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Why Systems Investors are Glad David Einhorn Killed it with Green Mountain Coffee

  Often I hear people tell me, "Rules-based trading has no future. Eventually, the computers will compete with each other to the point of no profit". They usually go on to tell me about how smart people like Greenlight Captial founder David Einhorn (and he *is* a smart guy - make no mistake!) pick stocks like GMCR to short, and make a killing. This, they proclaim, is what investing is all about. Background - David Einhorn mentioned GMCR as a short candidate in mid October, when it was in the mid 80s. He had probably sold it from $100 down to $90. The day after he made his announcement, the stock lost $15. Yesterday is announced what amounts to an admission that the company will have to restate earnings. The stock tanked to $45 in after hours, and now is $41. Nice trade for David. Why does this matter to an investor...
Tagged in: group think trading
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What Would You Do to Earn $5 in Seven Days?

If you are like most people, you would not want to do too much heavy lifting if you were trying to earn those five crummy dollars.Would you risk your job?Would you risk your house?Would you risk your company?Most people would not. However if you are sitting on an overnight lending/repo desk, that is was you are being asked to do every single evening before the close of business. Because at current short term rates in the US, you earn roughly $5 for every $1mm at risk. This sounds like an innocuous trade - what could go wrong with US debt in one week? But 6 months ago, European repo traders were probably thinking the same thing. "I need to make my bonus. Greece is paying 10x the going LIBOR rate. F@#k it. I'm in for $500mm." This is a seemingly small bet for a large money center bank. However risk tends to cluster in homogeneous groups (e.g....
Tagged in: group think risk trading
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