal yesterday. Come to think of it, it never has been. So perhaps,\u00a0normal<\/em>\u00a0is not a particularly useful concept for markets or for nature. It is good for modeling, but reality conforms to normal distribution curves rarely. If it did, here is what the world would look like:<\/p>\n

<\/a><\/p>\n

Here is what the world looks like:<\/p>\n

<\/a><\/p>\n

We live in a statistically wild world, baby. Like “unseasonably hot” weather in the middle of summer, unexpected things happen all of the time (that is, unexpected if you set your expectations to a normal distribution curve):<\/p>\n

<\/a><\/p>\n

If you size risks based on downside, this is all fine. If you size risk based on volatility and the model for volatility is based on an expectation of normalcy, then sooner or later\u2026 you’re doomed.<\/p>\n

<\/a><\/p>\n

QTR\u2019s Disclaimer<\/strong><\/em>:<\/strong>\u00a0Please read my full legal disclaimer\u00a0on my About page here<\/a><\/em>.\u00a0This post represents my opinions only.<\/em>\u00a0In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a\u00a0Creative Commons license<\/a>\u00a0with my best effort to uphold what the license asks, or with the permission of the author. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade\/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates.\u00a0I did my best to be honest about my disclosures but can\u2019t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it twice because it\u2019s that important.<\/em><\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nSun, 06\/09\/2024 – 10:30<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/kill-your-good-ideas<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Kill Your Good Ideas Submitted by QTR’s Fringe Finance As\u00a0always,\u00a0I\u2019m stoked to be able to bring you content from one of my favorite investors, Chris…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-1470293","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbimBl-6aup","jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470293","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1470293"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470293\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1470293"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1470293"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1470293"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}