Mentors and Strategies
January 29th, 2008
Muffie Benson-Perella (muffie AT muffmarkets.com) was an Associate in the Investment Banking Division of a “Bulge Bracket” bank. She holds a B.A. in French and Art from Vassar College and an M.B.A. from Harvard Business School. She concentrated in Contemporary French Poetry at prep school where she was awarded the exclusive premiership of the school’s “French Club.” Today, Ms. Benson-Perella is the Founder and Managing Director of “Muffie on Markets” (http://www.muffmarkets.com), a deep dive into capital markets, finance and investment strategy. She is also the Founder and Managing Director of Muff Cap, LLC., an invitation only, private investment vehicle for prestigious and accredited investors only, employing an actively managed, long-short strategy.
I have to admit that I was sort of hard on Tim Sykes before. It is just that he seems very unqualified. I spoke to my former professor at HBS though, and he pointed out that statistically you can expect some people to be amazingly lucky and it can appear to be skill, when in fact it isn’t any different than someone winning the lottery. He pointed out that survivorship bias means that you can’t tell how many people failed before one succeeded and therefore it looks more like skill than it really is.
That makes a lot more sense really, because I really don’t see how someone could make any money at all if they don’t have the background and the formal training to think about investing and markets critically.
But, still, lucky or not Tim is kind of helpful, and he’s online all the time so he’s easy to talk to. For example:
7:18:22 PM muffiehbs05: Hi!
7:18:30 PM CilantroFP: whatsup
7:18:34 PM muffiehbs05: The sky, duh.
7:18:40 PM CilantroFP: nice
7:18:47 PM CilantroFP: sweet post the other day
7:18:55 PM muffiehbs05: Yeah so I really don’t understand/like your strategy.
7:19:11 PM muffiehbs05: And it is kinda all about you when I talk to you. It is a huge turn off.
7:19:28 PM CilantroFP: i gotcha
7:19:35 PM CilantroFP: most people don’t like my strategy, that why it can work
7:19:36 PM muffiehbs05: Of course, that’s totally absurd. How can you make any money with a strategy that’s not popular?
7:19:39 PM muffiehbs05: What did your lawyer say about posting your trades?
7:19:52 PM muffiehbs05: Not that you are giving me legal advice, I’m just curious.
7:19:58 PM muffiehbs05: Makes mine really nervous but he’s a worrier.
7:20:07 PM CilantroFP: i don’t run a fund anymore
7:20:14 PM CilantroFP: my website is for entertainment purposes only
7:20:21 PM muffiehbs05: But you post your trades. And money is serious business. How can you be so casual? Entertainment?
7:20:35 PM CilantroFP: yes for entertainment and informational purposes only
7:20:39 PM CilantroFP: i have no other investors
7:20:40 PM muffiehbs05: Ah.
7:20:44 PM CilantroFP: i don’t want any
7:20:55 PM CilantroFP: and the sad part is that with all my exposure now i can actually raise $!
7:22:07 PM CilantroFP: enough about me, whats new with u
7:22:23 PM muffiehbs05: Hah.
7:22:26 PM muffiehbs05: Nothing, trying to get started.
7:22:44 PM CilantroFP: getting started blogging or fund managing?
7:22:52 PM muffiehbs05: Fund managing.
7:22:59 PM CilantroFP: i think you shoudl stick to blogging
7:23:01 PM muffiehbs05: Need to get my strategy together.
7:23:13 PM muffiehbs05: Stick to blogging? I’m sure lots of people told you that when you started out. In fact, your book SAYS SO!
7:23:22 PM muffiehbs05: Practice what you preach there, Mr. Portfolio Manager.
7:23:26 PM muffiehbs05: :)
7:23:44 PM CilantroFP: i preach you shouldn’t manage a fund unless you have contacts, strategy and infastructure
7:23:46 PM muffiehbs05: “Infastructure?” You mean “Infrastructure”? And you poo-poo education. Hah. Still, I think I was kind of hard on you though. Forgive me?
7:23:57 PM muffiehbs05: Well, I have everything in there but strategy.
7:23:58 PM CilantroFP: nah i don’t mind, this is all too much fun for me
7:24:15 PM muffiehbs05: So you’ll be my unofficial online mentor?
7:24:22 PM CilantroFP: sure
7:24:27 PM CilantroFP: as long as you post all our IMs
7:24:35 PM muffiehbs05: Deal.
7:25:41 PM CilantroFP: awesome
7:26:09 PM muffiehbs05: So how do you pick what to invest in? Ever invest in anything other than equities?
7:26:13 PM muffiehbs05: Well, and options?
7:27:29 PM CilantroFP: sorry, class will have to begin next week, right now I’m working on launching my new website!
7:27:41 PM muffiehbs05: Oh!
7:27:44 PM muffiehbs05: What is it going to do?
7:27:53 PM CilantroFP: you’ll see…….
7:28:02 PM muffiehbs05: You really don’t understand women. You have to let us have what we want after just a little hard to get.
7:28:22 PM muffiehbs05: Well give me a hint at least?
7:28:38 PM muffiehbs05: You don’t even have a disclaimer on your current site.
7:28:53 PM muffiehbs05: Didn’t your expensive advisors see that?
7:29:30 PM CilantroFP: http://timothysykes.com/index.php/terms-of-service.html
7:29:38 PM muffiehbs05: Ooo! Well, it’s not even called “disclaimer.” Doesn’t it have to say that? I mean it’s not a disclaimer if it doesn’t say “disclaimer.”
7:29:50 PM CilantroFP: yah just gotta look at the bottom of EVERY page
7:30:12 PM muffiehbs05: I guess!
7:30:37 PM CilantroFP: you don’t need to guess, just look
7:30:44 PM muffiehbs05: Looking.
7:57:41 PM muffiehbs05: Ok, I did my disclaimer. I didn’t call mine “disclaimer” either.
7:57:51 PM muffiehbs05: I really don’t need to bother my lawyer with that at this hour anyhow, right?
8:01:42 PM muffiehbs05: What does “FP” stand for?
8:11:05 PM muffiehbs05: Nothing I guess?
8:24:04 PM muffiehbs05: Ok, now you are ignoring me. That sucks.
8:24:40 PM CilantroFP: sorry just gotta get this article in by midnight
8:24:58 PM CilantroFP: FP stands for Fund Partners, as in Cilantro Fund Partners
8:25:31 PM muffiehbs05: Ah!
8:25:46 PM muffiehbs05: Did you have more than one GP?
8:29:26 PM CilantroFP: nope
8:29:35 PM muffiehbs05: Oh, why “partners” then?
8:29:41 PM muffiehbs05: Shouldn’t it be Fund Partner?
8:29:53 PM CilantroFP: was planning to build a team, but I couldn’t find anybody trustworthy
8:30:17 PM muffiehbs05: Did you find untrustworthy people?
8:31:04 PM CilantroFP: i dunno, just just nobody who met my standards
8:33:26 PM muffiehbs05: Like for education? Or…?
8:34:43 PM CilantroFP: nah who cares about education i’m talking about trading knowledge
8:34:47 PM CilantroFP: its a whole differnet ballgame
8:34:50 PM CilantroFP: education means shit
8:48:43 PM muffiehbs05: How can you say that?
8:48:50 PM CilantroFP: experience
8:55:08 PM muffiehbs05: Hmm.
8:55:38 PM CilantroFP: thats trading for ya, it’s not like other structured strategies, it’s much more inituitive
9:03:05 PM muffiehbs05: What about value investing?
9:03:54 PM CilantroFP: haha i could care less about value investing, if i had followed that strategy with my initial 12k back in 1999, i’d be around 30k right now, at best
9:04:00 PM CilantroFP: waaaaay too boring for me
9:04:34 PM CilantroFP: i play the most volatile publicly traded stocks in a somewhat conservative manner, it’s strange, but it’s worked well f or me
9:11:33 PM muffiehbs05: Don’t you pay a lot in trading fees and taxes though?
9:11:51 PM CilantroFP: fees are neglible, taxes suck
9:11:58 PM muffiehbs05: “Negligible” you mean? :)
9:12:16 PM CilantroFP: but i’d rather pay 40% of $300k than 20% of $30k
9:15:11 PM muffiehbs05: But that’s a ton of money either way.
9:15:15 PM muffiehbs05: Taxes are too high.
9:15:34 PM CilantroFP: not compared to other countries, think of them as just another business expense
I mean, he’s kind of helpful, but he seems to spend more time on his website stuff and talking about his book (though he even forgets what it says sometimes) than anything else. That’s just odd. But, he does have lots of answers to frequently asked questions on his website. For example:
Q. What do you think of interest rates, the GDP, the price of oil, etc.?
A. I could care less. You have been brainwashed into thinking that you’re feeble attempts at judging the economy will make you more money. No, I know enough to know that I am no economist and that trying to predict economic trends is a guessing game that I want no part of. There are just too many variables.
No, I know Penny Stocks and I will talk your ear off about them. One of their greatest qualities is that they move somewhat independently of the overall market and the economy. Think of the economy as Las Vegas and Penny Stocks as one table in one casino that operates in Las Vegas. I believe the odds of making money in Penny Stocks are much greater than Las Vegas, but my point is that the overall state of Las Vegas has nothing to do with your odds of making money at your one table in one casino in Las Vegas.
Sure, if you want a diversified portfolio with long-term.. blah, blah, blah, then you should definitely worry about the economy, but you’re not going to make 100x your money within a few years like I did. I focus on playing stocks where I believe the odds of success are actually in my favor and it’s not a guessing game that the entire financial community seems to enjoy playing.
I don’t think Tim’s exact strategy is right for MuffCap at all. They are, I think, called “Penny Stocks” for a reason. Still, pouring over company financials is very tedious and everyone is fighting over the same numbers. MuffCap is going to need an advantage, of course, to produce outsized returns.
Jim Cramer is one of the more popular and successful investing experts I have been drawing knowledge from lately. He coined the phrase “Invest in what you know.” That, I think, is going to be central to developing my strategy. And when Bess comes online (she’s been far too busy at DealBreaker to bother with her responsibilities here apparently) MuffCap will have the benefit of what she knows too.
January 29th, 2008 at 12:09 pm
Muffie - it is wonderful seeing your progress towards creating a successful vehicle, however I would advise you to not be too quick in picking a new mentor - you don’t want this fund to end up like your Associateship at GS. I think you would agree that it was your one mistake there, and though it might have wound up opening new doors vis-à-vis this fund you should still learn from it.
Investing in what you know is perhaps the only route to take. Even Mr. Sykes follows it - by wisely choosing to ignore the broad economy and focus on plebian stock. On the other hand, I was able to make good connections throughout my education (and this dear Muffie is the true value of your HBS MBA) and so know enough people in a few key governments to make accurate “predictions” on certain commodity prices and exchange rates. My advice to you, then, is to talk to your and your friend’s Fathers to find out exactly what sort of capabilities your network has. Once you find out what you know monetizing it into alpha will be decidedly simple. Cheers!
January 29th, 2008 at 6:15 pm
Muff,
First off, my mom’s name is muffy, so it’s just fun to see your site.
Second, while i believe your search for a mentor is a great idea (think about the Tiger Cubs), i am not so sure Timmay should be your first choice (nor do i actually believe you are serious about him being your mentor…but either way, i digress). While Timmay had quite a run it a) was during a time when everyone and their grandmother was making money hand over fist; b) is problematic that there is no way of knowing how his returns were on a risk-adjusted basis (which is what matters); c) the Timmay just reaks of Boiler Room touting the stocks he does.
To expand on point c:
Yes, even with weak-form EMH it is likely that SOMEWHERE there are inefficient markets that can be arbitraged (if held without a counter position then you know i simply mean time-arb) for quite a bit of money. But the idea that you can, to quote him, “make 100x money in a few years” is ludacris. It just reaks of the “how would you like to make $50k in only a few hours from home a week.” (Never forget your ABCs.) No rational individual calls the numbers on those adds, only people looking for unrealistic safety blankets. Using Tim for Strategy is akin to Hiring Trump as your RE manager. Both have made a fortune off a couple of trades years ago and then turned themselves into media whores (which is where their real money comes from). Trump has Casino after Casino, hotel after hotel, go into financial trouble while he’s busy with the Apprentice–Tim is the same way.
Penny stocks have zero legtimacy as an ongoing concern. If you were CEO/CFO/Family Patriarch of a company that needed legitimate capital then you would a) raise the capital in standard Capital Markets; and b) would not want to be stuck with the stigma of being a penny stock.
Since Timmay claims to “know” penny stocks and can “talk our ear off” I would love for you to ask him the business models of his top-ten
holdings; doubt he knows.
If Senor Sykes is right about penny stocks simply being overlooked (and thus ripe for purchase/arb) then how many fund managers do you think would have come in to just run that trade (and thus fully-value the asset class)? Pink sheet stocks would become fully valued in a few years as people flocked to a legitimate trade. The fact is that people have been burned on pink sheet stocks because their market is so opaque. Few people know what the company they are purchasing shares of do, are based, or are run by. Tim was right though, purchasing a pink sheet stock is akin to going to Vegas–gambling and not speculation. Speculation requires an assesment of risk (according to CAIA), which requires knowledge of your securities, which you can’t get from PS stocks. Actually, i take that back, the market is akin to a trip to vegas (where you can lose, but know the probabilities); penny stocks are a trip to Tijuana, where you don’t even know the odds.
Couple more things:
1) Yes, i love lists
2) Your professor wasn’t necessarily talking about survivorship bias (which traditionally inflates HF/PE returns in databases/indices because only successful funds continue their existence). He was talking about attribution bias. Attribution Bias is when we fail to accurately attribute where something comes from (in this case performance). We use heuristics to define our world and make it easier to understand. Attribution bias, combined with confidence bias, lead to people believing they know where Alpha (your goal) comes from, when they dont. I am sure your professor talked about the studies done where if you took the distribution of actual yearly “winning” streaks (defined as beating the median fund return) you would have the same distribution as if you held a coin toss with heads=winning and tails=losing and play until you toss tails. Timmay threw heads a few years in a row only to throw the ultimate tails. This distribution of returns is extremely frustrating for someone who works in selling HFs, as everything I am selling (the PM ability) has been demonstrated as bs for years.
3) Timmay was right about there being too many variables in the greater economy to try to beat the market. I am therefore impressed with the cognitive dissonance it requires for him to then confidently proclaim he can predict the moves of things that are just as big and complex(in terms of variables, not $$$), ie markets.
4) I don’t hate Mr. Sykes. I don’t even dislike Mr. Sykes. In fact, I’m pretty sure he would pass the “beer test”. The disdain in my writing comes from the aforementioned Tim v. Trump comparison. If Tim was a good fund manager (and not just using regulations as a crutch, since 10,000 other people have ongoing funds) then he would be investing his money. Why would he want to allow others into his trades? There is a reason funds try to disguise their trading, yet Know It All Tim puts his out there (again, boiler room); they also file their 13Fs the last day possible to conceal the positions even more. The reason Tim trumps his trades is because he makes his money the same way trump does: auxillary businesses. Trump is always shilling his latest “I’ll make you rich with 5 rules, no risk, and no effort”, a learning annex meeting, or a TV show. Meanwhile, as i said before, many of his properties are going bust. Trump’s biggest asset now isn’t his ability to purchase real estate, but his ability to sell himself. If you go to timmay’s site you see him selling his books, his DVDs: himself. Sound familiar? I must concede that Tim is GREAT at selling himself. He would have been a massive success in any industry he persued. But that does not make him any more qualified to give stock advice than my Grandma touting pets.com in ‘99. Hence my frustration with him selling himself as a great trader.
4) addendum to #3 - great fund managers don’t lose 1/3 of their value during a bull market.
Also, as you said, he doesn’t understand women. Enough said.
ok, dear god that was a long rant. So what, it’s a slow day here and i’m out the door soon enough. Hope my musings are interesting, if not informative. Tell Bess to get her butt in gear.
I apologize in advance for any terrible typos/grammar/incoherent rambling.
January 30th, 2008 at 12:29 am
“Invest in what you know” is the strategy popularized by Peter Lynch of Fidelity Magellan fund fame and should not be attributed to Cramer.
http://en.wikipedia.org/wiki/Peter_Lynch
January 30th, 2008 at 4:39 pm
You have no trading experience and you are starting a hedge fund is this a jokeee? Good thing your investors dont care about losing money.I’ll offer them my services to lose their cash at half the price your charging. haahaha
you and TIM are a laugh riot keep it upp muffles.
and to reiterate the post before me
“Invest in what you know” is the strategy popularized by Peter Lynch of Fidelity Magellan fund fame and should not be attributed to Cramer.
February 1st, 2008 at 12:40 am
Uhmmm… I think this has got to be a joke. If you are serious about starting a fund and manage other people’s money–remove your website and stop posting your thoughts on “which strategy” fits you best. If I were going to invest with you and read this blog, I would cancel that check right away. It is obvious you have no experience or common sense on how to manage anything in life.