Friday, September 22, 2006

House Keeping

No, I haven't disappeared from the blogosphere, but I thank those of you who have expressed an interest in my stance on "naked short selling" and who are searching for more investment ideas in this field.

There are no new candidates on my radar right now. We're intra-quarter which, from an earnings perspective, is a truly dull part of the quarter and, as you may have noticed, I prefer to use longer-dated put options when taking a position against one of these Baloney Beauties. In fact, though January is still over three months away, we are looking closely at finding ways to push our exposure out further into the 2007 calendar.

We are ever mindful of John Maynard Keynes' cautionary statement, "Markets can remain irrational longer than you can remain solvent." And as you look at the companies we profile, you can well imagine that their shareholder ranks are flooded with the irrational.

So, with that in mind, there is no guarantee that "rationality" will come to visit the markets for these profiled companies before our options expire. This leaves you, as a portfolio manager, with some house keeping tasks. You have a plethora of choices, but one simple approach you can take is to turn a plain long put position that's coming closer to expiration into a spread, by shorting a lower strike put, and to take the premiums you collect and dedicate them to another plain long put position that's further out on the calendar. It's one of the simplest ways for you to preserve some capital while maintaining your downside exposure to a stock you perceive to be overvalued.

Reg SHO Antics

Connecticut was never a state I had previously associated with inbreeding. I figured Ralph Lambiase was an anomoly, someone's dead-beat brother-in-law who couldn't otherwise hold down gainful employment who was inserted into the Connecticut division of securities by some well-connected politician to keep him from showing up every other night to bum some sleep on the couch. Now, suddenly, we come upon proof that perhaps Ralphie Boy is not such an anomoly afterall. It would appear that Richard Blumenthal, Attorney General for the state of Connecticut, has been caught up in this scam as well. He graces the SEC comment section of the Reg SHO Amendment proposal with his own tirade that begins with the predictable nonsense about FTD's and then, interestingly and entertainingly, devolves into an anti-hedge fund rant that has nothing whatsoever to do with Reg SHO or "fails to deliver".

Note to would-be new hedge fund managers: If you're considering the state of Connecticut as a candidate to domicle your new fund or your management company, take them elsewhere. Connecticut does not deserve your capital or the capital of your investors.

Maybe it's something in the water up there...

2 Comments:

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