A view of the world from my own unique perspective

Archive for the ‘Finance’ Category

The Death of the Twinkie… and of My Cushy Retirement Dreams

On November 16, 2012, Hostess Foods filed for bankruptcy protection. Hostess was the manufacturer of many popular snack foods, including Wonder Bread and Twinkies, and unfortunately, wasn’t able to continue operating during a prolonged bakers’ strike.

I know it sounds strange, and perhaps a little mercenary, but I’ve actually been waiting for this day – not because I have anything against Hostess Foods, but because this was going to mark the beginning of the first phase of my elaborate strategy for financial freedom… that is, until this morning. Allow me to explain what I thought was the perfect plan for a luxurious and carefree retirement.

For as long as I can remember, people have been telling me that Hostess Twinkies have no expiry date. I don’t know if this is true because I no longer eat them. I ate a few as a child, but I don’t think I’ve eaten any since grade school, and I’ve never bothered to actually look for one in a supermarket and check the box for a “Best Before” date. However, my friends insist that Twinkies not only have an indefinite shelf life, but that they are virtually indestructible. In fact, it’s rumoured that in the event of a global thermonuclear war, the only things remaining on Earth afterwards will be cockroaches and Twinkies.

It was from these unverified urban legends that I concocted my own unconventional retirement plan. Should the day ever arrive when Hostess stops selling Twinkies, I will be prepared. On that day, I will travel from store to store and buy up all of their remaining stock. I will then sit on this inventory while the rest of the world savours their final Twinkies. Then, I’ll wait a little longer, until the entire planet laments their loss in unison and longs plaintively for their cherished, non-perishable spongy treat. I’m not sure how long that will take, but it doesn’t matter; since Twinkies are supposedly inert, my inventory will always be fresh.

When our collective longing for Twinkies has crescendoed to a shuddering climax, phase two of my plan will commence. I will then start selling my Twinkies on eBay… slowly – one box at a time, or even one Twinkie at a time. Since the Twinkies will still be in pristine condition, my auction should trigger an unprecendented bidding frenzy from a hungry and nostalgic public. The Dutch tulip mania of the 1600s will pale in comparison to the global Twinkie mania that I will create singlehandedly!

I can’t estimate what price the Twinkies will command on eBay, but I’m confident that my investment will easily outperform the S&P 500, the Dow Jones Industrial Average, and the ten-year return of every mutual fund in existence. As the world’s only supplier of Twinkies (in perpetually mint condition), my inventory will become increasingly valuable as the years progress. While the first few boxes might be offered on eBay, I fully expect that museum curators will eventually contact me, and implore me to let them purchase a Twinkie for their collection.

I fantasized of a Twinkie empire so formidable, that it would elicit the following proclamation from investment guru Warren Buffett “My dear shareholders, I offer my heartfelt apologies to you. Bob saw what Charlie and I missed. We should have invested in Twinkies. The returns are just astronomical”. My Twinkie empire was going to be so pervasive, that it would even alter our lexicon. The classic motivational metaphor “dangling a carrot in front of someone”, would soon be replaced with “dangling a Twinkie” – since the incentive was clearly much more powerful and persuasive.

I had my cushy retirement planned to the last detail. I would be the world’s only supplier of Twinkies, which would soon become the most coveted commodity in history; all I had to do was wait. Then on Friday (November 16, 2012) when Hostess declared bankruptcy, everything started falling into place… that is, until this story from Business Week utterly destroyed my dreams of inestimable wealth.

As this article makes clear, Twinkies, unlike diamonds, don’t last forever; they actually have an expiry date, and it’s a miserable and heart-wrenching 25 days – which is impressive for a pastry, but not suitable for a long-term retirement-based investment product. Therefore, it is with a heavy heart that I must chastise myself for believing those urban Twinkie legends as I now fall back on my retirement “Plan B” – hard work.

Portfolio Feng Shui

I used to work at a brokerage firm that shall remain nameless. In mid-March, as the end of the first quarter was approaching, it became clear that some of the salesmen weren’t going to make their numbers. I didn’t realize this until I overheard one broker call a client and tell her that it was time for her portfolio’s annual “spring cleaning”.

Images of Mennonites and butter came to mind. I was not impressed – spring cleaning? I’m sorry, but that is the work of an abject beginner! Not only can this ploy be used only once a year, but I can’t imagine any investor – even novices – falling for something that transparent. If you want people to take your story seriously, then your chicanery has to be more robust than that; you need to put an astrological spin on it.

People often look skyward for guidance, and are determined to see patterns and seek meaning in the arrangement of the planets and the stars. Even though we are just a single person living on a planet of almost seven billion, we like to feel that we are an important variable in this grand cosmological equation. Mr. Spring Cleaning – try using this script instead: “Good morning ________. Our firm’s head of research contacted me just now, and told me to give you a call. After consulting a number of star charts, and listening to Dark Side Of The Moon while drinking copious quantities of absinthe, our research department is in unanimous agreement – it’s time for your portfolio’s Atumnal Equinox Realignment.”

The idea of having one’s stock portfolio in alignment with the Earth, the planets and even the universe, got me thinking… I decided that it was now time to push the envelope of Portfolio Management, to break new ground and to develop an innovative and forward-thinking way of managing your investments. I would therefore like to present to you: Portfolio Feng Shui !

Before you can begin, I want you to forget everything you’ve heard and read about asset allocation, alphas, betas, risk tolerance, portfolio breadth and cyclical industries. I hate to break it to you, but you’ve probably wasted years of your life studying all that nonsense. I will now tell you what is truly important; here are the tenets of Portfolio Feng Shui:

Alphabetical Balance: Examine the names of the companies you buy – the first letters of their stock symbols should be spread evenly across the alphabet, and not bunched together. Disregard any advice you’ve received about grouping your investments across industries – this alphabetical continuity is more important, and is your first step toward creating a perfectly balanced portfolio.

Symbols Establish the Mood: Your portfolio should include shares in companies whose stock symbols begin with M and A because “Mmmmm” and “Aaahhh” are sounds that we make when we’re happy. Conversely, don’t buy shares in any companies whose symbols begin with F – when we’re unhappy, we tend to say words that begin with F. If you’re not convinced, then think of all the poor souls who invested in Fannie May (FNMA) and Freddie Mac (FMCC). Coincidence? You be the judge!

Furniture Placement: When you trade online at home, you must be facing the trading floor of the market you are using. For example, if you live in Cleveland, and you’re buying something listed on the NYSE, then your desk must face east. If later in the day you decide to buy some options or futures, then you must first turn your desk around so that it faces west, toward the Chicago Mercantile Exchange. Merely rotating your computer monitor and sitting temporarily at the other side of your desk is not sufficient – part of the strength of Portfolio Feng Shui lies in the arrangement of the furniture.

The Circle Of Life: Before making your first trade, you must first contemplate the beauty, symmetry and balance of the circle. Resist the urge to read any books on fundamental or technical analysis – watch The Lion King instead and familiarize yourself with film’s theme: “The circle of life”. This will put you in the right frame of mind.

How Much To Buy Is As Easy As Pi: In order to become a Portfolio Feng Shui Master Trader, you must first embrace the irrational. As you know, pi is an irrational number that approximates the ratio of a circle’s circumference to its diameter, and a rough estimation of its value is 3.1415926. Entrenched in history and popular culture, only the Golden Ratio (which we will ignore) has evoked a greater level of mystery, wonder or romanticism than pi.

Obviously, I’m not going to be satisfied with the beauty and perfection of pi – like Icarus himself, I’m going to reach even higher. The trading units of Portfolio Feng Shui are based on pi squared: 3.1415926 x 3.1415926 = 9.8696044. This enchanted number will serve as our board lot. Buy 987 shares of a company instead of 1,000; 9870 shares instead of 10,000; 98,696 shares instead of 100,000 etc. If you plan to buy mutual funds, then the number of units must be one of the following quantities: 9.869, 98.696, 986.960, 9869.604 etc. It doesn’t matter which mutual fund you buy, as long as the number of units match the pi squared numerical sequence.

Technology Stocks – A Special Case: Technology stocks are exempt from the pi squared purchasing rule. Shares in any computer-related company should be bought in the following quantities: 64, 128, 256, 512, 1024, 2048 etc. These numbers are all powers of two. Computer CPUs use binary numbers, and your holdings in these quantities will ensure that your portfolio will resonate with the billions of bits of computer data that are contained in the software being developed by these companies, thus keeping your holdings and the company itself locked in a “digital harmonic convergence”. This binary harmony will create a positive feedback loop which will (in theory) send its energy back to the programmers, and inspire them to write even more innovative software, which in turn will increase the company’s earnings and the value of its shares. It’s clearly a win-win situation.

Portfolio Feng Shui – it’s not about your annual returns… it’s about balance, harmony and ultimately, your sense of peace and tranquility. Now if you’ll excuse me, I need to prepare some material for my upcoming high-intensity serenity boot camp. In the meantime – happy trading!