So while the whole world seems to be falling apart and the Greek riots erupt to the cheers of the huddles masses screaming in protest against none other than Goldman Sachs (GS 137.23 ↑0.84%), we at hedgephone.com would like to take this time to thank our loyal readers (of which there are like 50 regulars, hehe) who make my life worth living at this point. Many of you know me already, and many of you do not.
I am essentially a trader who started out in M&A advisory for a tiny shop and then worked for a famous trader known to most on the Street simply as “Goldfinger” – Goldfinger was the nicest and coolest person I have ever known in business and the top trader for ABN Amro and various other banks in their prop departments (essentially trading trillions of currency positions long and short in every market imaginable). The banks hated him because he was a renegade and he was way too cool for school — the guy occassionally broke position limit rules ala Jerome Kerviel but never made losing bets. Goldfinger has passed away and I want to take this to thank his loved ones which I think of as family. I worked for “the Finger” back in 2003-2004 and was paid a tiny stipend for my time. With that said, it was the best “job” I have ever had — Goldfinger put me up in his garage/kids room where I had a comfy couch to sleep on, 3 square meals, a nice computer to work from and all of the trading education one could ever receive from a master of technical analysis. Goldfinger hated fundamental analysis but he respected it, and I have always had more of a valuation bend (as my HPhone readers already know). What I have learned over the years was that technical analysis is actually more important in many ways as the books are often easily cooked at smaller corporations. Goldfinger didn’t like “catching falling knives” or “buying dips” but he did respect value investing as a strategy. He was the nicest person I have ever known…
The other legendary story behind Goldfinger was his upbringing and his zeal for partying. A Chicago native, the Finger grew up in a house run by his mother who owned famous modelling agencies and actually housed the Eastern European models in the same house as the Finger — a pretty cool mum indeed. The Finger had a penchant for all things 1980′s and was known to be a quite a ladies man. Keep in mind, this was a well to do 80′s party guy in Chicago on the futures floors of major banks who liked to party and could hang with the very best in trading and in partying. He also traded currencies ALL night long and rarely slept, if at all, for much of his career. He would regularly bring his models onto the trading floor whenever possible and refused to wear shoes when placing trades — “I sweat through my feet” he would say, as if it was sort of generally known that the man hated shoes and everyone had to accept this reality (which of course they did! — he was that good). His attire when not at work was strictly limited to wife beaters, a baseball hat (he was totally bald which made him much cooler!), board shorts, a 10 ounce gold chain, flip flops, and a Vitamin Water bottle filled with Budweiser. You see, Goldfinger was a drinker at times which added to his salesmanship and generally to his overwhelming charm — women loved him and other traders feared him.
Now, I’m sure none of this surprises anyone in the futures trading arena nor should it, but Goldfinger was a trading machine – he owned a minivan, had five AWESOME kids some of which three were adopted, and owned a Ferrari racing team as well as several homes, etc… but was surprisingly humble. The Finger was an all around good guy, but he was very trusting and friendly and often let bad people get the better of him in my opinion. He was also too hard on himself with the alcohol and other things, which is why he had hiccups along the road in his career.
Some of his career highlights were taking over the currency trading desk at a major bank at the age of 24, betting most of the banks money correctly on the Thai Bhat, nailing commodities for several years, and also predicting gold’s rise in the mid 2000′s as well as a poor stock market over the last 10 years. He was a totally technical, chart oriented currency trader who understood central bankers and did not believe in the system at all as far as stocks or gold are concerned. He also believed in a multi-manager approach to investing and liked to spread his money across 10-20 hedge funds to drive absolute returns.
What all this means to my readers and my view of current markets is not clear, but I feel that writing about the Finger and his ideas helps me to grasp the teachings that he bestowed upon me and to help my readers view the world of trading with the same irreverence that goldfinger would have.
You see, Goldfinger was the funniest person I ever met and was my best friend back in those days — he once told a Berkeley MBA the funniest thing that I have ever heard (excuse me to his amazing family for the following R rated joke!). The MBA grad who was interviewing for a position at Goldfinger’s hedge fund asked Goldfinger what he would do if he had an extra hour each day and could do anything he wanted. I expected, as did the young MBA grad, for the Finger to respond with a typical Wall Street reply that charity work, research, founding a new company, or some other more mainstream answer would be given. Instead, goldfinger took a long sip of Budweiser and replied, “Sex, I would have sex for the entire hour if I had an extra hour each day.”
It’s that type of view that great traders need to be successful. You have to throw out all of the rigid rules that you learned in school. PE ratios are often meaningless, stocks are not the only alternative out there because business managers and corporate insiders steal from shareholders – you can’t get rich without taking risks because charts matter as much or more than fundamentals, etc… etc… etc…
These are the lessons that Goldfinger taught me almost 10 years ago and they still ring true today. The best money moves I have made in my career have been technical in nature, and not strictly fundamental… Buying way too many gold chains was also a great move back in 2006 and again in 2007.
When looking at the charts, I see a few things: gold and silver are still looking like good buys here, although the announcement that the CFTC will be outlawing OTC gold and silver trading will likely put a ceiling on the metals in the short term. I would use any sell off as an opportunity to buy more metals but I would take delivery and put them in a safe and not in a safety deposit box. Buy yourself a gold chain if you don’t already own one — it works fantastically well in business meetings and if you can buy one for 15% over spot on EBAY, take the deal and own physical.
Looking at the stock market, I would be solely focused on the 200 day moving averages — if we trade below the 200 day, I would expect some type of 1987 event or flash crash moment to begin and you will have very little time to react. Owning stocks that trade over book value or 10 times earnings will be a terrible strategy regardless of growth rates, etc…
Looking at individual stocks, I like Yahoo (YHOO 14.69 ↓-0.54%) and Google (GOOG 485.02 ↓-3.07%) a whole lot more than QQQ, IWM (78.23 ↑0.03%), LNKD, OPEN, CRM, SFSF, etc… etc… These younger growth companies seem way too speculative here and they have yet to prove that they can actually earn money. Yahoo and GOOG are the best of the web, and if you want a “long hedge” against your Internet stock shorts I would look to these two names for the long book.
My biggest mistakes were always getting short too early or in buying cheap stocks that have terrible management teams. The way to avoid the former is to use the 200 day as confirmation and to short with the 200 day as your stop loss on the upside. The way o avoid the latter is to own Coke, JNJ (66.29 ↓-0.05%), BRKA (BRK.A 113250.00 ↑0.22%), AZN (49.27 ↑0.69%), LLY (37.33 ↑0.30%), HUM (77.51 ↓-0.88%), PEP, MCD (82.52 ↑0.87%), etc… etc… — owning the blue chippers is a good bet in both bull and bear markets. Deep value stocks are often undervalued for good reason, and I believe that Goldfinger was trying to teach me this lesson over the years in his own way. The Finger was a helluva trader and a great person in every respect, a true renaissance man! — the guys made 100% plus yearly returns for the banks, and he did this only using charts and volume as his indicators… The fact that he drove Ferrari’s and hung out with rock stars and models is another story alltogether — in the end the Finger was the nicest person I have ever met and the best friend a trader could have… a true legend and my heart goes out to his family — I simply can’t believe he’s gone, and I apologise for not being kinder to him in earlier drafts of this article; sometimes it hurts so bad to lose the ones you love that you get angry at them even though it’s not their fault they are no longer here. We all grieve in different ways… I wish I was nicer to him while he was around, but sometimes being a good friend is a tough thing to do when you see people slipping out of the world of the living.