One of the qualities by which a client rates his bank or broker on is the ability to work things "quietly" — execute an order in a discretely to achieve a good fill. This is because participants are generally unaware someone out there has a buy or sell order and won't strive to squeeze you. In that respect, anonymity is a good thing.

Yesterday I was booking a hotel on a website, and came across a variation of this, where top hotels are willing to unload inventory at knockdown prices, but they do so "anonymously" through an intermediary website. They want to sell a few extra rooms, but don't want to publicly quote the price because it will impact their pricing power.

I considered going with one that offered a reasonable rate and gave general details about location and specs of the room, but at no time before paying would I know they name of the hotel. It mightn't sound like a big deal, but if I were handing over a few hundred Euro, I'd like to know more about the premises. In the end I didn't pull the trigger — I went for somewhere a bit more expensive, where I knew what to expect.

Afterwards, I thought about it and asked whether I lost out on a good deal and whether this anonymous selling is a good idea and will succeed. My own view is it won't, because hotel rooms are among the most expensive transactions people make regularly on the Web, and travelers are quite risk averse when booking. They want reassurance — number of stars, brand name, location — before paying, and are quiet skeptical about descriptions (I can tell you from experience there is nothing regal about the "Royal Hotel" in Tipperary town).

Moreover, the hotels are over a barrel, because if an anonymous five-star hotel is offering rooms at 75% off, people think it can't really be that good, of there is something fishy; and if they are only slightly under a similarly priced but known hotel, people will pay that slight bit more to avoid uncertainty. So they are also looking for information in the price.

Sam Humbert writes:

When I've used PCLN for hotels, I've gotten, broadly speaking, good value for money. Generally there's been a reason a particular hotel traded cheap-to-the-curve — construction noise from building a new wing, or the pool's closed for repairs. Also I've found desk-clerks exude bad juju when you check in/out on a PCLN reservation — they don't view you as a "real customer" who's loyal to their hotel brand.

Craig Mee adds:

Reminds me of a friend who was a manager of a world-renowned hotel chain. Two things he told me –

1. He told his hotel counter staff never to give poor service, even if there are discrepancies with the bill and customers are disagreeing. What he said made perfect professional sense, "once you're committed to not charging the customer for the said amount from a business standpoint wear it on the chin and be as nice to that customer as any other." Then he added quietly, "besides, it's usually the cleaning staff taking liquor from the mini-bar, not the patron."

2. Specials are special on the menu for a reason; don't go near them. They usually jazz up something that is "on the way out."



 There is a nice interview with Nick Faldo that mentions his "dark years" in mid 1980s after a series of blowups. He had to relearn his swing, endure his sponsors dumping him and pass other golfers at the airport on his way to a B list event, while they were heading to the Masters. He said, "But you have to turn it into motivation. Either you crumble or you go."

One thing he did was practice, practice, practice and then practice some more. "I worked really hard during some of those winter spells in Florida, hitting 1,500 balls a day." That's 10 hours of standing on a practice ground hitting a golf ball every 24 seconds, a mind-blowing regime. "I used to go and swim in the afternoon. Then, like an idiot, I would think, 'There is another hour's daylight so I'll go and hit some more.'"



What a terrible title for such a good book, but what else could you call it, I suppose.

Felix Dennis is a wealthy publisher and an unlikely poet whose book is a highly enjoyable read on what it takes to 'make it.' I respect his admonishing that most people won't make it, and that in order to get there you must take big risks, step on a few toes, but also remember to treat it as a game.

His writing style is fluid, sincere and self deprecating. He comes across as a no nonsense type willing to share insightful stories about his experiences in business & life.

I would recommend this to any spec. It probably won't change your life, but it is worthy of whiling away a few hours on.

Amazon: How to Get Rich, by Felix Dennis.

Sunday Times Review: This is a three page blurb by the author who gives a flavor of the book.

If you want to be rich, first stop being so frightened. [Read more here]

Incidentally, he also shares a few stories about his excess, reckoning he spent around $100m on living the high life over the years. This reminds me of the George Best quote on what he did with all of his money over the years:

well, I spent a lot on birds and booze and fast cars. The rest I just squandered.

Unlike G.B., Dennis was smart enough to know when to call it a day.



Hunter and hunted or predator-prey relations are pervasive in the animal world. We're accustomed to observing and reading popular summaries and videos of the dynamics and techniques of survival for such pairs as lion & gazelle, wolf & squirrel, fox & lynx, coyote & seal, osprey & smelt, pike & minnow, and spider & fly. Such studies have been extended to romance and health among humans. Predator-prey relations are also common in markets. For example, the relation between market maker & day trader, dealer & ephemeral trader, flexible & inflexible, large trader & small trader, informed & uninformed, vig taker & vig payer.

Many studies in the field are based on the Lotka-Volterra model. This is a set of simultaneous differential equations relating to the rate of growth of the predator and prey populations to each other. A typical set of equations relating rabbit growth to fox growth states that dr/dt = ar-brf and df/dt = ebrf-cf where a is the natural growth rate of the rabbits, c is the death rate of the foxes, b is the death rate of the rabbits whenever they meet a fox and e is the proportional gain in growth that a fox gets from eating a rabbit.

Such equations do capture the main idea that as the rabbit population increases, the foxes gain in number because rabbits are easier to find and eat, and this provides a homeostatic mechanism to stabilize the rabbit population. Similarly, as the rabbit population declines, the number of foxes decreases because they have less food, and this helps increase the rabbit population which in turn tends to increase the fox population. As might be guessed, small changes in the assumptions of the model, such as time delays, lead to widely divergent behavior involving cyclicalities, instabilities and sharp changes in the dynamics that do not correspond to what we observe in most real-life populations.

A similar critique could be made of the two other standard methods of studying predator-prey relations, which are the functional response curve and the optimal foraging theory. The basic regularities there are that the costs and benefits of gaining prey vis a vis future reproductive success determine the extent and energy with which the predator seeks the prey. The key dependent variable is how much the predator eats as a function of the difficulty of converting the prey into food. An increase in the search time, handling time, or consumption time, reduces the predator's desire to eat. Certainly this leads to insights.  The problem here is that all these parameters are subject to estimation, and they are interrelated and subject to different hypotheses as to their function.

A good book for studying these techniques at an elementary level is John Alcock's Animal Behavior, and a good summary of the ecological approach to these dynamics can be found here.

Methods of studying the factors that enable predators to be successful have always been important to me as I, like other numerous individuals not at the top of the food chain, are often prey to much larger predators. I have often wanted to learn how to avoid capture, and even considered the possibility of sometimes turning the table on the predators and bagging them once or twice just to make the game a little more even sided. Thus, when I came across a cover story in Outdoor Life titled "Predators' Deadly Tricks," which describes how hunters go about capturing the most elusive predators in real life such as the coyote, the bobcat, and the mountain lion, I was very attentive and decided that I should try to devise principles from the practical and theoretical literature that might help other prey like me in their incessant battle with those who would devour them. 

  1. Signaling is key.The signals that the prey send out to show that they are not easy to digest prevent the predator from even considering attacking, and this saves much energy for the escape. Colors and scents indicate that the prey contain poisons. Stotting, the jumping behavior of gazelles when about to be chased by a cheetah, indicates that they are very mobile and not worth eating. Indeed the essence of the article is that the best way to attract a predator is with an electronic duplication of the distress call of its enemy. Amazingly, the coyote will often show himself within one minute of hearing the rabbit's call, especially when it's made with a "Foxpro FX5 that has a 200 sound capacity, one gigabyte of memory, recall buttons to switch between sounds, remote control functions, and a 700-yard range. Less than a minute later (after the call), a pair of coyotes charged in and we handily dispatched them." Market prey often indicate that they are ready, willing and able to defend themselves by the placement of limit orders in large size, but cancel if they are near just to prevent the larger predator on the other side from even thinking of going after them. The talk with your counterparts is how much more is available for adding to my line when you well know that one more grain of salt would be enough to topple you over.
  2. Vigilance is essential. The herding animals all find that 100 pairs of eyes with 50 always awake are enough to warn them of danger. Noses are always sniffing, ears are listening, and the antennae are always feeling. Indeed, some ducks can sleep with one eye open so as to never be victimized by a surprise attack. The hunter uses a telescope so that he can always perfectly see the adversary. He never lets the prey's vigilance work to his advantage by approaching stealthily, parking his equipment a mile away from where he's going to hunt, and setting up in a blind with proper camouflage. The prey in the market doesn't leave the market for a moment, as that might be the time that the enemy attacks.He cancels all orders when they don't get filled so that a surprise news announcement that's worth a limit move won't catch him just a few ticks from the last price. He has his computer set to wake him, which buzzes around in his private area so he never sleeps through a dangerous situation or lets the predator devour him totally.
  3. Deception is essential. My goodness, the moth blends in with the bark and orients with the grain of what he's sleeping on. The flies disguise themselves to look like bees, and the octopus can change 100 colors in one second. The spider uses a million deceptive lures to entice the fly into its web. The golden orb weaving spider spins a web that's so enticing that even when a bee breaks free, it will dive right back into it after it has escaped. (I am reminded here of the system player who, after a very bad trade on one side, doubles up on the other side for the next trade.) The chapter on deception in Education of a Speculator details other areas of deception in the world. "Quality camouflage is a must; select the pattern that most closely matches the foliage and landscape." Whatever you do, don't make any news. As a prey trader, I don't even like to type out that I'm thinking of exiting a trade, for fear that a predator might have my screen bugged or that the keystrokes are programmed to signal my intention. I never let the other side know what my stop point is because I know that it will always be hit. If I'm really hurting, I'll try to act 5,000 times stronger than I am, and I won't even begin to reduce my position by one contract for fear that my camouflage will be found out.
  4. Proper equipment is a must. Predators are constantly sharpening their claws and teeth. Prey must always practice escape maneuvers. Over many generations, most prey have adopted advanced techniques of escape that include the full range of methods used by individuals in their cohort from the beginning of time to elude capture, be it poison, scent, or cry. Their bodies are perfectly suited to the escape in size, color, speed and strength. The properly equipped hunter, in addition to his Swaroski binoculars and Foxpro FX5 caller, currently has a Gerber Epoch Pack, a Stoney Point bipod, Cabela coverup pants, and, of course, the obligatory Ruger bullets in a Browning rifle, a Bushnell scope, motion decoys, and a set of shooting stocks.
  5. If all else fails, try the unusual. Be prepared to shout if the predator attacks. The proper equipment for the trader starts with a proper price feed, perhaps one that's within a foot of the source of the prices so as not to lose out by the speed of light that it might take to get to you one-thousandth of a light second away.  Next, one should have a computer that's always set to trading and that isn't interfered with by email. Finally, have an office where no one can distract you from the job of survival with the cares of the world or a bill from the Service.
  6. Never give up. The cries of animals often save them from death. If nothing else, they serve to alert family members. The squirting of poison and the enlargement of the body is a common tactic of the caterpillar, and the gyrations of the weasel in extremis are often enough to ward off death. The hunter is told to scream if a predator attacks him and to have a spare set of guns and knives. As a trader, I try to follow the rules of a good competitor in sports who never gives away the last point of a game if there is still an iota of energy left in his body. There is always someone you can call on to help you fight back. On occasion, I've even asked a'la the Boy Wonder for the other half to help me out in a time of crisis, and so far the trust funds are still intact.
  7. I would recommend studying the literature on predator-prey relations by reading a few good books, following up on some of the hundreds of thousands of citations on the search engines, reading the Outside Magazine article in the December-January double issue and then trying to apply these techniques to make yourself impossible to detect, fruitless to waste energy on, and impossible to digest when caught. If all else fails, fight to the death.

J. Klein adds:

One Predator - One Prey; if it was ever so easy. 

It is more like Many Predators - Many Preys - Many Parasites.  Symbiosis. Competition among different parasites - how to maximize exploitation without killing the organism parasited. How to use a competing predator to one's benefit. Mixed situations: One is a predator and a prey at the same time but to different kind of critters.  How a steady state equilibrium evolves. 

In my opinion, however, we humans have already won nature's battle and rule the ecology to our benefit. We easily see through the animal world's tricks and catch them as we want. But the market is wholly made up by humans, who presumably have all been exposed for generations to nature's tricks and have become resistant to them. Situations like those that nature presents to us are no longer relevant, and we have moved to a higher level. It is a different game here.

Since we are part of the game, it is very difficult to see what is going on and much more how to manage it.  It is said that even the big winners know how they did it and why they succeeded. It seems to me that those winning have more useful memory, are able to calculate more precisely, see the present and the future more clearly, can formulate better plans, and execute more rapidly and precisely. In the market, nature's tricks don't work any more. This is a play of pure and cold intelligence.

Scott Brooks comments:

I've thought about this predator/prey relationship for many, many hours as I was sitting in a deer stand and I have several thoughts on this issue. I'll share some in this post. 

One of the biggest things to recognize in a predator/prey relationship is the opportunity that exists. One of the biggest things that we need to look at is the difference between instinct and reason. Whether prey or predator, if you are instinctual, you are acting out of some deep seeded genetic conditioning that causes you to run when faced with adversity. 

Think about it. If there are seven lions chasing a herd of 200 gazelles and the gazelles had the ability to reason, they would say, "Lets stick together and as a group go over there and trample those seven lions to death." The 200 gazelles would win that battle, and probably over time could condition the instinctual predator lions to leave them alone. The cost of messing with those gazelles is just too high. 

Think of an instinctual predator like a bear. Almost any bear could take a human if they wanted too, especially the bigger varieties like Grizzlies. Humans are simply not equipped to deal with them physically. But for the most part, we've conditioned bears to stay away from and fear us. That's only because we have the capacity to think and reason at a level that the Grizzly doesn't. We've figured out a long time ago that taking some animal gut and stringing it on one bent stick, and then taking another straight stick and putting a sharp tip on it, gave us the advantage. Then along comes names like Remington, Browning, Winchester, Anshultz, Benalli, etc. and the odds are stacked in our favor. 

When I played poker back in the 80's, I looked for certain types of players to be at a table before I would play. They were the prey. They weren't thinkers. They were gamblers. They let the cards fall as they may and "hoped" that things would go their way. But they had no real system or methodology to identify when to hold'em and when to fold'em. Most of them could not name three cards that had been played and subsequently folded (I'm talking seven card stud). So they had no idea what cards were still available to be played or not. I can't even count all the times when I could tell what hand someone was trying to build or bluff me into thinking they had and yet had no idea that the key card was already burned in the deck because someone had folded earlier. I guess I was a counter of sorts even back then. I'm not sure that qualifies me as a counter yet, maybe it just makes me someone who paid attention and kept track of things. 

These "gamblers" were hopeless gazelles at the table. I'm not saying that to be braggadocious. They simply didn't know what they were doing … they were nearly instinctual prey. They "needed" to win. They were always one card away from catching a break. They relied on luck. The reality for these guys was that the only way they could truly win was to quit and stop playing. Otherwise, ruin awaited them all. 

Those are the guys that I played against. I did not play against other good players. If there was more than one other good player at the table, I would find another game. I had nothing to prove by beating another good player. I was there for one reason and one reason only: to win money

For the same reason that lions don't usually attack other lions to eat, I was not interested in paying the price associated with trying to win money from other good players. The cost and risk/reward was just too high. 

To apply this to the markets, it is important to figure out where the instinctual investors are playing and those that don't have a thinking system, and use that to one's advantage. 

What are the masses going to do when "X" event happens? What is their likely "non-thinking" irrational emotion based response ("quick, run, the lions are coming"). 

Unfortunately, as I've said before, the masses left the markets after 2000, 2001, and 2002. They were burned so badly, and fear chased them away from what was very likely the greatest buying opportunity of their lives. It was like gazelles drinking from a stream and some of them getting snatched by an alligator. It seems to me that after a few have been snatched, that's the time to go get their drink … the alligators have enough food to last awhile now … and if nothing else, there is a few less alligators now patrolling the shores for food. The odds of success have gone up for the gazelle … but that's when they leave in fear. 

So I will be that thinking predator. I will only fight battles that I know I can win. My goal is simple. To make money! That's it. I've got no ego in this and no axe to grind. I'm not going to challenge Prof. McDonnell in the world of options, or Prof. Haave in the world of commodities, or George Zachar in the arena of bonds or Vic in the world of index futures. They are simply more skilled and knowledgeable than I am in those arenas. I could be a predator in those worlds, but I would be like the Grizzly bear, and they would be the thinking human up on the ridge 200 yards away pointing a Win, and a 300 Mag at my vitals. That's a battle I can't win. 

But there are things that I'm good, and there are arenas I can battle in. Since I only want to make money, I will only play in the arenas with the best risk/reward ratio for my success, and I will stick to those arenas (but I'll still learn the other arenas … and who knows, I may show up there one day and dip my toe in … but only when I think I'm ready … and then only with a small amount of money to make sure that I'm really ready). 

So, Phil, Gordon, George and Vic, be careful, I may show up in your arena one day … and I'm a good stalker who knows all about how to properly deceive with camouflage …

Tim Humbert comments:

Over Christmas I heard a wonderful recipe for pike:

-preparation: gut and de-scale, rub rock salt and pepper onto flesh, squeeze some lemon juice, insert some herbs into fish, wrap in aluminum foil and cook for 30 minutes

-consumption: throw pike in the bin and eat the foil

Rick Foust adds:

The largest predators (e.g. lions) are much smaller than the largest grazers (e.g. elephants). The largest grazers have much longer life spans than the largest predators despite having inferior camouflage. Certain large houses come to mind.

Small grazing animals (e.g. rabbits) do not survive long despite having excellent camouflage. Their numbers are maintained by fertility (replenishment). New, poorly bankrolled traders come to mind.

Bruno offers:

Professor Sorin Solomon, of the Racah Institute of Physics, has produced some very interesting market models based on Lotka-Volterra. Here is his homepage.

He showed that a generalized Lotka-Volterra model for the market yields a truncated levy distribution for index returns!

See for instance his 1998 paper: "Stochastic Lotka-Volterra systems of competing auto-catalytic agents lead generically to truncated pareto power, wealth distribution, truncated levy distribution of market returns, clustered volatility, booms and crashes."

There are simpler explanations for TLFs, such as a random-walk with time increments that are variable rather than fixed, just like with real-world transactions … but I thought this was topical.

There could be one way to check the above, and that is the impact of random time between transactions. On Euronext, we've got a mechanism for trading very small stocks. It is called "fixing." One could compare behavior of such stocks to behavior of other stocks that trade continuously. One could also check the behavior of stocks that have moved from fixing to continuous trading or the behavior of the whole French market as it moved from all stocks fixing to most stocks continuous in the mid-eighties. There's also a possible comparison between London Gold fixing and NY COMEX.

Todd Tracy comments:

Market Set Ups

While reading Victor and Laurel's article on Predator-Prey Relations, my mind exploded with visuals: foxes hiding in the bushes waiting to pounce, predictive and instinctual reactions to events, finding myself trapped in currency positions, panic driven searches for exit strategies. I realized that I am the prey. I am the new blood that greases the gears. I am the greedy trader who walks into the trap set by smarter, quicker and more thoroughly financed predators. As with much of the information gleaned from Daily Speculations, I found corollaries not just in the markets but also to life.

But wait, I've been here before. Where have I seen these deceptive techniques in use? Spy fiction. Yes, I have read all the Greene's, the Amblers', the LeCarre's, the Clancy's, the Forsyth's, the Flemming's, the Weisman's, the MacLean's, the Harris', the Buckley Jr.'s and a lot of the Ludlum's. The spy, leaving a trail, using cut outs, drops, proprietary tools and the most diabolically elaborate set ups imaginable. Institutionalized deception, deception as a way of life, and tradecraft so efficient as to make the prey oblivious to the fact that they have even been caught.

War is serious business whether or not it be cold, which brings me to the non-fiction. The Secret History of the KGB, the History of the Mossad, the development of the Office of Strategic Services, The Wall Jumper, the techniques of SMERSH, Stalinism, Churchill's autobiographical books and one of the greatest historical accounts on the subject, A Man Called Intrepid by William Stevenson. Control will leave no stone unturned to reveal facts. Control will sacrifice lives to perpetrate false information.

Why should the markets be any different? It's scary to think that once I feel like I'm playing the charts like a marionette, it is I whose strings are being pulled. I am a novice speculator, but my eyes are widening. If only I had Victor's booklist before I read all those novels. All is not lost however because I am learning to tie strings from my life experience to the experience of the markets.



This week’s Barron’s plugged GaveKal’s idea of the “platform company”. This is a polite illustration of Bacon’s concept of the public’s being always behind the form, as pointed out by Victor and Laurel. GaveKal has been on this theme for at least three years. I’ve been a subscriber to their services since the late 1990s. GaveKal is smart. I’m talking super smart. They are a small team of French, English and Americans based in Hong Kong and I have met the team a few times. It amazes me how their output is consistently informative, rational and timely. They beat the pants off the big guns on the Street like Steve Roach et al.. It shows how a small team of highly motivated individuals can outperform their much better capitalized peers. There is a lesson in that for all of us. By the way, I highly recommend their book Our Brave New World. The tome is a cage match between market memes and logical quantitative thought. I am in no way associated with the authors, other than being a regular subscriber to their services and do not in any way benefit from increased sales of their book, etc.

Gabriel Ivan replies:

There is no doubt in my mind that Charles Gave is “super smart” but his Barron’s interview is riddled with half-truths, smoke and mirrors, which shows crystal clear he’s got an agenda. Just a few remarks were:

Reading his comments on the “platform companies” I experienced a NASDAQ 2000 deja-vu all over again. Back then, the smart folks that run Legg Mason today, also had a pretty compelling argument on how dotcoms can generate cash flow indefinitely through working capital and low Capex layouts. The “new economy” model, and we know how that story ends. Furthermore, he presents the valid r&d expenses argument, but conveniently forgets to adjust the Motorola capital to cash flow example accordingly.

In the current-account deficit argument he starts by anchoring the reader in the 7% of GDP as being a banana republic level, but then he switches immediately to the net worth comparison where the 1.5% looks better. This jumping around between income statement and balance sheet would make any Shenanigan CFO blush.

Including the volatile stock and bond holdings in the U.S. net worth calculations, (although a favorite shill of the Fed. Reserve), is not comforting if the trade policy is based on it.

He claims most of the U.S. consumption goes towards healthcare and education like it’s a positive thing per se, with no regards to the return on that capital spent. The quality of healthcare and education (esp. undergrad) per $ spent might have been a better read.

The nail in the coffin is the play-down of the real estate problem. It is the true mark of poor salesmen — lying about the obvious. The growth in real estate prices, in other countries says nothing about their affordability, own to rent analysis, etc., nor do the interest rate increases have an effect, when such increases have much lower impact due to central banks’ lower reach onto business cycles, the absence of mortgage markets, etc..


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