Don’t be a dick for a tick !

February 26, 2009

I’m coming to the end of Drobny‘s House of Money, and remain enthusiastic about it. The interviews with various fund managers are uniformly good, and yield some excellent insights. One example: David Gorton of LDFM on screwing up a spread trade on Greek T bills vs floaters that were paying T bills + 100 beeps, which amounted to a free 100 bps. The trade was buy the floater, sell the T bill, thereby locking in a 100bps. Problem: they couldn’t repo the T bill to execute the sell, so they had to implement the trade in the forward drachma market, which is illiquid. Gorton took one month contracts because the spread on the one year was wide. Then the  Greek treasury raised interest rates from 7% to 100% when Gorton was rolling his finance for the short leg from one month to the next, wiping out the trade. If he’d just paid the spread on the one year contract he could have had 97 out of the 100bps. But he went chasing the last 3 bps and got caught out. So don’t be a dick for a tick !

There’s plenty more similar stuff on money management, leverage, implementation (cash vs options vs futures) and strategy from Peter Thiel of Clarium, Yra Harris of Praxis, Dwight Anderson, Scott Bessent and others. Thiel is intriguing as he was a PayPal founder before starting a hedge fund to manage his own money. All in all, strongly recommended.

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