oddballstocks

There are opportunities because professionals or investors with $5m or more in capital can't take advantage. There isn't enough liquidity. Everyone knows this stuff exists, but few actually pull the trigger because of capital or a feeling of safety. I'd adapt the "no one ever got fired for buying IBM" to "no one ever got fired for only buying large caps". There is a significant amount of career risk to buying a small and unknown stock. No career risk by piling into popular trades.

I put together a post on this: http://www.oddballstocks.com/2015/06/benzinga-interview-plus-thoughts-on.html A few things. Investors aren't really investing in those loans. You're buying a note to LC and then LC directs payments to you, just a contractual thing. But this means that investors can't go after defaulted loans. And if LC goes belly up investors in the notes have no recourse against the parent company. An investor is just buying a derivative note without anything underlying. It reminds me of the China reverse mergers. You'd invest in a shell that had a contractual revenue/income/dividend relationship with the Chinese company. But we know how well these things worked. LC doesn't care as much about credit quality as they need to keep the ball rolling. They make money originating and on fees, not by holding the loan. As long as there are investors who want to pony up $25 at a time for these things I'm sure they'll be able to find borrowers. The GS angle is interesting. They're looking at this as a bundling business. They'll originate, bundle, trade. They make money on the origination as well as the trading revenue. This is a market where I really wouldn't want to be on the other side of Goldman. They made the loans, bundled them and now they're selling them. Jurgis, Don't think of LC as a lender, they're just an originator dumping these loans on investors. They don't have any risk themselves. The irony here is LC claims their IT platform allows them to make these loans that would otherwise be unprofitable. But compared to banks with $9b in loans, or ones that do similar volume the banks have much lower operating costs. The problem is LC is like Groupon, they need a giant sales and marketing team to keep volume up. If that origination volume drops the business is done. The 1% interest stream doesn't cover much for them.

Agree with Ham Hockers and Packer. Working for someone else can be excellent experience, especially if you filter it through what you want to do. If you go into a job with the expectation that you want to learn everything possible to start your own firm I think your experience will be much different than someone who looks at it as just a job. Things like accounting or back office, normally boring aspects will be interesting because you're trying to learn these things. Packer's suggestion is excellent. If Microsoft will let you why not just run it while you work there? Start a small RIA and see what you can do. You're already doing the work, and the back office isn't going to be too burdensome initially. This way you can get your feet wet. Managing someone else's money is different from managing your own. I have wanted to start a business for years. I tried and failed in 2006/2007 with some friends. We didn't have any experience, or enough experience. Fast forward six years later and I had a much different experience. Why? I had a series of failed ventures that I learned from. I also had a lot of varied professional experience that I learned from. In 2006 speaking to a C-level exec would have intimidated me. But I was able to gain some experience on my day job doing so. Now that sort of thing is fine, but I had to learn it. And I was able to learn on someone else's dime. Same with product development. In 2006 I thought I knew what went into product development end to end. But I didn't. Then I learned this on someone else's dime and have done it successfully on my own. When you work for someone else you're limiting your risk. This is big. I don't know your family situation, but if things don't work out as quickly as you expect (and they never do) are you prepared to live off credit cards or savings in a tiny apartment eating ramen? Two last points. The first is when you're doing this full time there will be a lot of administrative work. You are not just investing full time. You're talking to clients, marketing, doing accounting, reconciling accounts etc. Maybe investing is 60-70% of your day. Do you enjoy those other things? In my business I enjoy making products, but to make money I need to sell and market. Product development is maybe 40% of the day at most, sometimes for weeks it's 0%, with a few weeks of 70%. Keep this in mind, every entrepreneur I've talked to has echo'ed the same thing. Last point. If you're going the full time route the biggest indicator of success is going to be how much you can raise and how quickly. If you can raise $10-20m right off the bat you'll do alright. If you open the doors with $150k and at the end of the year have $500k I'd consider calling MS back. If you can't raise a lot of capital to start do this on the side until you reach critical mass. I believe benhacker did this, he worked and invested until he'd raised enough funds. This is the smart way to do things, limit your opportunity cost.

Thanks a lot! I will talk to a lawyer to get started. I should register an LLC first right? And then employ myself from the LLC and get director and officer liability insurance? How much would that cost? I don't think you need insurance, and registering as an LLC doesn't take more than $200. Depends on the state, $750 is PA. S-corp is only $125.

My impression has always been that a hedge fund is $50k+ in startup costs. That only makes sense if you're going large from the start. You mention having a few employees, presumably you have connections to raise capital already. If you want to run lean go the RIA method. Seems like there are a lot of paranoid investors here. If someone is paying you to manage their money why would they be looking over your shoulder hourly? They probably have better things to do. If not and they don't trust you fire them as a client, you don't want clients like that. If you're in the A camp I'd just call a lawyer and talk this through with them. What's an extra grand or two in lawyer fees if you're going to be spending a lot to startup anyways. Plus then you'll get real advice, not second hand from the internet. This is good advice, but we don't know what state you're in, your products etc. Talk to a lawyer. If you're in the B camp then this is probably the best cheapest advice you can find. But I'd still say talk to a lawyer! Lawyers are expensive until you get sued. I've surfed the net for business questions, spending hours and at times days looking for a good answer. I've come to learn that in many cases my lawyer knew the answer and a simple email or call would have done. If you have someone decent, someone interested in growing with your business they aren't going to nickel and dime you. That is unless you're wasting a TON of their time. Ask for all-in quotes on things as well. I've asked for the price for doing something as a package, not on an hourly basis. Usually cheaper and better for standard things like a trademark or form filings. This is a forum of DIY people, but I've learned the hard way that professionals are often worth more than their hourly bill rate. Learn to use them!

The trouble with value investors is they ignore growth. The trouble with growth investors is they're blinded by it and can't see value.

If after reading my last monster post you're looking for some visibility maybe consider coming on the Bulldog Investor Podcost with Fred Rockwell and myself: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/nate-tobik-(oddballstocks)-is-now-co-host-of-micro-cap-investing!/ See what I did there? I offered an opportunity for visibility while at the same time shedding a bit of light on something I work on. Yes, it's mentioned in a different thread, but maybe readers on this thread won't read that one.

Thanks, yes co-hosting now with Fred Rockwell. If you're interested in being a guest please drop me a PM or email. Takes about 35-40 min to record a show, essentially talking via Skype. It's very easy.

Let me rant about sales and marketing for a few minutes. I've worked professionally in technology for years and my impression is that most developers are similar to those interested in investing. They are introverted and would rather deal with a problem (code/system/company/analysis) rather than people. They both hold this belief that if you build something great people will somehow magically discover it and the product will be successful. This is the same group that will say things like "I can't believe such and such is so popular, doesn't everyone know x product is 5x better and cheaper?" Let me define two terms: Marketing - Telling people about a product or service offered. Telling in a way that helps potential or likely users of the product self select. Sales - Connecting people who have a problem with people who can solve the problem. Everyone is selling, and sales is important. Investors think there is no sales and that somehow investing is this thing that's the highest virtue, but that's false. Think about two investment writeups. Why are some writeups compelling and others aren't? It's how a company is explained, how it's presented. Here's an example: Item 1: "The company has a 10% ROE and should experience 3% growth next year." Item 2: "Compared to peers that are all losing money a 10% ROE is incredible. The company shows their strength by expecting to post a 3% growth number in a difficult year." Same facts, presented differently. The second is catchy, the first is flat. This is sales, the second is selling the idea. It puts context around the idea, highlights the strengths of the company. People are attracted to a story, a narrative, or a context. If I were writing one of those for this audience I might even add something like "This is the type of company Buffett would have purchased in the 1960s." Now readers can connect. Readers here like Buffett, now they can see that if this is something Buffett might have liked then they might like it as well. Everyone has needs. No one has a need for "15% a year" or "10% a year". Outside of a fund of funds or institutional money potential clients aren't looking for returns. A potential client has extra capital that needs to be invested. They are probably looking for something safe, or something that will grow. Think about purchasing any security. Why do I purchase the S&P for my kid's college account? Is it because I want 10% returns? No it's because it's easy and I know it'll match the market. I am buying a product for its ease of use. Sometimes on this board there is this disbelief that funds of funds work. To me it's no mystery. A fund of funds is genius. They look out and see a bunch of investment managers afraid to sell to clients. So the FoF assembles a sales team and finds these managers. They do the selling. Fees are high for sure, but guess what, it appears clients aren't basing a buy decision based on fees. They are basing their buy decision on something else. Every investment manager needs to determine what is different about themselves and talk about it. That's your unique selling proposition. You want to find clients for whom that USP is key. What do you offer? What if you offer nothing undifferentiated? What if you have average returns and invest in the same large caps everyone else is? Not a problem, maybe your USP is your customer service. Or it's how you are willing to talk to clients about business issues outside of investing, or the safety you provide, or liquidity, or tax help, or that you invest like Buffett etc. Tim mentions that until recently hedge funds couldn't market or advertise. But I don't believe there was any restriction on a hedge fund manager giving a talk and saying "I manage xyz fund" or writing an article with a tag "Manager of xyz fund." Both are great forms of marketing, and for the audience that's likely to buy an investment product writing and speaking is MUCH better than taking out an ad in Bloomberg Markets. There is nothing sleazy about sales if you have a good product and find someone who needs it. To me I think it's fulfilling to find this match. It feels good to solve someone's problem. When you look at sales like this it makes the process easier. When I talk to people on the phone I'm doing the same thing I'm doing when I analyze an investment. I'm trying to figure out as quick as possible if they aren't a match. If a person isn't a match for my product I don't want to waste their time or to take up any more of my time. If they are a match then it's worth pursuing. Sometimes people don't know if they need your product or not. The role of the sales person is to ask questions (like an investor probing an investment) to find out more. People aren't offended when you ask these things. When I'm on the phone with a sales person I expect these questions. As a potential client I'm also probing them to find out if I can use their services. If I were an investment manager and I were looking for funds this is what I'd be doing. 1.) Writing a lot about specific investments and investments in general. 2.) Speaking at events where potential clients gather. This means non-investor events (are other fund managers going to invest in you?) when possible. If anyone is scared of writing I'd recommend the book On Writing Well by Zinsser: http://www.amazon.com/Writing-Well-30th-Anniversary-Nonfiction/dp/0060891548/ref=sr_1_1?ie=UTF8&qid=1434376805&sr=8-1&keywords=on+writing+well The bottom line is this; If you build a better product no one will come if they don't know about it. You need to TELL others about your product and get the word out.

I agree that IB is not HFT..that was one of my first thoughts on this as well. Network latency is really the slowest link, but it seems a lot of focus is on computing time as well. Look at the Disruptor paper or the ACM papers linked. What's the difference in calculating an exponential mean vs a two pass median in Java? Surely that incremental performance gain pales in comparison to the network latency, yet there's a focus on that. I agree assembly would be a bad choice. I did some assembly years back. It takes forever to develop, and it's unmaintainable. Imagine a team trying to manage an assembly codebase. Systems level languages are fast enough. One thing I've been thinking is if there's a use case here for fpga or SoC type setups. I can imagine a circuit programmed to do a sort. Imagine if a switch were to be built that pre-sorted or intelligently routed requests. By the time it hit the server some level of decision making had already been done.

I believe they have a lower P/B because of the lower growth opportunities plus the regulatory overhang.

1. Because it's easier with all the information out there. 2. Leverage. Cheaper and better. Again, easy. 3. Regional banks are now in the spotlight, more and more will get hit with penalties and regulation. I don't disagree. Although it seems there is this regulatory hammer that is focused on the large banks with the potential to lighten up on the regionals. There were some proposals to only have the most stringent requirements on $500b and larger banks, effectively the big 4. The deck is stacked against these banks. Consider that they can't grow by acquisition either. They are cheap, I agree. But when you've got a Bush coming out saying that they're TBTF you know the deck is stacked. When a Republican, and a Bush is saying this I don't think we'll be seeing looser regulations on the largest banks. Now maybe there's a trade in here where these banks get broken up. Talk about unlocking value, that'd be incredible. Someone earlier mentioned scale advantages. I don't believe you gain much/any scale going from $300b to $1.8t. From what I've heard second-hand there is a reverse-scale effect going on where the larger the bank the more bureaucratic and harder to get things done. The FDIC's study on scale showed most scale advantages happen at $250m in assets, and they almost evaporate at $500m in assets.

That's the allure for me as well. I look at the data I have, and look at how easy it is to program an algo and think "I wonder if an opportunity exists to write an automated bank trading program." It seems like merging human intelligence with a model could be incredible. The model does things like buy when every fiber is telling you to go cash, but it's not a stupid model. It's based on fundamental things. I think about a model that knows when credit quality is turning and immediately sells a bank for me. If someone ever gave me tens of millions of VC to burn one of the first things I'd do would be to buy a historical market data set and a Data Scientist to mine it and see if this was worth any time. My gut says value investing merged with some of this stuff could be very profitable a la Magic Formula. I know Greenblatt has raise a billion on the back of his value based algo.

I'm enjoying this paper. I never spent much time trying to think this through, but it's a huge challenge. When looking at an investment it's a static analysis. I have variable x, y, and z, if something happens to x then y changes etc. Yet in a real-time algo situation while you're trying to decide whether to act on x y is happening and can change that decision.

Interesting question, especially given the context of the original post. The author wrote this in Python. Python is an interpreted language and is viewed as much slower. If I were to write something I'd do it in Java or C#, but that's because I know both. I'm not sure which is actually faster, both have a layer of abstraction, the JVM and the .NET interpreter. But each of these languages is magnitudes faster than Python. The Disruptor library is REALLY interesting. It's written in Java, and clearly these guys are squeezing every bit of performance out of Java as possible. What I love about this is I've always thought this is what computing should be. Getting every last bit of performance out of a given piece of hardware. Things can be very bloated now because RAM is cheap and SSD's are everywhere. There isn't the same penalty hitting the disk with SSD isn't there like it was with a 5400 RPM disk, or even slower. I love that Disruptor has this inter thread messaging. I really want to find a way to use that somehow, but really the only use case is in something that has to be extremely fast and deal with a lot of changing real time information.

This isn't for 99% of this board, but for the 1%... I saw a post on Hacker News where a guy linked to his GitHub page with an OS HFT model in Python. The project looks like it's full cycle and uses Interactive Brokers to execute the trades. The project is missing a lot of pieces (risk management). But it's a good start. If anyone is looking to get a start in automated trading or automated investing I think this is a good start. I'm sure it could be modified to do magic formula or something value-y. Here is the GitHub page: https://github.com/jamesmawm/High-Frequency-Trading-Model-with-IB HN comments are insightful: https://news.ycombinator.com/item?id=9686841 I've always been fascinated by automated or programmatic trading, and it's cool to see the guys here. I know a few board members have worked in this area as well, would be cool to hear some thoughts.

The question I'd ask is why own large when you can own regional banks? They are going to benefit from the same market conditions, but their results should be more dramatic. They have more loan growth, more room for growth and improvement and they're more technologically advanced. Regional banks also don't have the stigma associated with large banks. In the collective mind BAC, C, WFC, JPM "caused" the financial crisis. Banks like Regions, Zion, PNC, BB&T etc are seen as victims of the large bank action, not actors.

Yes, I believe Morningstar as well. The best data provider I've seen and used is Bloomberg. If you have a Terminal you have access to their API. Documentation is top notch, very easy to work with. We integrated with them via their app store (APPS <GO>, or APPS BANKS <GO> for our app). But anyone can use their API, and they have access for every language imaginable. I believe each user is allowed to pull 500,000 data points per day. There is a separate calculation for subscription data fields (real time subscriptions). So you could pull 500 data points for 100 stocks 10 times throughout the day. The thing is most of those data points only need to be refreshed once, so you can pull a lot more then that if you want. The only rub with Bloomberg is they have what I call a most recent problem. We initially had this same issue with CompleteBankData while in development. You run a search for all companies with a P/E of 10. The search looks at the most recent financials for a company. The problem is some companies could have last reported in 2007 because they went dark or just disappeared. If the company has a P/E of 10 in 2007 and didn't merge or go out of business they'd appear in the results. This is really common on Bloomberg if you look at emerging market companies. I've run some searches that pull back a ton of companies from very small and off the beaten path countries where the data was last updated years ago. Yet these are considered 'current' because there is nothing newer. Bloomberg also has an issue with OTC companies. There is a virtual data black hole when a company stops filing with the SEC.

Hah, I think we gonna disagree again. :) IMO note taking during the lecture is a waste of time. Trying to follow and understand is much better than trying to cram the notes. If you have pre-printed notes, just adding your comments on them during the class is much better than trying to write the notes wholesale. Knowing how to take good notes is truly a skill. I am a note taker, I write a TON down. It makes it easier for me to follow along, the notes are helping me remember what's going on. You need to be able to write key points as well as facts and figures. I like to jot down facts and figures so I can refer to them later in the call. "How do you deal with the 117 processes you have today?" When they say "117" I think I'll remember it, but 3 minutes later it's gone. So I jot it down. Sometimes I review my notes later and I can often recall almost an entire conversation from them. Other times the notes are thrown away right after a call, they serve no purpose. When working in a giant corporation notes are essential. I can't begin to count the number of times topics repeated themselves in meetings, or people would change their minds and swear they never said otherwise. With notes you can say "Oh March 13th you had indicated you wanted feature x." The act of physically turning through pages in a notebook and stating something like that has never met resistance in my experience. This isn't for an "I told you so" factor, but rather it moves the discussion forward. Without notes I've been in meetings where people flip flop back and forth for months without doing anything. With notes you can move the discussion forward to a resolution. To me the holy grail will be when I can finally take notes on my iPad Mini as easily as a notebook. I've tried stylus apps, all are distracting. Need a stylus that works exactly like a pencil and isn't some giant nub on the end of a fat stick.

If I may ask, how will your data compare with SNL in terms of completeness and accuracy? Same or better. SNL is inputting data by hand in many cases with a team in Asia, we pull our numbers digitally. If a number appears in a regulatory filing that exact same number appears in our system. Right now the only gap between our system and SNL is insider information and news for US banks and holding companies. We have no intentions on becoming a news org, SNL can keep that. My goal is to continue to add as many additional sources of information as possible going forward. Fast forward a year or two and I believe we'll have the best data set available for US banks and holding companies. We are using humans to enter insider ownership information (same as SNL). My guess is this won't be perfect, we've just started the project and so far it's good, but with ~100,000-200,000 pieces of manually entered information I'm sure at some point we'll have an error.

Bah, that's way too much! Are you using another source? For CompleteBankData.com we pull all of our financial data straight from the FDIC and Federal Reserve. This is ALL financial data related to banks and holding companies. Like Morningstar we sell access to this ourselves. I was looking for a few pieces specific pieces of market data. Reliable market data is easy to obtain for larger SEC filing companies. EDGAR filings are easy to parse, and share counts are available. The problem is how do you find share counts for the 600+ banks that are traded OTC that don't file with the SEC? OTCMarkets has some data, but not much. I looked at Morningstar and some others. We eventually decided to go straight to the source. I filed a number of requests for regulatory filings for all holding companies in the US, these filings contain share counts as well as insider holdings. We're in the process of having a team digitize it, and at that point we'll be able to calculate per share values for even the smallest and most liquid banks in the US. We'll also have insider holding details for every US holding company both public and private. I've ended up spending a lot out of pocket to 'own' this data. If someone else had it via an API I would very happily pay to get it, and $1k a month wouldn't be bad. The upside for us is by incorporating this we'll have a dataset that only one other vendor has, even Bloomberg doesn't have this data. Our goal is to get to the point where we have the most comprehensive and most accurate set of data relating to banks in the US. When this import stuff is complete the only outside piece of data we'll need is the current market price. And without setting up an exchange there's no way to own that. This is probably more than you cared to know, but maybe a few readers out there find this interesting. In terms of Morningstar data itself I don't have much experience except for this. I've had people demo me their FinTech "Bloomberg Killer" apps a number of times. They are universally built on top of a Morningstar data feed. The UI's look nice, but there are some data quality issues with M* that I've seen. These guys cared about charting and fancy UI's much more than data quality. The problem is the key to Bloomberg is the data, the data is so valuable users will put up with the worst UI I've ever used to get to it. Data quality is absolutely key. Who cares about great charts if what they're charting is wrong?

Yes, buy non-US stocks all the time. I use Fidelity, many on here prefer Interactive Brokers. It's about as simple as buying a US stock. I plug the ticker in, select the settlement currency, place my bid and click "Trade". I've investigated opening accounts in New Zealand and Africa. New Zealand brokerages had issues with me being an American, thankfully Fidelity offers them for trade. Africa... they were more than happy to open an account for me. This was in Rwanda, company Brawlira. I never moved forward but one reader did and emailed me about a year later thanking me after a double. The way I found brokers was simple. I went to the exchange website and they had a link for firms that are allowed to trade. I just emailed each. I probably emailed 10-15 firms, a few got back to me with details on what to do. Here are the related posts from three years ago: http://www.oddballstocks.com/2012/07/how-far-off-beaten-path-for-moat.html http://www.oddballstocks.com/2012/07/is-bralirwa-actually-investable.html

I like the notion that you focus on one thing at a time. I've recently started to re-orient my life to really take advantage of this. I do one thing until I can't progress further. Then I switch to something else. I get more done, and it's better work. What if I'm stuck? I just walk away...literally. I take a walk, run, get a drink or a snack. A short (or long) break does wonders. What does this mean for students who can't focus on one thing? They will probably be unproductive workers until they can adapt. I've never worked with someone who checks Facebook every 15m who is very productive. Truth is they aren't engaged either, if they were they wouldn't care about checking Facebook. Days when I'm in the groove I don't visit here, Twitter, email anything. I just get in the flow and get things done. Days when I find myself here reading all the threads I know I'm in an uphill battle. I respond to email those days mostly.

You want the API? I was quoted that $800/mo is the minimum for data access. Then you pay per field. If you want 10 data points refreshed nightly on FTP it was something like an additional $150 a month. So $950/mo for access via FTP. There is. Huge price jump when you go real time, or semi real time. Even bigger jump if you want real time quotes.

You've talked with Lloyd? Impressions? Any names he mentioned? Did you guys discuss VULC?