Just wanted to share an excerpt from Michael Lewis book Liar's Poker on trading philosophy. Just enjoy!
…"Remember Chernobyl? When news broke that the Soviet nuclear reactor
had exploded, Alexander called. Only minutes before, confirmation of
the disaster had blipped across our Quotron machines, yet Alexander
had already bought the equivalent of two supertankers of crude oil. The
focus of investor attention was on the New York Stock Exchange, he
said. In particular it was on any company involved in nuclear power. The
stocks of those companies were plummeting. Never mind that, he said. He
had just purchased, on behalf of his clients, oil futures. Instantly in his
mind less supply of nuclear power equaled more demand for oil, and he
was right. His investors made a large killing. Mine made a small killing.
Minutes after I had persuaded a few clients to buy some oil, Alexander
called back.
"Buy potatoes," he said. "Gotta hop." Then he hung up.
Of course. A cloud of fallout would threaten European food and water
supplies, including the potato crop, placing a premium on uncon-taminated
American substitutes. Perhaps a few folks other than potato farmers
think of the price of potatoes in America minutes after the explosion of a nuclear reactor in Russian, but I have never met them.
But Chernobyl and oil are a comparatively straightforward example.
There was a game we played called What if? All sorts of complications
can be introduced into What if? Imagine, for example, you are an
institutional investor managing several billion dollars. What if there is a
massive earthquake in Tokyo? Tokyo is reduced to rubble. Investors in
Japan panic. They are selling yen and trying to get their money out of the
Japanese stock market. What do you do?
Well, along the lines of pattern number one, what Alexander would do is
put money into Japan on the assumption that since everyone was trying
to get out, there must be some bargains. He would buy precisely those
securities in Japan that appeared the least desirable to others. First,
the stocks of Japanese insurance companies. The world would probably
assume that ordinary insurance companies had a great deal of exposure,
when in fact, the risk resides mainly with Western insurers and with a
special Japanese earthquake insurance company that's been socking away
premiums for decades. The shares of ordinary insurers would be cheap.
Then Alexander would buy a couple of hundred million dollars' worth of
Japanese government bonds. With the economy in temporary disrepair,
the government would lower interest rates to encourage rebuilding and
simply order the banks to lend at those rates. Japanese banks would
comply as usual with their government's request. Lower interest rates
would mean higher bond prices.
Also, the short-term panic could well be overshadowed by the long-term
repatriation of Japanese capital. Japanese companies have massive sums
invested in Europe and America. Eventually they would withdraw those
investments, turn inward, lick their wounds, repair their factories, and
bolster their stock. What would that mean?
Well, to Alexander, it would suggest buying yen. The Japanese would buy
yen, selling their dollars, francs, marks, and pounds to do so. The yen
would appreciate not just because the Japanese were buying it but
because foreign speculators would eventually see the Japanese buying it
and rush to join them. If the yen collapsed immediately after the quake,
it would only further encourage Alexander, who sought always to do the
unexpected, that his idea was a good one. On the other hand, if the yen
rose, he might sell it."…
Petros Mpantavis
Shipping Finance Enthusiast
Shipping, Trade and Transport Student
University of the Aegean
-
peter.badavis@gmail.com
No comments:
Post a Comment