Why you should be financially conservative

[jim584672]

I heard they lost more than they put in, ouch!

This guy looks like he is going to end it all on this video.

[braumeister]

Very sad story.

Quote:

No one answered the phone Friday at Cordier's firm in the SunTrust Financial Centre in downtown Tampa. Cordier, who lives in a bayfront Apollo Beach house he bought last year for $1.6 million, did not return a phone message. A much deeper pocket is INTL FCStone, the brokerage that handled Cordier's option trades. It is a public company with nearly $30 billion in revenues last year. FCStone "had duties and responsibilities to know their customer and vet advisors trading on their accounts and have risk procedures in place to prevent these things from happening,'' Albin said. Many of Cordier's clients had qualified Individual Retirement Accounts at FCStone. Generally, money in such accounts is not supposed to be used for the risky type of trading that Cordier did on the clients' behalf.

https://www.tampabay.com/business/in...oney-20181123/

[ERD50]

After reading some more, I think I have a more detailed look as to how he blew up.

Oddly, it was actually very safe bets he was making! But it is how you go about it...

So it looks like he was selling options such that you would expect to 'win' 99 times out of 100. But of course, the 'pay off' for that kind of bet is very small (< 1%). So he tried to make 'big money' by leveraging this bet with borrowed money.

So you make 1% four times a year (options 3 months out) is 4%, but you use a 10x leverage for 40% a year. It works until it doesn't.

He apparently wasn't even diversified, and had so much in Natural Gas options, that the move in NG wiped him out and more.

The 4th post down on page 2 by srinir gives some examples.

https://www.elitetrader.com/et/threa....327102/page-2

A $4 call sold for 1.5 cents when NG was ~ $3. If the call expires and NG is less than $4, he gets to keep his 1.5 cents. But NG went up to ~ $5, so the call that he SOLD is now worth ~ $1 ($5-the $4 call strike) - he would need to cover/buy it back at ~ 66x what he sold it for! Double-plus-OUCH!!!

The financial firm behind those options isn't going to let that go on any longer, so they liquidate him to cover as much as they can. It apparently rose too fast to catch it all, so he went negative.

What he needed was an offsetting position that would limit the maximum loss he could have. It's been a while since I studies options, but I think what he would need to do is BUY a CALL at a strike price little above the $4 strike he sold, say $4.10. Then the max loss would be 10 cents on the 1.5 cents he sold for. But of course, the $4.10 strike call will cost him only a little less than what he sold the $4 call for, so there is little profit to be made. So he went 'naked' to maximize profits. And he got hit, big time. Not only the 66x, but if he was on 10% margin, that's like 660x against you!

I'm sure those details are wrong, but it explains the concept, I think. A classic Taleb "Black Swan" story, though this Black Swan should have been expected - it just would not be that uncommon. In fact, I think Taleb does something like the opposite of this - his data says the bets that only pay off occasionally are often mis-priced, and if you make enough of them you come out head?

-ERD50

[michelek]

I do think he said he drank wine when he opened his laptop each morning. Wine for breakfast! Only in cuff links and that custom suit!

[MRG]

Quote:

Originally Posted by michelek I do think he said he drank wine when he opened his laptop each morning. Wine for breakfast! Only in cuff links and that custom suit!

Maybe it was a late breakfast? [emoji12]

[Cassius King]

I don't quite get it. What was this guys track record? How long had he been doing this?


He seems to be completely out of touch with reality. A youtube video to let your investors know that you f'd them? Not man enough, or professional enough to deal with clients face to face or over the phone?
And his emmy performance. Nice suit, cuff links, reminiscing of cruising on his fathers 800 foot boat.....Was he 100% invested in his own fund? Or does he ruin 100's of other lives and go on to open another hack fund in the near future? No sympathy from me, this simply doesn't pass the make sense test and the guy comes across as a unsympathetic hack.

[Rianne]

I have questions. Did the retirees who bought into this guys slick scam, know what he was doing? I guess it wasn't a scam because James C. lost too. My DB is always cooking up convoluted schemes to make a quick buck. He likes to share is ideas and try to get us to partake. We never do. But that is no different than a slick, quick talking hedge fund manager who brings "family" into a risky proposition.

I keep visualizing instead of the $10,000 suit and slick hair, good looking, smooth talking con man, a creep in a black cape with a pencil thin mustache. Much like the showman at the local fair, give me $2 bucks and win this giant stuffed bear. Just throw the ball and knock down the bowling pins. Yet the bowling pins don't fall. It's rigged.

[Dtail]

Quote:

Originally Posted by Rianne I have questions. Did the retirees who bought into this guys slick scam, know what he was doing? I guess it wasn't a scam because James C. lost too. My DB is always cooking up convoluted schemes to make a quick buck. He likes to share is ideas and try to get us to partake. We never do. But that is no different than a slick, quick talking hedge fund manager who brings "family" into a risky proposition. I keep visualizing instead of the $10,000 suit and slick hair, good looking, smooth talking con man, a creep in a black cape with a pencil thin mustache. Much like the showman at the local fair, give me $2 bucks and win this giant stuffed bear. Just throw the ball and knock down the bowling pins. Yet the bowling pins don't fall. It's rigged.

Bolded - at any local fair, I just ask the vendor to show me that it can be done and most of the time it can be done.

[ERD50]

Quote:

Originally Posted by Cassius King I don't quite get it. What was this guys track record? How long had he been doing this? ....

Well, he had books published going back to 2004. And you can find his words of wisdom all over financial sites. There's some history out there, not sure of his actual performance, or if it is published anywhere. That's a big problem with these 'hedge fund' managers (especially the ones that don't 'hedge').

https://www.amazon.com/Complete-Guid.../dp/0071442081
https://www.smarteranalyst.com/author/jamescordier/

Quote:

Originally Posted by Cassius King .... He seems to be completely out of touch with reality. A youtube video to let your investors know that you f'd them? Not man enough, or professional enough to deal with clients face to face or over the phone? And his emmy performance. Nice suit, cuff links, reminiscing of cruising on his fathers 800 foot boat.....Was he 100% invested in his own fund? Or does he ruin 100's of other lives and go on to open another hack fund in the near future? No sympathy from me, this simply doesn't pass the make sense test and the guy comes across as a unsympathetic hack.

Quote:

Originally Posted by Rianne I have questions. Did the retirees who bought into this guys slick scam, know what he was doing? I guess it wasn't a scam because James C. lost too. ...

Something tells me that Cordier has some money protected. Let us know if anyone spots him living in a cardboard box under a bridge, or in the food line at the local mission. I won't hold my breath.

I think the youtube video was to get to his 290 "family members" as soon as he could. It would take a lot of time to contact them individually, and tell his sob story of the "rogue wave" (and since when is a jump in Nat Gas prices a 'rouge wave'? This is a volatile commodity, he's an idiot to not be prepared for that).

-ERD50

[brett]

Futures and insurance underwriting syndicates are not for the faint of heart.

Losses can extend well beyond the initial capital investment.

[ERD50]

Reviewing that video a bit, and I am again struck by his (probably fake) addressing of these clients as 'friends' and family', and all the little personal touches.

I'd bet many of his clients were referred to him, as friends of a current client. The current client recommended this idiot. See how that works? What do friends know about the real qualifications of an FA?

Yet, time and time again, we see posts here that suggest someone find a "good FA" through recommendations of friends. It cannot be counted on. Proof right here.

And yes, I bet all his clients got birthday cards. While that comment may upset a few overly-sensitive posters, it's the truth, deal with it. It's part of the selling, to make the client feel 'special'. Not that there's anything wrong with a birthday card, but it's just an outward sign of 'sizzle' over 'substance'.

It will be interesting to follow up on this guy. I bet he manages to hold onto considerable wealth, while some of his clients might truly be wiped out.

-ERD50

[njhowie]

He made the sipping wine comment after "My wife made us dinner" - start at 9:33

[ERD50]

Quote:

Originally Posted by njhowie He made the sipping wine comment after "My wife made us dinner" - start at 9:33

Ahh, some other people commented on the "wine at breakfast" thing, but now that you point it out, he did throw 'dinner' in between (it was kind of mumbled). I figured that's what he meant anyway.

There, all better now!, Wait, NO!!! (I really shouldn't laugh at any of this, people got hurt).

Oh, and so he checks the markets twice a day? Wow, he's really putting in the effort for his clients ( oh, I mean "family"). Give that man an award!

What really bugs me, is how he says he "checks on the markets to see if they are OK". IDIOT! When you are leveraged like that, what the heck are you going to do if the markets are not "OK"? It's too late, you need your hedges in place before things go against you. At that point, the hedges will cost as much or more than just taking the loss.

And what is "OK" when it comes to the market? Nat Gas prices go up, they go down. There is no "OK" for him, there is just the current value the market places on Nat Gas, which in a free market, is the definition of "OK".

It makes me sick that this guy has lived a life of luxury pedaling this crap to people. I hope they are able to strip him of any and all personal wealth to at least partially pay back his clients (oh, I mean "family"), and then throw him in a real lock up for life, not some luxury white-collar crime place.

-ERD50

[njhowie]

Quote:

Originally Posted by ERD50 It makes me sick that this guy has lived a life of luxury pedaling this crap to people. I hope they are able to strip him of any and all personal wealth to at least partially pay back his clients (oh, I mean "family"), and then throw him in a real lock up for life, not some luxury white-collar crime place. -ERD50

It is a terrible thing to happen. However, folks that gave him money knew very well what they were getting in to and that this end result was a possibility, no matter how remote. At the end of the day, it was a hedge fund and folks had to be accredited investors to open an account with him. Blame is as much with the investors who made the decision to become a client of his. If they didn't know what he was doing or what his strategy was, that falls on the client - claiming ignorance is not a valid excuse.

This is why I manage my own money and always will. I don't care what anyone's experience or success has been - they do not care about my money like I do, they have no obligation to me, and if/when disaster strikes the only person to hold responsible would be myself. If I am ultimately responsible, why in the world would I trust anyone to manage my money? That's an entire working career that I slaved for decades to amass. Nobody touches that money but me.

Though there will likely be some attempted legal action by his clients, at this point, there's no indication he's done anything underhanded - he operated according to the fund's objectives and the strategy failed. Long Term Capital Management comes to mind. The strategies are tested and back tested and have a really wonderful success rate - such that they have extreme confidence in it...not at all different in the way which FireCalc works. I know I will take heat on that last comment, but it's completely true. The algorithms are all based on past results, they cannot predict the future, no matter what level of confidence it gives you.

[ERD50]

Quote:

Originally Posted by njhowie It is a terrible thing to happen. However, folks that gave him money knew very well what they were getting in to and that this end result was a possibility, no matter how remote. At the end of the day, it was a hedge fund and folks had to be accredited investors to open an account with him. Blame is as much with the investors who made the decision to become a client of his. If they didn't know what he was doing or what his strategy was, that falls on the client - claiming ignorance is not a valid excuse. ... Though there will likely be some attempted legal action by his clients, at this point, there's no indication he's done anything underhanded - he operated according to the fund's objectives and the strategy failed. ....

Perhaps, but I'm not so certain of that. It would be enlightening to see the actual contract. Yes, it's a hedge fund and investors must be "High Net Worth" (amount?), and sign off. Is there anything saying they cannot put more than X% of their net worth with a single hedge fund? I don't know, but there should be.

And I am curious as to whether he actually did operate according to the fund's objectives. Was it really communicated to his 'family' that he would leverage them to the point that they could be exposed not only for their holdings, but could actually end up going negative and have to cover losses with outside funds? To my mind, if that wasn't spelled out, he should never had held positions that had even the possibility of going below zero. I;m reading that an 18% change in the underlying price of NG is what wiped out his position. That's insane - a rapid 18% change in a commodity isn't a common event, but it's hardly a 'black swan' either.

Quote:

Originally Posted by njhowie ...The strategies are tested and back tested and have a really wonderful success rate - such that they have extreme confidence in it...not at all different in the way which FireCalc works. I know I will take heat on that last comment, but it's completely true. The algorithms are all based on past results, they cannot predict the future, no matter what level of confidence it gives you.

Hardly a fair comparison. I think I've read that NG has fluctuated this much in the past. I bet history says he would have been wiped out occasionally on this kind of play. I read somewhere (might not be true) that he had previously made some bad bets on crude oil, and this might have been a "Hail Mary" move to try to win back losses? Sounds like a gambler that gets in over their head. Double down, this next win will put me back on top!

Sure, if the future is worse than the worst of the past, someone following a straight inflation adjusted 'safe' withdraw would fail before the time frame was up. But they wouldn't fail in any extreme way, and they wouldn't be worse off than most other people. And they wouldn't fail unless it was an extreme market. If this guy was investing sanely, his 'family' should only be out a resonable amount, not wiped out and owing.


-ERD50

[Dtail]

Quote:

Originally Posted by ERD50 Perhaps, but I'm not so certain of that. It would be enlightening to see the actual contract. Yes, it's a hedge fund and investors must be "High Net Worth" (amount?), and sign off. Is there anything saying they cannot put more than X% of their net worth with a single hedge fund? I don't know, but there should be. And I am curious as to whether he actually did operate according to the fund's objectives. Was it really communicated to his 'family' that he would leverage them to the point that they could be exposed not only for their holdings, but could actually end up going negative and have to cover losses with outside funds? To my mind, if that wasn't spelled out, he should never had held positions that had even the possibility of going below zero. I;m reading that an 18% change in the underlying price of NG is what wiped out his position. That's insane - a rapid 18% change in a commodity isn't a common event, but it's hardly a 'black swan' either. Hardly a fair comparison. I think I've read that NG has fluctuated this much in the past. I bet history says he would have been wiped out occasionally on this kind of play. I read somewhere (might not be true) that he had previously made some bad bets on crude oil, and this might have been a "Hail Mary" move to try to win back losses? Sounds like a gambler that gets in over their head. Double down, this next win will put me back on top! Sure, if the future is worse than the worst of the past, someone following a straight inflation adjusted 'safe' withdraw would fail before the time frame was up. But they wouldn't fail in any extreme way, and they wouldn't be worse off than most other people. And they wouldn't fail unless it was an extreme market. If this guy was investing sanely, his 'family' should only be out a resonable amount, not wiped out and owing. -ERD50

I have read some Hedge Fund agreements and there is usually much leeway to trade many products and it would be difficult to win a lawsuit.
In terms of doubling down, that is a classic move used in many of Wall Street failures.
On the Firecalc front, I agree with you, especially in the sense that one can "see" the failure coming closer as it is typically over many years and thus can adjust along the way.
Another aspect of investing in Hedge Funds, is there is a sense of superiority amongst the investors in which there are typically large initial investments required, so they think they are special and Hedge Funds must be analyzing markets better and have better strategies, which is just not true, as I supported hedge funds the last 10 years of my career.

[Sunset]

Since this Hedge Fund fellow owns his house in FL, it is basically safe from being sued out from under him, so he won't starve.

I hope he had his own money in the fund so he could enjoy the end result as much as his clients.

I'll bet some of his clients were not special, they might be widows with a few million (isn't that considered High Net worth ? ).

[Gumby]

Quote:

Originally Posted by njhowie It is a terrible thing to happen. However, folks that gave him money knew very well what they were getting in to and that this end result was a possibility, no matter how remote. At the end of the day, it was a hedge fund and folks had to be accredited investors to open an account with him. Blame is as much with the investors who made the decision to become a client of his. If they didn't know what he was doing or what his strategy was, that falls on the client - claiming ignorance is not a valid excuse.

Well, to be an accredited investor, one need only have $1 million household net worth (excluding principal residence) or income of $200k for the last two years. https://www.ecfr.gov/cgi-bin/retriev....1.12.0.46.176 I'll bet we all know someone who meets those hurdles but is clueless about investing. Just another lesson that you shouldn't invest in things you don't understand.

[revhappy]

He sounds like a very high EQ person. I can't believe such people could do this to their clients. Or was his IQ so bad not to realise this?

[ERD50]

Quote:

Originally Posted by Sunset Since this Hedge Fund fellow owns his house in FL, it is basically safe from being sued out from under him, so he won't starve. ... .

And since his clients were 'family', I am 100% certain he will sell his home, and use most of the proceeds to help out the people hurt the most by his big, foreseeable mistake. << SATIRE

Quote:

Originally Posted by Gumby Well, to be an accredited investor, one need only have $1 million household net worth (excluding principal residence) or income of $200k for the last two years. https://www.ecfr.gov/cgi-bin/retriev....1.12.0.46.176 I'll bet we all know someone who meets those hurdles but is clueless about investing. Just another lesson that you shouldn't invest in things you don't understand.

Thanks. Yep, $1M is not such a high hurdle these days and could be 'new money'. I imagine there are plenty of pro athletes in the $200K plus income area, though we mostly hear about the really big $$$'s. Ahhh, found this, for Major League Baseball:

The 2017 MLB minimum player salary is set at 535 thousand U.S. dollars.

So every single MLB player, for starts. And I'm sure many/most of them are completely clueless about investing, and many would fall for the sales pitch of the smooth talker with a Rolex.

Quote:

Originally Posted by revhappy He sounds like a very high EQ person. I can't believe such people could do this to their clients. Or was his IQ so bad not to realise this?

If by "EQ" you meant Ego Quotient, then yes, EQ>IQ.

-ERD50