a) Never fall in love with your investments and b) Never make the same mistake twice. The historically simple and basic rules of stock market investing. Don't get attached to your stocks. You're rarely the first to think about it and you certainly won't be the last. When things go south, don't get left on the hook, cut your losses and move on without any emotion or woe. Thus learning from said mistake and never to repeat it. Given those two rules that form the bedrock of any successful and diverse portfolio, Cleveland is about to experience another crash; only this time it won't be fueled by the housing market, regardless of its links to Quicken Loans.
This past summer, the Cavaliers invested heavily, to the tune of $110,000,000 in a stock they thought they loved called Kevin (Ticker KVN). The trader at the time (David Griffin) and the broker (David Blatt), both considered it to be on the upswing and they could get a bulk market share for a reasonable rate. One which included a package of futures (Andrew Wiggins and a draft pick) and a past failed investment quickly heading for the pink sheets (Anthony Bennett). Well done all concerned. Shifting risky potential futures and a penny stock for something you can build a portfolio around.
Trouble was, they didn't see the change coming, which in basketball terms is akin the Big Long if you will. Not the market altering move of LeBron James but the knock on effect of that which actually saw the broker get the old heave ho. Just ask Jordan (Belfort) about Wall Street's premise of last in, first out.
The irony comes when you study how the broker was hired in the first place. Originally brought on board to manage a portfolio of exciting futures commodities with a mid to long-term low risk threshold. He now faced high demands from the trader to realize returns now, putting his strategy for success and growth (the Princeton Offense) into a high risk, short-term flip with a marginal chance for success. Sensing this and with the broker being new to the US stock market (despite several years of success in the international markets) the trader hired a rather expensive, young personal assistant (Tyronn Lue) for the broker. With the idea of helping the broker navigate the peaks and troughs of Bull and Bear markets, it seemed like a perfect fit.
You know the rest, of how the PA fell in love with the leading stock and how that ended with the initial investment in the broker ($20,000,000) being written off half way through the financial year as the market began to turn. The trader then doubled down on the portfolio (team) now not being able to use a poor broker performance as a reason for their under-performance. Clever little trader.
So that follows the rules, right? Never fall in love with investments or make the same mistake twice. Again, well done to all concerned. To celebrate, let's all go out for a well-deserved night of debauchery with escorts and champagne. After all, nothing exceeds like excess. But can you do all that in a rock-n-roll town like Cleveland? Surely the trader and new broker can't sit smugly at their desk with a similar situation brewing in front of them. Surely to ignore that elephant in the room with all their market knowledge would be working along a parallel to the actual market's mistakes of 2008.
Remember kids. Don't make the same mistake twice or fall in love with players, I mean investments. Guess what? Just as human history always repeats itself in an alarmingly cyclical nature, the broker and trader are running headlong towards a crash. For exactly the same reasons that put both of them there.
In the summer of 2013 they loved the Kevin Love (KVN) stock and invested to the tune of $110M while forecasting a long and gradually improving return. Trouble was, KVN under-performed at key times and that allowed a replacement product to take his market share late last spring. So enamored was the trader with the new stock (Tristan Thompson) after a brief hold out, he took a similar position in the like for like stock ($82,000,000). Now diversification is key and if you're left holding two similar stocks in your portfolio, there's not the room to develop both equally. Especially if your brokers on the floor are pushing a certain defensive approach to their clients which makes you not love KVN quite as much as TT.
But remember the initial reasoning for the firing of the international broker -- so the portfolio wouldn't have the crutch to lean on for delivering below market returns. Especially when the portfolio was valued higher than any other in the market (Salary for 2015/16 season is $109,392,763. A whopping 10% higher than the second place team, OKC). Well, as luck and human nature would have it, just as you solve one problem, another pops right up alongside. The very same reason, only this time it's for failure in the faltering KVN stock that can only perform against lesser penny stocks and not those upper echelon industry leaders.
Ironically a smaller brokerage in Minnesota figured this out before they traded their entire position of KVN to Cleveland. They had KVN positioned next to another lumbering big international stock from Montenegro that was also slow on its feet, PEK (Nikola Pekovic). Understanding that their previous time and money invested in KVN now meant very little. They gambled away their past and present for some futures that had the growth potential to exceed KVN. Everyone in the market loves excess, remember.
The Cleveland trader then made the very same mistake with his KVN stock by trading for a Russian commodity ( Timofey Mozgov) to pair with KVN, thinking it would offset his defensive liabilities. Failing that, he has the King of Clubs in his hand, LBJ (LeBron James), so that will make anything work out, right? Wrong. LBJ is the King of the Court, not the Court's Magician. Which led us full circle back to the need for the TT stock, which could hold out for a much higher value than its market rate. What a calamity of financial mistakes by the trader who is looking more and more like the Court Jester.
Now Cleveland's trader is having to learn the third most important rule of investing. Just because something is expensive, doesn't mean it's a good fit for you. See?
I mean come on Mike. A three button suit. Really? That's so 2008. Do they not pay you enough on ESPN or MSG? Two buttons, Mike. Two! Are there turn ups down there on your trousers? I bet there are... We digress.
So how to sell on a faltering stock with a big price tag in the middle of the financial year with the clock ticking rapidly down to 4:00pm when trading closes (February 18th trade deadline? Oh, you got that one. You're getting the hang of this.)? Just like those toxic subprime disasters of the crash, simply package them into something more attractive (a draft pick) and send them to someone who cannot resist making an investment on a stock whose peak of performance was a few years prior. Oh, and make sure you get something tangible in return. Like cash or a can't-fail asset at the top of their game.
Ding! Ding! Ding! We have a winner. Look west young man and you'll find a trader/broker simply in Love with all things 2008. Having invested heavily to back up his portfolio since he took charge of his client's portfolio, LA's surprising power broker is the new Stratton Oakmont. Flush from just landing the elephant (Steve Ballmer), the so called Doctor of brokerage spent a fair chunk of his client's money on sinking stocks of yesteryear like JSH (Josh Smith) LNC (Lance Stephenson) and HDO (Hedo Turkoglu). Not to mention his family insider trading that landed him his very own Blue Star Airline (Austin Rivers). There’s no way he won’t bite on Cleveland's entire position of KVN.
But what can be got in return? Let's see. Doc had his own brush with the SEC this summer over some insider trading which led to JRDN (DeAndre Jordan) reneging on a deal with a Texan Firm. Such a trade in KVN would allow JRDN the space it needs to grow and dominate the interior markets. All while covering up KVN's liabilities which has been exposed when partnered with the current lumbering Eastern Bloc stock.
But you rarely get value in return when trading blue chip stocks for those traded over the counter. Just witness the Suns’ buying low on CHUK (Charles Barkley) in 1992 for spare parts like Andrew Lang, Tim Perry and recently fired broker, Jeff Hornacek. A team can almost be forgiven for losing out when trading established stocks for futures. The deals for DIRK, KOBE and PIPN by the Bucks, Hornets and Sonics respectively aren’t dealing with current commodities. So any trade will have to be like for like. No easy task even for the best in the business.
The kicker is to not make the same mistake as your trade partner and have twice the coverage in the same sector. Therefore, the Doc will have to trade away his own previously prized stock, GRFN (Blake Griffin). Although as luck would have it, GRFN has had some bad press from a quarterly report of late and could do with a change of scenery to re-energize its shareholders. Granted some of GRFN's other investors such as KIA (that's KRX in stock ticker terms, but you get the gist) wouldn't be happy with a move to a smaller market, but needs must at times like this.
GRFN would also work much better under the guidance of Cleveland's new broker whose style is more suited to the face pace of GRFN. As if by magic, the market shares of both stocks fit too ($20M this year). So let's do the deal. Shock the world. Make headlines for all the right reasons (for once).
Sometimes traders see the future before anyone else. Sometimes they need some inside information. Make the trade, Cleveland and LA. Taking a gamble might fill any big short in your portfolio and lead to the biggest of prizes. And we're not talking best picture here.
So go the whole HOG (Harley Davidson) on a COOL (Majesco Entertainment) swap. It's guaranteed to be more BOOM (Dynamic Materials) than bust and create a market wide FIZZ (National Beverage). The new acquisitions will SLOT (Anchor Gaming) into their new portfolios and instantly turn their situation from UGLY (Ugly Duckling Corp) to SEXI (Systems of Excellence Inc) without the pump and dump scandal of the latter. Regardless, the NBA will LUV (Southwest Airlines) you for it. Even if the SEC doesn't, and we don't mean the Southeast Conference.