Entering With Erin
March 19th, 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.
So I promised weeks ago that MuffCap’s first trades would go up on these pages. Things got really busy, however. Putting together a hedge fund is hard and difficult work. Be this as it may, I have launched operations.
Keeping abreast of markets requires a lot of work, and it is also a very trying process. I set up CNBC on my new flat panel in my new “study” and bought a new desktop with four flat screens to run my trades and do research. It’s a different schedule for my life, that’s for sure.
Then, of course, there is the issue of deciding on a strategy, and the initial entry. I decided on a very general and broad strategy (daddy says flexibility is key in investment) without particular investment horizons or holding periods. That all seemed so restricting and I really didn’t want to decide on anything more specific.
I spent most of last week and the week before trying to do research and come up with trade ideas.
Of course, it is hard not to hear about the “credit crunch.” Everywhere I looked it was on the front page. So I felt like it was time to get involved.
To me, the entire mortgage fiasco is overblown. No one, and I mean no one, I know has had any problems paying their mortgages, or (for those people who already own their estates outright) paying the upkeep and expenses requirement to manage the property. Of all the expert property owners I surveyed, none had problem mortgages.
Given this, I really wanted some exposure to the “panic” so that I can take advantage of the subsequent “melt-up.” The two best holdings, at least if you take the frequency of their mention in the financial press are Bear Stearns (BSC) and Lehman Brothers (LEH).
Before I could get into Bear Stearns, it blew up badly because of liquidity fears, but Lehman not only hasn’t blown up, but is a huge bargain. The reality is that Lehman has always had better presence, better brand name and better people than Bear. That is worth a lot to me. Plus, you can’t sneeze at a firm that has one of the girls as a CFO. (Of course, she’s a Harvard grad too).
Erin Callan
True, we might have to work on the hair a little, but I know Erin won’t let her Crimson sisters down. Lehman it is.
Had I tried to pick it up last week I would have paid in the range of $50 a share. This morning I picked it up for $44.63 and I’m already sitting on a 2% gain! Off to the races!
The rest of this week will be about trying to put more of MuffCap’s money “to work.”
Feel free to email me or IM me with investment ideas!
muffie AT muffmarkets.com
AIM: muffiehbs05
March 19th, 2008 at 7:42 pm
I think you should have waited until Erin makes CEO.
You more voom that way.
March 19th, 2008 at 8:55 pm
muff…is this website a joke…not trying to hurt you, but you have no chance…the seasoned sharks in the hedgie world will likely destroy you before we get to 2009…
i am an experienced and educated hedgie(UVa and Wharton) and you simply have no chance without years of trading experience behind you…
trading is not about education or background…it’s about knowledge of the markets and how they work…
your first choice of lehman manifests your lack of knowledge…my advice is to stay a mile away from lehman brothers at these prices…
do you know what a cds is, muff…?…and why it’s important..?..ask merrill about their cds deal on CDOs with xl capital that was in the news and rocked the markets today…
the problem with lehman and all the brokers is that all their attempts to hedge their massive triple AAA mortgage derivative exposure through third party cds trades ARE NOT going to work out well…the monolines are on the way to bankruptcy and already backing out of contracts…
this fact when finally digested by all the other lemmings like yourself will likely kill the brokers…you see, muffster, none of their insurance is going to pay…leaving balance sheets exposed all over the street…
fyi, your timing sucks also as the hedge world is in a shakeout with margin being extracted from everyone…
but hey, you are semi-cute…so good luck
March 20th, 2008 at 7:48 am
“To me, the entire mortgage fiasco is overblown. No one, and I mean no one, I know has had any problems paying their mortgages, or (for those people who already own their estates outright) paying the upkeep and expenses requirement to manage the property. Of all the expert property owners I surveyed, none had problem mortgages.”—-
WAKE UP! It’s middle/lower class america that’s feeling the hurt on mortgages. Not everyone has a rich daddy or family estate. Good luck on your hedge fund. Why not just write a check now to help out the homeless children in America instead of just pissing your money away on shietty bets.
Your name has influence. Looks like Forbes took notice. Why not use it to do some good in the world. FYI.. going to Harvard doesn’t make you smart.
March 21st, 2008 at 12:27 am
Oh no, the boys in finance are going to pound me into submission. What ever will I do?
Well, state schools have their purpose I suppose.
That’s absurd.
Oh yes?
[blah blah blah]
I’m really glad I didn’t listen to your state-school advice, since I’m up 9.2% on my LEH position. I will probably just close it out tomorrow, and enjoy my little victory over the weekend.
March 21st, 2008 at 5:25 am
ok…game on muffster…i turned down harvard and stanford both for undergrad and grad school…i saved my acceptance letters for my future grandchildren as well as arrogant little ‘daddsie princesses’ such as yourself…
as a jefferson scholar from Virginia, i will not fall into your trap…
yet, as i said, trading is about knowledge of the markets and experience…not education…trust me, if you are actually serious about this, you will learn…
selling lehman with your gain would be the smartest thing you could do at this juncture and might actually show that you have a chance in this business…
meredith whitney, the smartest banking analyst on the street, would suggest that you sell immediately…
did you read her newest report on the banks and brokers from this past week…she sees the banks and brokers falling 50% from current levels…
you can find here cnbc interview in their archives from monday…
or if you are connected, you can get your hands on her report…
in all honesty, lehman may rally to the low 50s this week, so i would wait a few days to sell…
there will be fund manager end-of-the-month window dressing as we head to end of march…
then start to look-out for negative earnings pre-announcements from the commercial banks as well as merrill and probably UBS…
these landmines will likely hurt the entire sector , so i would to be out of lehman to avoid the collateral damage…
best skill you can have as a trader is the ability to avoid blow-ups…in this tape when you have a gain, you have to take it…the maket for financials is especially schizophrenic lately…
nice yet lucky call on lehman…
a little advice…get long APPLE now going into their earnings on april 20…the stock finally broke out above 132 and looks like it has room to move back over 150…and if you do a little digging, you will see that they are going to report OUTSTANDING numbers this Q…mac sales are EXPLODING acoording to recent data points…
peace out, steve
March 21st, 2008 at 11:10 am
That’s not a bad idea at all. And it is very humble, really. Keeping a log of mistakes and bad decisions for the future generations is a good way to prevent the same mistakes when your children and grandchildren get their accelerated beneficiary payments from their trusts on reaching the age of majority.
I’m not sure what studying the founding fathers has to do with investing.
You mean the gain I never would have had if I had listened to you? I think I will follow my heart, thanks.
That’s why she’s not the Managing Director of MuffCap, LLC. I’m not really sure what anyone thinks they can learn from a woman who marries a professional wrestler, other than how to totally embarrass their entire social circle, and leave a dark stain on their family reputation for years to come. Really, the longer you look, the closer you come to the impression that very few good things come from Brown University.
Here is the thing… one of the more important concepts to understand in investing and finance is the “herd mentality.” There is certainly the temptation to act as others do, and to follow the masses, read reports before investing, always have the last investment idea you heard in your head and never have your own opinion. I, however, am what is called a “contrarian.” I zig when they zag. It requires sophistication and the right background, a knowledge of your own excellence that you just don’t get if you haven’t had the kind of exposure to ideas and concepts that a top school gives you.
So the other day you were whining about what a stupid move it would be to invest in Lehman, even earlier in this comment I was supposed to sell immediately, now it might show another 10% of gains?
This is another reason that background is so important. Without the confidence that the best education in the world gets you it is difficult to resist the kind of flip-flopping you demonstrate here.
March 21st, 2008 at 12:26 pm
muff..if one isn’t flexible, the markets will always win…my warning to you about lehman brothers was a longer term warning…there will be collateral damage in the banking/brokerage space AND it will be substantial…and lehman will get hurt…
when you first posted your trade, you made no mention that you were going to have a quick trigger…so my warning to you was based on the thought that you planned to hold lehman a while…hence my warning to get the hell out…
a jefferson scholar at Virginia has NOTHING to do with studying our founding fathers…it is an academic honor bestowed upon the very few…and i mean very , very few…
as for the contrarian in you that is OUTSTANDING…that’s what i want to hear…considering how heavily shorted this group is, going long lehman was a decent trade…it worked for you…again my comments about lehman was more longer term…not as a 3 day long side snivel…
as a contrarian by nature, then you should be attracted to the dark side…short selling…this is where the easier trades happen…
the herd still happens to be very bullish so opportunities are more likely to be found on the short side…
and by the way, i am starting to figure you out…you have blown your own cover so to speak…you have finally let it show in your responses to me that you have actually do have some clue about trading and markets…
this site is as much about humor and sarcasm as it is about reality…and you are playing into it rather heavily…
cheers…i’m off to the golf course…when you run your own fund, and it’s just your money with no clients to answer, life is truly good…i managed for others until i was 28, and as soon as i had 7 figures after tax for myself then i set out on my own…8 figures in now in sight and i just turned 32 on the 10th of this month…so one would say that my market-based thinking and decision making hasn’t been too bad…
enjoy your holiday weekend, steven
March 21st, 2008 at 7:59 pm
back from golfing and what do i see on bloomberg…looks like monday will not be good for lehman and goldman…
they were both just downgraded to negative credit watch…hope you sold…you might not see the 50s after all…
March 22nd, 2008 at 10:36 am
and now more on lehman…
http://www.portfolio.com/news-markets/top-5/2008/03/20/Lehmans-Debt-Shuffle
the key snip:
Lehman reaped substantial earnings gains because investors thought it is more likely to go bankrupt.
For several quarters, all the investment banks have been taking gains on their liabilities. Say you owe $100 to your friend. But you run into severe problems and your friend starts to figure you can only afford to pay back $95. If you were an investment bank, the magic of fair value accounting dictates that you could get to reduce your liability. What’s more, that $5 gain gets added to earnings. Because investors thought Lehman was more likely to default, its liabilties fell in value and Lehman garnered earnings from this. How much did Lehman win through losing? $600 million in the quarter. How much was its net income? $489 million.
Lehman and all the other investment banks are following the accounting rules on this, but that $600 million is hardly the stuff of quality earnings. Indeed, Bernstein’s Hintz called the bank’s earnings quality “weak.”
sorry muff…for the good of your clients you should read this article…i know that to you, princess, all this is nothing more than ‘blah, blah, blah”…but to anyone who else, this stuff matters…so perhaps you should just hold your rather large nose and read it…
March 25th, 2008 at 10:06 am
as i return to the scene of the crime, i find the muffster silent…leh is now 40 cents below your purchase price…your paper profit has disappeared ‘poof’ into the night like the chastity of a female bonobo…
i count 3 analyst downgrades since yesterday morning…
were you a smart enough trader to book your gains…?…
i’m guessing ‘no’, as you were likely all too consumed by your luck to have been rational enough to realize that it could so quickly evaporate…
alas, you will learn, that in this market you must take your gains…
March 31st, 2008 at 8:12 pm
hope you are not still holding LEH. down she goes to the 20’s! see ya later.
April 2nd, 2008 at 4:23 pm
This is too funny. Muffster, Muffie, Muffler, I tip my hat to you. I probably would not throw a dime your way that wasn’t already heading for charity, but I think this website is extremely worthwhile to read.
Yes, as mentioned multiple times by your pundits, you are not an experienced trader (neither am I), but I think you are on to something. Many people who enter finance like to talk the game, often times without knowing a lick, but that is not their fault. They are forced to act like they know a thing or two just to get by, to fit in to circles, and to gain respect at work. I have always contemplated starting a site dedicated to the basics. Your blog/hedge fund is a decent start to a discussion board on issues and happenings today. Soon the technical wonks that stalk this website will get bored and more people ready to have a macro discussion on markets and investment strategy will begin to catch on.
I like your style as well. Finding simple stories to connect to larger events always helps. One critique I read on this site asked whether or not you knew what a CDS was and whether or not you should ask Merrill Lynch about their importance. Your answer was appropriate, but I think a more constructive view should have been attempted. To that end, in layman’s terms, Credit Default Swaps are essentially insurance policies. Buyers purchase credit protection for a payment. What sellers are charging for these policies gives us insight into the market’s perceived risk of the underlying asset, in the above case, a collateralized debt obligation. Disregarding criticism will only invalidate this website.
Muff-dog, keep posting. You already have some ears listening. I have added your site to my daily reading for entertainment and possibly some insight.
- a state-school graduate