Stock market Call 3.29.22

Biggest disadvantage is FAST MONEY. hedge fund investors invest money into hedge funds. 

a best hedge fund have 6 month lockup. 

a hedge fund that underperforms 

the funds that outperform end up being the bank for other investors. 

they get hit with some type of liquidation. 

If investors want their money out you have to give it to them.

You cant think long term. 

They are going to impact our position. how they are going to decide their next 

Because the business has changed so much. late 90s, 2000 into financial crisis brought about much needed regulation. a lot of huddles for hedge funds to make money. Now they get more creative. 

too much in terms of crypto, plant based, destruction of the market.

IAN: retail investors have a hedge over family offices and hedge funds?

absolutley

take as much money on loan as possible. they reinvest it over treasury. go to other PBs and invest in other assets. how do you lever across the street? really look that up. go check out what happened, a year ago. any guy that was picking good stocks.  this investor was good investor just too heavily invested. 

so leveraged that you are forced to sell, then 

all hedge funds use leverage. creates situation in which they have to liquidate.

small ways for red panda family. traidng on margin, DON'T DO IT. You are leveraging your future. 

"I'll borrow this at 3% to get this great price on apple stock" It never works out. 

Or they will change the rules. You being consistant and doing long term. 

Dont' talk about futures and day trading. We have time, you can have that mindset you will absolutely outlast the hedge funds. No other category to compare ourselves. 

the Quad guys trade more shares in the morning than you ever will in your lifetime. 

Citadel owning robinhood, reason for that is all the flow that comes through. all those retail trades. citadel owns that flow, take it and create more market conditions for other traders. 

My job is to make them happy take them out to dinner twice a year. yankee game, golf. he says: I could now get paid for my options. doesn't get charged commissions. he gets paid for trading. he also makes money by shorting securities. we talk about shorting futures.  

what is your upside? its absolutely limited. how much money do you have to make on a $2 stock, it goes to $10 great. if short, it can go to 0. downside can get picked up by Apple.

chasing margin, having to liquidate positions and leverage your retirement.

LEARN THE FUTURES PROGRAM. selling on a down market makes sense to me there.

swing trades, you have the capital to do it, great. that money is more valuable doing long term investment.

IAN: what is allocation of trading

5% for a year. went live that summer. schedule changed. most difficult thing, 2%, as long as you have long term stuff on auto pay. That's the most exciting piece to me. Long term is.. 30 years in Wall St no one has broken down like you did. Tony Robbins, money master the Game, its all there.

joined stock club in March. i thought you might wrap this whole thing up. I'm gonna have to do it on my own. it's all there. its about discipline. do I have the discipline to unpack my relationships, my spending habits, discipline to go and execute on this? this blueprint, it works. 

LONG TERM is the way to protect yourself against any type of market.

Game is rigged for us not to think that way. I spent so many years listening to those idiots in CBNBC. 

You sign up for stock club, those monthly prices, that's the work. we are getting the steal. everything else is a steal for me. 

IAN: hedge fund family office gave those prices what would they charge for them?

you would get 20% of your profits. hedge funds would hire you for an outrageous amount of money. 

IAN: what would the fee be?

10 mil annual type of thing. 50 to 100 dollar range, easy. probably.. hedge funds they always need investors. they roll like a gang too. they come up with the strategy. 

Uni of Dallas, hedge funds cater to the investors when it comes to strategy. 

hedge funds doing 1,000 of trades pre-market. 

IAN: what's risk to reward and what strategy are they using?

its like trying to collect pennies. a lot of trades

They are profitable not so much because of their trades but more so because of their discounts

It's about flow. Goldman before they were Goldman. they created (dock machine). pioneered electronic persecution. massive electronic market where there has to be, anonymity for execution. black pool. No one knows who is buying there. mass amount of trading, the more trading the do the greater the pool comes. 

guys do options, equities. big fund in long island. They operate on their own. they connect electronically. we pay them for the flow. they borrow money at a crazy rate.. ex. 1 month for 10 basis points. borrowing money for less than a cent. 

trade all of it, then sweep money out, invest make 5-6%. you just cant compete with this.

IAN: borrow .25% how much to gain from that capital?

cash management, how much money can i borrow? and they try to get a mixture of treasure management. they get 8%. just borrowing on the asset. when the market tanks, they have to pay me back that loan. it can create problems for them because they are so greatly leveraged. 

Hedge funds have so many strategies for them to make money. 

giant positions to impact price of the stock, or a takeover. there are penny stocks, guys that do restricted securities. private deal directly with the company. maybe company needs capital, send money directly and hedge fund would get shares with selling restrictions or holding restrictions on them. if you hold it, you get all type of tickers. opportunities that we would never be able to get into. 

Get debt, shot the stock, i mean they take debt convertible to equity, but sell the equity before they convert it. people look at the debt and sell early.

option traders are maniacs. that stuff boils my head, true risk traders. 

SWAPS- derivatives like a option. gives you exposure to an issuer that you can't get direct on buying the stock. buy stuff on swap on non US restricted markets, like India. your broker will create a basket of these stocks. its like an exposure contract. you are away from taxes, figure out a way to swap everything. financial crisis

any broker can create any asset and can hit it up.

IAN: Big Short (movie) wanted to create products that we would buy. what are 4 (market?) used for SWAPS?

single equity us, single equity non US. custom basket of those equities and you can do swap currencies. and also, other fixings.

profiting of the profit. 

IAN: talk about that and why your portfolio should never be down, it should never bleed

This year for me, I debated whether to join stock club or not. I picked the right stocks but I got in at the wrong places. I say before Ian and after Ian. same stock, but the entries.

there has to be a guy that's on it. if i want to short apple, short term trade. i have to go to broker and.. how can i sell something i don't own? i have to borrow it from the broker. its considered GC, a lot of stock held in inventory like apple. 

HERBALIFE, famous short. 90 bits on the market just to buy the stock. if brokerage firms they go out and borrow stocks. 

margins- borrow against your securities. you are allowing the broker ok to get those securities and take them out to the street. the basis of it. what's really happening is, lets say i want to short apple and Ian you are saying apple until the day I die. when I short it, the broker will take that apple from you and lend it to me. what brokers figure out is, we borrow against it and pay them to borrow from those stocks. 

so much money is made from lending securities. fidelity and swabbs are the biggest lenders. they have a ton of assets and they borrow the most. counter intuitive. it doesnt impact the market too much. 

already making money on shorting, because they charge the client.

FULLY PAID LENDING- you get paid a cut. AGAIN, no one is making money from investing the right way. its all from margins. hedge funds paid 7 billion. they didn't make, that's what their cost were. 50% of that went to Goldman Sachs. biggest balance sheets, biggest ability to lend.  there's a business between brokers and hedge funds that have nothing to do with investing. 

how to win without being a machine?

a consistent way to get into the market. when you chart that and you see how a stock in the past obeys those levels. listen, you can win by being discipline and changing your mentality. apple prices came close in February I was all over that because i was prepared for it. i dont care how much a trader trades today. it doesn't matter. if you are picking the right stocks and right places to get in, you will be there on the long term. don't do things that will force you to sell soon. 12 months of expenses, I think that's great. if you follow this plan. pass it along to your kid. I'm 50 I have a decent amount of time, but for me stock club has been about teaching my children. they look at charts, they tell me the price of apple is, they know how much shares of Microsoft they own. 

This is not a get rich quick, disciplined trader has nothing to do with trading. i put some trading stuff aside and applied it to my life. 

IAN: reflection of who we are. shines light on our inefficiencies. Listen to Last Dance. Netflix documents, Saints to Dust. I'm big on not borrowing money. people that have debt take on more risk. risk metric, why short apple? too much buying power for you to squeeze 

IAN: why you want to listen to me, a retail investor, after you have been in this industry for so many years?

I started calling clients to pay back the debt they owe. So I had a negative connotation. 

Boiler room, 

i could never fully understand what traders around me where doing. I sat next to traders. i tried to get him to explain to me what they were doing. i realized most of them don't know what the hell they are talking about. chasing something that is just a game. 

The way you deliver your mesage. i've learned more in the past year than I have in the past 29 years. It needs to be for everybody. different reasons. You pulled the curtain back. 

Success has purely been... never had good boss, good mentor. i understand how hedge funds work. never really took time to try to learn. it was an ego thing. i work at billion dollar hedge fund why am i not a millionare? 

IAN: i have the luxury to teach.

I wish i had discovered Tony Robbins book to give me a little bit of direction. 401k grew. different 

decisions i did. maybe not doing it one year (didnt contribute). got married, right? flew whole family overseas (for the wedding). went to London. broke my foot on the plane. settlement on the airline. i thought i was being smart going out and buying a house. when i started being in hedge funds around rich people. it's  a different game there, the way they manage debt. If I had bought apple great price) or invested in anything back then. 

a very discipline plan. 15 great stocks. that's not me any more. I got 2 stocks. i focus on apple and Microsoft. 

IAN: hyper focusing. why you think more fund managers are now talking about hyperfocusing instead of wide range investing, spread out. 

they know how to be defensive. 

IAN; hedge fund will not tell their true strategy is, for defensive reasons. you cant talk about certain things publicly. positioning, even in the media, how everything may not be true because they are not allowed to tell the truth because they do not want to get sued or push a position to the public.

I am more cynical in that. Financial news is an extensions of the greater of 'fake news' or misinformation. I'm aware of the market. I saw the head or advisor of Moderna at JP Morgan Health Care conference and talking about 5th booster. and I was thinking what are we doing? this machine, they are all part of it.  its too big to fail. 

If you want to make money, 2 index 2 tech. or something simple like that. you are not chasing alpha. 

FUTURES TRADING

Absolutely amazing. I wish I was 25 I would quit my job and learn this in 6 months.

700 trades, went live for a bit. 

IAN: Less competition, short targets, 

12 ticks on ZB was down, 7 Mondays in a row. My number was 6 trades on ZB a month. nothing to do with making money. it was about making money to wait for those prices to hit. 

I would watch ZB first. NQ was Yin and Yan so to speak. YM, those markets seem to move in zinc.

The ultimate hedge to be honest is crypto. don't fire unless its all green, you know (in futures).

IAN: if its me and you talking . mimic a market neutral in futures. how to structures to never draw down more than 10%?

i would say not in futures market, but for retail investor it would be options and ETFs. 

IAN: let say blue chip and top25 

amazon, on quarterly earnings. buy some puts, and 

i know a guy he has held 1,000 shares of Amazon and he doesn't sell the stock he was 

trade the options to get more exposure to the movement but also does it around earnings time what he thinks is the right hedge. worse case, expire worthless. you have to figure out what the cost to you is worth. risk appetite thing. 

Mindset thing, I had to manage my FOMO so to speak (when trading futures). I would jump in a trade even though I knew it was bad, because I thought i was missing out. 

I would not feel as bad about that loss 

i had to sit down and identify in myself what was driving this thing. why did I do that more than once? In part of what i was developing my risk tolerance. Long term thing is the best. you don't have to think much. Interesting for me, I cant just trade. I have to plan. 

hey I'm not going to day trade equities. i like holy trinity, hold long term...

structuring your portfolio for your risk. how do you respond for those pull downs? what you have made this for me so clear. now I'm a machine. i put my limits. 

IAN: largest size of contract you have seen trade on institutional side? 4,000. The margin requirement on options is what kills people. you get charged on what the potential underling value is. 

150 mil dollar requirement. I was good at breaking down requirements for that type of thing. he was riding naked calls.  You gotta sign for thing like that. 

I know a guy has 1500depositions and 250 or 1000 contracts. 

IAN: On the futures side, Imagine 1500 trades trading 100 contracts on all of them. (sound crazy) what his risk strategy?

he puts more or off depending on what the equity is doing. he's basically trading off the risk of the equity. he's acting like an institution. his own institution. made money in college playing poker. found rich dude to sponsor him. graduated college at sophomore. 

offshore account, open account in name of investor. give hedge fund the right to trade that account. guy became wealth advisor. 

*********BREAK******************

the pressure to create alpha is overwhelm. 

IAN: is client selection more important than alpha? or capital? fod hedge funds

capital is the most important.no matter what, they will not make money at times. they need a steady inflow of investors. 

IAN: go back to age 21 what are 3 things to do differently?

1. have 401k in low fee market fund and not mess around loans and the funds i used

2. invested in the market. I thought having cash was it

3. studied more, the information was there. just not having the fear than I had. I'm fixing that by putting my kids in a  better situation than I was. I really want to learn futures because I want to teach them that.

1 financial decision that I did right was convinced father not to put me on his tax return. I was able to get a lot of grants by filing as independent for my last 2 years and I qualified to get more grants.  

I paid for college they don't have to do that necessarily. what college costs now, to have that money invested instead of spending it there, I think about that.

IAN: calculate 100k in 94 and the numbers are insane. It's gonna make to sick. 

I don't want to spend that money (on college).

I didn't get my job because of my college degree. I got my job I did lifeboard for a lady that her son was in investing. that was it. she said what do to want? i mentioned wall St. and that was it.

Dave: I am so excited about futures. its a great opportunity and I don't have to ask anyone for permission to trade it, I opened my Ninja Trader account. 

-Stop drinking, drink in your 50s. I would not have partied in my 20s at all. you have made this attainable for everyone. just follow the blueprint. 

-You gotta read this, I cried at some points. digging deep. trying to read 50 pages a day. truly being disciplined. that's why nobody does it. carve out a little piece. a little bit of futures and carved out the long term. I got the holy trinity targets on there. try to get a little bit of that.

IAN: favorite short targets for ZB?

4 and 12 are my 2 favorite targets. if you have 4 ticks, easy. go to sleep come back.

12 tick I like for ZB, too. the 4 tick on  the ES. 

Starting to practice with the bigger number of contracts that was hard for me. 4 ticks, you can print that all day long. 

IAN: I learned a lot. i figured out how to get the risk down. 

The way we are talking about getting access to capital, in a real way.