THE BANDWAGON THEORY: A GLIMPSE AT HOW THE MARKET REALLY WORKS

Imagine a bandwagon that is rolling forward at a quickened pace. Music that is very pleasing to the ear is being played from speakers on each side of this bandwagon, and a few people currently on the back of the wagon are partying, having the time of their lives. The music, loud and clear, starts to attract many other onlookers that happen to be idly standing on the sidelines. These onlookers, unable to resist the sweet sounds being played, run to join the party that seems to be going on.

Progressively, more and more onlookers jump on the back of this bandwagon, and those few who were initially enjoying the first phase of the party begin to leave. As the crowd of new party animals on this bandwagon grows larger, the bandwagon finds it harder and harder to move forward at the same pace. It slows, enabling more and more late onlookers, witnessing the great fun, the chance to jump on. The crowd grows even larger.

Larger and larger this crowd grows, until the bandwagon, heavily laden with the bodies of drunken party animals, can no longer move forward. It finally comes to a complete stop. Now that the bandwagon is at a complete standstill, more people jump on. And why not? At this point, joining the fun is easy. Absolutely no work is required, for individuals wanting to join the crowd no longer have to run to jump on board. But the nature of the bandwagon is to move forward. Its motionless state is unnatural, and therefore cannot last. It tries to move forward again, but can’t. The crowd, piled on back, is much too large. It must free itself of the heavy burden. And it does. It quickly shifts into reverse, and jolts backward, knocking a few of the party animals off the back. The music stops. Puzzled faces from the crowd begin to emerge. Before anyone figures out what’s going on, another backward jerk takes place, only this one is more violent. Another large group of people gets thrown off the back. Now, reality sets in.

The fun has turned into a nightmare of epic proportions, and panic begins to run rampant. Some decide to jump to their deaths. Another thrust backwards sends an even larger group of drunken, off-balance people, hurling to the muddy ground. It doesn’t stop. The jolts backward continue, each successive one more violent than the last. At this point, only a few die-hard wagon dwellers are holding on, their very lives hanging in the balance by a very thin thread. Failing to be completely free, the bandwagon angrily puts the pedal to the metal, and this final thrust backward is so vicious that its front wheels lift high off the ground, momentarily suspending the wagon in a perpendicular position. The last of the hangers-on crash to the ground, broken and maimed to no end.

At this point, a new group of onlookers emerge from the nearby woods. They are clean and serene. Each movement they make is deliberate and powerfully energetic, for they did not take part in the tragedy that just transpired. Or did they? A few of the dejected souls lying on the ground take a closer look, a look that reveals something very interesting. This seemingly new group is not new at all. It is the same group that was seen quietly exiting the party before it came to its violent end. An even closer examination by a few more beaten-down onlookers reveals something even more stunning. This group not only exited the party early, they were the originators of it!

“My God,” someone exclaims. Paralyzed, and unable to move freely, all these dejected souls can do is watch, as the masters of the game go to work, again. No sooner does the bandwagon’s wheels hit the ground than this professional platoon bolts for the wagon. In a flash they are on board. Easy. The bandwagon, now free of the larger crowd, can move forward freely and gracefully, comfortably carrying the more astute group with it. Its pace quickens, and before long a smooth elegant stride is in place. After a few miles of uninterrupted movement, someone from this masterful group flips on a switch, and suddenly the loud sounds of entertaining music start again. Someone yells, “OK everyone. Here they come. Let’s do it again.”

Within moments, those who were the former victims of the backward crash become interested again. The music almost calling them from the grave. And once more, the never-ending cycle repeats.

Now guess to which crowd you belong to.

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Leaving Microsoft to Change to World

Subtitle: An Entrepreneur’s Odyssey to Educate the World’s Children

The book is about John Wood, a top executive at Microsoft. He was director of business development in the greater China region. After a three week vacation in Nepal his life had changed in a fundamental way. He began to question his whole life, his job and his marriage.

From that moment on he wasn’t quite sure if the life he lived so far was exactly what he wanted. The trip inspired him to help the children in Nepal and to set up schools and libraries. Nepal’s illiteracy rate was 70 percent !

” I found it hard to imagine a world in which something as random as where you were born could result in lifelong illiteracy”.

He could do so much good things with so little resources in this country. He wanted to change something.

For that vision he left Microsoft a few months later and started to collect books for Nepal. I liked the way how Wood described his life as a business person before and how he had transformed to make such a big change. It’s one-third a business saga, one-third world travelogue and one-third human drama as Marc Andreessen, Co-founder of Netscape Communications stated.

First he had only the help of his friends and family but later the network grew and he started a official non-profit organization (Room to Read). He was fueled with the drive that made him a top executive at Microsoft and he could use lot’s of business practices he learned earlier in his business life. Sometimes it was hard to ask for the money he desperately needed to build the schools and libraries. He wasn’t always welcome at the may Foundations he visited, but he had a helpful statement which inspired him to go on:

“Anyone in a sales career knows that if you’re not getting rejected, you’re not casting your net widely enough”

Another interesting point is how he set up these aid projects. It was essential for him that local people were required to also donate labour and small amounts of money. Projects which are just a gift and bestowed by outsiders will not be valued enough because then the people have nothing on stake. Best example is the following : “… in the entire history of the travel industry nobody has ever washed a rental car. If they don’t feel ownership, they won’t do any long-term maintenance. ”

The book also covers the effect of September 11. He points out how important education is and describes the school system in Afghanistan, Saudi Arabia and Iran. He sees major problems in these systems because most of them are religious schools which taught their own anti-Western views. Maybe there is a point but I think one chapter is by far not enough to cover this complex topic.

He built one of the most effective nonprofits called Room to Read  which has now built more than 2000 schools and libraries throughout Asia and Africa! In fact he wanted to build “The Microsoft of Nonprofits”.
It is an amazing book with lots of inspiring ideas and I read it almost in one go during my vacation.

Some quotations I like:

“Opportunity is missed by most people because it is dressed in overalls and looks like hard work” (p. 149)

“Those who say it cannont be done should not criticize those who are doing it” (p. 163)

“But sometimes if you wait until you have your entire pln figured out and buttoned-up, the world will have moved on and passed you by.” (p. 229)

Title:   Leaving Microsoft to Change the World
Author:   John Wood
ISBN:   006117906x
Year:   2006

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An American Hedge Fund

In short from the back cover of the book:

“Timothy Sykes turned $12,415 of Bar Mitzvah gift money into $1.65 million trading thousands of stocks from 1999-2002, managed the #1 Short Bias Hedge Fund from 2003-2006, and starred in the TV documentary Wall Street Warriors all before the age of 26.”

He is just a normal guy with an affinity to money in young ages like so many of us. Tim gathered experiences in selling used tennis balls when he was a kid and read finance books from the library of his father. From watching CNBC in the evening he got the information about the companies he was interested in. So far so good, but it was only a matter of time that he quickly lost himself in the digital world. The information overload is too much these days if one is not focused.

Staying focused is the key factor if you don’t want to waste great amounts of your time. It’s so seductive to just click through all the interesting links in the web but it get’s you nowhere. In the end you have seen a lot but you didn’t actually read anything.

In the beginning Tim’s main interest was in penny stocks or stocks with prices below $5.He used his Bar Mitzvah gift as gambling money and started investing in 1999 which was quite perfect and bullish as you know.

His strategy was to concentrate on company news which he thought were the main factor behind stock prices. He used message boards and press releases (ticker spam) to get the information. He didn’t hold the stocks for long, just hours or days and that was his advantage in the fast paced market.

I would say it is not the news which move stock prices but rather the way how people react to these news. One can’t say that positive news move prices higher in these days. Sometimes people just ignore it and sell anyway. So I think it is better to concentrate on how people will react to the news to predict future price moves than just on the news itself.

In average he sold at a profit of about 20%. “His impatience  taught him to take large positions and aim for small price moves rather than to take small positions to wait for large price moves. In the first months in 1999 he traded internet stocks (what else in 1999 ) like NTXY, SLEU or WKWG for good profits.

Betting on IPO’s were another way he made gains in the following months. He closed the year with a gain of nearly $107’000.

Making this much money made him popular not only in message boards. Friends and people wanted to know how he was doing this.

Early 2000 he traded ISCO (now ISO). A perfect timing and and some unintended delays of the order made him a gain of $123’000 possible. By the end of march his winning pattern – buying before the market close and selling quickly at the market open – was used by so many people that it was now an unprofitable strategy. The more people know about your strategy the more ineffective it will get.

Until then he traded solely the OTCBB. By mid April 2000 he started trading the most popular technology related stocks and began losing money. He traded shares of SUN, CISCO, YAHOO, INTEL, …

Finally he decided to take some time off. Mid April he moved New Orleans. In the Summer 2000 Tim discovered short selling. His first strategy was “Simply looking for stocks that fell the hardest, bounced the quickest and now appeared ready to reserve lower again.” He aimed to make 5 to 10% on each trade but unusually ended up taking profits after only 2 – 3 %.

He continued short selling throughout the summer 2001. After 9/11 Tim saw several trading opportunities in security companies but finally he decided to play it safe by watching the action from the sideline.

Early 2002 he started the “Timothy Sykes Day Trading Award for the Talented” scholarship at Tulane. He went on a study abroad program on a cruise ship and after that he moved to New York, the center of capitalism itself. He thought he has to live where the big money is.

In 2003 he started his hedge fund and his main interested was how to raise money which he could invest. The hard thing was to persuade investors to give you money although you’re not willing to disclose the process by which you intend to make them more money. In August 2003 his fund broke the million-dollar asset mark.

In 2004 he moved back to Orlando to make a fresh start. He started investing in Cygnus Entertainment which he thought will be the next Ticketmaster. The CFO was also the father of a close friend of Tim so he thought this would be a safe play.

In April 2004 his fund had a monthly return of about 13% which made him the industries top performer. In August 2004 he invested again heavily in CYGT. In summer 2005 he got his first FoF investor and by end of June he had over $2.2 million in assets.

In December 2005 the problems began when Cygnus’s stock price declined to the $1 range. This move alone was responsible for a 6% loss of the fund in December.

In 2006 the problems with Cygnus were even worse. The stock traded now at 75 cents and the company needed money. I don’t know why but Tim invested another $75’000 . In late march Cygnus’s CEO called to say the company needed one more $100’000 investment to make it to the summer. And again – I can’t understand why – he invested additional $100’000 ! Now the CYGT position was one third of the fund!

By June the stock price of CYGT was 30 cents and his fund was 9% down on the year. This scared away many investors and all of the FoF’s. The future didn’t look very bright.

In the end of 2006 and beginning of 2007 Tim was also part of the reality show “Wall Street Warriors” on the tv channel MOJO, was on CNBC, started his book and his website www.timothysykes.com.

In the end the fund was closed. Many critics said that he was lucky making this much money or that is wasn’t difficult in 1999 because everything was in an uptrend. For these people he announced on his website that he will do it again. He starts again with his $12’415 and writes about every trade he makes on his blog. He stated that it will take him longer but he will reach his goal. Good luck!

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“Coach Trump” is the part with essential advice for various situations. The subtitle “Make It Happen In Your Life” should mean that these advices are not only for your business life but for your personal life as well. The idea of integrating blog discussions in his book is great and also a good marketing idea. The discussions are topical and it certainly will generate a few more clicks on his website.

Chapter 11 is about negotiation. You have to prepare yourself thoroughly for any negotiation by defining your objectives. It’s helpful to know the minimum you must receive to make the deal and the maximum you will to pay. If it’s not possible to strike the deal within that framework, be ready to walk away. Defining these limits during the negotiation is mostly too late.

Another paragraph I want to quote is about the level of perfection a company wants to achieve. When is enough enough ? When is the product finished or good enough ?

When an employee told me, “I think it’s good enough” in reference to an unfinished project, I fired him. Good enough ? It wasn’t good enough for me, and if it was good enough for him, he shouldn’t be working for me. I want people who want more than good enough. I want employees who want great and will go the extra mile for the very best. I don’t want to have to tell them; I want them to do it on their own.

The book is well structured and easy to read. It takes about 5 hours to read it.

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1. Review: An American Hedge Fund
2. Review: Leaving Microsoft to Change the World
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