Thought This Talk Was Interesting

I write this from the left coast.  I am spending some time out here to get away from the Chicago winter and to meet people.  I also do it to get out of my Chicago bubble.  I spent a short amount of time in LA.  I spent some time in Silicon Valley and now I am in San Francisco.  Being here in person allows me to experience things and decide if what I see being reported is true or not.

I like the above video and I think the answer to separate the wheat from the chaff is to have principles that you believe in and to understand why you have those principles.  When I was going to church regularly, I was surprised how many ministers told me to question why I was a Christian at all.  You’d think in a church they’d not actively ask that question.  It turns Continue reading "Thought This Talk Was Interesting"

Do Your Homework

If you want to be successful, you have to put in the time.  Nothing worthwhile comes easy.   This is the same across all occupations and endeavors.  When I talk to millennials a lot of the time I hear, “That’s hard.”

Yes, it is.

Too often we get exposed to people that completed their journey.  We don’t get get a look at them before they were on it, or while they were on it.  While stories are powerful, it’s hard to imagine what it was like for yourself.  That law partner making the big bucks?  They were in law school once and they were low on the totem pole in a law firm once too.

The same is true with traders.  Before they became great traders, they had to learn the mechanics.  They had to ingrain the fundamentals into their workflow and brain.  Before I traded, I worked from Continue reading "Do Your Homework"

CME’s Speed

You might have seen this article in the WSJ yesterday about how trades are confirmed by CME.  Some traders get confirmation before the rest of the market.  They are able to exploit that information advantage to create a profit for themselves.

CME isn’t the only exchange where this happens.  Everyone has a similar issue that is an electronic exchange.  CME is the biggest kid on the block, so they get the headlines.

There doesn’t seem to be a clear pattern in the amount of time some traders get confirmations earlier than others.  Might be 500 milliseconds or it could be a different amount of milliseconds.  In CME’s defense, that makes the technological problem tougher to fix.

In addition, CME sells co-location to traders that pay for it.  They will automatically get faster information and order entry.

I can only speak for myself and Continue reading "CME’s Speed"

Betting On Same Horse, Different Race

One of the tough things about being a fund is you only get a limited number of investments.  Of those, you get to pick one in any particular race.  If you invest in one insurance startup, that investment ought to preclude you from doing any more investments in the area of insurance that startup is targeting.  Funds need to write a bigger check, so they actually take more risk not less.  Funds also might avoid the space if there is failure.

When you are an angel, it’s a bit different.  You might make multiple investments over a period of time in the same or similar sorts of things but on different companies.  As long as you limit your check size, the pain of failure won’t be as bad.

Of course, it goes without saying that you should be investing in jockeys and not horses Continue reading "Betting On Same Horse, Different Race"

Getting Out of Bubbles

One good thing about getting out of Chicago once in awhile is I get out of routine and the bubble.  I grew up in the western suburbs of Chicago.  I worked and lived downtown.  I am a Chicagoan (minus the graft and corruption) through and through and have the accent to prove it.  I am sad about the end of the Blackhawks run and surprised whenever the Bulls win.

My wife and I “missed” the snow yesterday that fell on Chicago.  It was fun to look at photos on social media of it.  Our routine of leaving in February isn’t about just missing some bad winter weather.

It’s good to get out and see how other people experience their world.

For example, driving through California, I cannot get my radio to hold a radio station for long.  You can see why someone would

Continue reading "Getting Out of Bubbles"

The Darker The Market The More It Needs Sunlight

There are a lot of nooks and crannies in capital markets.  Exchanges only trade the big ones.  I think it’s important to note that matching trades is super simple.  You can go out and buy a crude automated trading system off the shelf and a simplistic one is not that hard to build.  The trick is when the trade is made how do you report it?  How do you account for it?  How do you margin it?  How do you make sure both entities on each side of the trade perform?  How’s the security of the exchange?

These are huge issues.  Bitcoin exchanges have been ripped off causing people to lose money.  I went to a presentation of a new Bitcoin exchange once.  I asked two questions.  How do you margin and how do you clear?  The Continue reading "The Darker The Market The More It Needs Sunlight"

Trade From Twitter

Kind of a cool idea that TD Ameritrade rolled out today. You will be able to initiate trades from Twitter.  Hey, maybe soon you will be able to do it with Alexa and Snapchat. TD already has that sort of functionality with Facebook Messenger.  A lot of traders have Twitter open to keep track of breaking news when they trade.  There are numerous companies that translate tweets into machine-readable language for computers to digest and act on.  There are other apps that synthesize social feeds to create trading signals and more alpha for hedge funds.  I think that in the startup world they often think that big incumbents will roll over and play dead.  After all, they are just corporate whales waiting to be harpooned.

Sometimes bureaucratic corporate structures do allow startups to harpoon whales.  But, most of the time the whales feel the Continue reading "Trade From Twitter"

YCharts Partners With Dynasty

If you read my post about the stock market NOT melting down yesterday, you saw a lot of charts incorporated into the post. I get those from Ycharts.  Today, Ycharts announced a partnership with Dynasty Financial Partners.  They have more than 450 advisors and support staff that will be utilizing the fantastic analytical tools of Ycharts to do research on stocks, ETFs, and other financial instruments.

This is a nice deal for Chicago based Ycharts.  I invested in the company way back in 2008-09 at the height of the financial crisis.  They continue to add features and provide them at an affordable price so that advisors, family offices, and firms that manage money for people can have quick access to information that is actionable.  I find that when I am putting on an option trade, Ycharts really helps me select the duration and the Continue reading "YCharts Partners With Dynasty"

Is This A Market Melt Down?

Short answer if you don’t want to read the rest of this is, no this is not a meltdown.  It’s not a correction either.  For newbies, meltdowns look like this.  If you believe this is a market meltdown, then perhaps you follow the Super Bowl Indicator too.  When an NFC team wins the championship, buy the market.SPY Chart

SPY data by YCharts

If you are only watching Bitcoin, it is in meltdown phase. But, it’s not as if you had to be Methuselah to see it coming. The Bitcoin bubble might have been the easiest one to pick out in recent memory. However, it was impossible to short. You could have shorted it with futures once they started trading but it was very thin, and margin requirements were pretty high so your risk was high in an irrational market. The GBTC is 75% off of its high.
GBTC Chart

SPY Chart
SPY Chart
Continue reading "Is This A Market Melt Down?"

The Hard Thing About Small Funds

One of the most difficult things about being in a small fund is how much capital to allocate to an investment.  Many funds put the exact same amount in each deal.  That doesn’t seem right to me because the valuations of each deal are always slightly different.  Cap tables are different.  The capital needs of the company to get to exit will almost certainly be different.

Others are very random in their approach.  They might put more in one deal because either they understand it better or they trust the lead investor more.  Perhaps something clicks between them and the team so they feel more comfortable putting more money in.

When you are a small fund, the math gets really difficult.  You try to forecast the future, but of course that only usually plays out well on a blackboard. There will only be Continue reading "The Hard Thing About Small Funds"

Truss Launches in Washington DC

A company I angel invested in has expanded to Washington DC.  Truss started in Chicago.  It uses artificial intelligence to find office space for clients. They developed a chatbot, Vera, that clients can interact with to find the best space for their needs.  Commercial Real Estate Brokers actually make more commissions by utilizing Truss.

CRE Brokers spend a lot of time and resources no matter what the space size.  Truss allows them to make money on small space, build a relationship with clients, and still concentrate on leasing out the big spaces where their bread and butter are.

If you are a startup or a small business, finding office space is super painful.  Truss makes it simple, quick, and efficient.

Truss is also in Dallas and Houston.  They have more square feet listed on their platform targeting SMB’s than anyone else in Continue reading "Truss Launches in Washington DC"

Strategy is Long Term Conjecture; Execution is Being In The Moment

There is a lot of talk about being present these days. Being present is about accepting situations as they are. We can control our thoughts. We can control our feelings. We can control our reactions to situations. Many times, we can’t control the situation.

For example yesterday I planned my trip from Las Vegas to LA. I strategized about what time to leave in order to give me the best chance of missing traffic. I strategized the route I would take. However, once I left I had to totally be in the moment. The speed of traffic, the volume of traffic, the weather, the condition of the road was totally out of my control. I couldn’t control the actions of other drivers.

Running a startup is similar. You strategize and project what you think will happen. However, the startups that win execute like crazy. You do that by being present Continue reading "Strategy is Long Term Conjecture; Execution is Being In The Moment"

Risks For Audit Are Too High

Ernst and Young did some research on the crypto world.  They analyzed more than 372 ICOs, and found that $400 million of the total $3.7 billion funds raised to date had been stolen by hackers.  How’d the hackers do it? Phishing.

A while ago West Loop Ventures hosted an event on security.  Joe Rickard and Stel Valavanis talked extensively about how they approach security in the finance world.  Phishing was one of the things they talked about.  It is the number one way through the security in the network.    Somebody mistakenly opens an email and it’s over.  I remember Joe saying that hackers wouldn’t hack if there wasn’t any money in it.  With crypto, the money just got a lot larger and the networks they can attack became a lot larger too.

Hackers are looting $1.5MM per month.

One of Continue reading "Risks For Audit Are Too High"

It’s The First Five Months of the Year So It Must Be Time for Entrepreneurial Competition

Last weekend I was part of a team that judged the GNVC at Chicago Booth and this evening I am helping with the Numo Fin Tech event at Chicago Booth.  Northwestern has events all spring and so does UIC, UIllinois, DePaul and a lot of other universities in the area.   The New Venture Challenge at Chicago Booth heats up soon.  This might be commonplace in Northern California.  It’s still relatively new in Chicago and I like it.  It’s good for the ecosystem.  It’s good for the universities.  It’s tough on the entrepreneurs but ultimately good for them.  It’s good for me too.

On a more grand scale, big pitch competitions like Launch take place in the Spring.  I had never really heard of Launch until a company I was invested in, Brilliant, participated and did very very well.  Continue reading "It’s The First Five Months of the Year So It Must Be Time for Entrepreneurial Competition"

Still Struggling With ICO Accounting

There is precious little information on ICO accounting out there.  I blogged about it recently here.  It is a big issue.  Tax consequences can be huge.  The cleanest path to an ICO is not to make the token that is being issued securitized.  That means it merely has the right to participate in whatever the company is building.  If that’s the case, I can see how there should be no corporate or other tax paid on the issuance since there isn’t any securitization value associated with it.

What’s really interesting to me is to compare that train of thought to what I experienced while on the board at CME.  If we take CME and compare it to token issuance, the tokens clearly are the memberships.  The memberships contained core rights and privileges but were not shown as equity on the balance sheet. Continue reading "Still Struggling With ICO Accounting"

Basic Economics and Basic Business

One of my favorite lines is from Professor Paul Magelli.  He said, “If you don’t make a profit, it’s not a business it’s a hobby.”  Another friend, Jeff Minch, who writes at The Musings of The Big Red Car will tell people, “You didn’t invent sex.” which is basically saying even though you are doing something new and revolutionary the business principles that have been with us for generations sustain.

This is totally true for companies doing ICOs and blockchain.  A lot of them seem like hobbies to me.  Some aren’t.  We will see what the future brings and I am hopeful about it knowing full well there will be a lot of failures.  An aside, the Bitcoin market lost $150B in value over the past few weeks.  Heck, if you had the guts to sell 10 futures on the first day of Continue reading "Basic Economics and Basic Business"

Bitcoin Value Drops But It Doesn’t Matter

Bitcoin futures at the CBOE are trading just above $10,000.  I think they will trade below $5000 and probably settle below there by the end of the year.  Futures markets have a way of disciplining cash markets.  If they add options strikes to the market this year, it will discipline the marketplace more.  It doesn’t matter why I think Bitcoin will trade down.  It’s not important.

However, I think looking at the true value of cryptocurrency in sum is important.  I have seen a lot of things trying to determine how to value it and I don’t think they get to the core heart of the reason crypto is important.

One thing that I got from being a trader in a pit all those years is feeling the heartbeats of a market. Markets are living entities.  Some people aren’t cut out for different markets. Continue reading "Bitcoin Value Drops But It Doesn’t Matter"

Should Google, Facebook and Other Large Tech Firms be Broken Up?

There is a debate going on in a lot of different circles around the power of certain tech companies. Some people think that they influenced the election because Russians took over their platforms. Liberals I know think they should be broken up because they think the election was stolen from Hillary.  Others think the platforms are biased towards liberals and conservative film maker James O’ Keefe is currently doing an expose on Twitter.  Facebook routinely suppressed conservative speech. Conservatives have called for Google to be broken up, and conservatives are suing Google for bias.

I have blogged about breaking them up periodically here, and here.  The leftist newspaper The New York Times wrote about it here.  The right leaning Wall Street Journal wrote about it here.  Liberal VC’s talk about it here.  It’s pretty clear that Facebook and Google dominate ad spend.  Some Continue reading "Should Google, Facebook and Other Large Tech Firms be Broken Up?"

There Is One Bear Market

With the continuous record highs being set in the stock market and crypto market people might wonder where to find a bear.  Tim Knight at Slope of Hope might be the last bear left on the planet.  The rest have gone into hibernation.  However, if you are a bear you might take a peek at US Treasuries.  I think things are heating up there finally.
10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

To give you some context, interest rates have been zero or near zero since the financial crisis in 2008.  People that grew up in my generation have lived through two extremes in interest rates.  In the 1970’s and early 1980’s they were extremely high with three-month T-Bills hitting 21% at one point.  Since 2008, basically 0%.  QE was necessary the first time, perhaps the second.  Since then it has been a Continue reading "There Is One Bear Market"

Points and Figures 2018-01-11 02:29:11

My friend Nilesh posted this:

I remember walking back from a conference at the European Central Bank in late 2008 accompanied by the then Head of Risk Management for the ECB. We discussed what the long-term impact of the Global Financial Crisis that we were experiencing was likely to be. My comment was that regulation would take centre stage post-crisis, particularly since the major private financial institutions had both sought and been granted support from their regulators. My prediction proved correct as, in fact, the banking business has been beaten up and dumbed down by the regulators post-GFC. The banking community has been fined and restructured almost out of existence, forced to ‘pay the piper’ or lose its future…

As the phenomenon that is Crypto rages around us, I cannot help but reflect on that conversation. It’s only a matter of time before the gravity-defying Crypto bubble collapses back to Continue reading "Points and Figures 2018-01-11 02:29:11"