Books by successful traders and investors seem to be eagerly consumed, and with a title like Laughing at Wall Street: How I Beat the Pros at Investing (by Reading Tabloids, Shopping at the Mall, and Connecting on Facebook) and How You Can, Too, I wouldn’t be surprised if this one by Chris Camillo is as well. Camillo’s claim to fame is running $20,000 up to $2 million in three years trading the stock market. The book describes his methodology for doing so.
It should be stated that the author’s approach to the markets is not dissimilar to the one suggested by Peter Lynch in One Up On Wall Street many years ago. Lynch, who was the wildly successful manager of Fidelity’s Magellan fund, suggested using what you know to invest in the stock market. Camillo takes the same approach, though brings modern developments like Facebook and online forums into the discussion. The book does a good job of describing the thought process which needs to be at work and how one needs to go about things.
The major wrinkle the author introduces here is the use of options. This is where we really go from this being an “investing” strategy based on identifying mis-valued stocks to a “trading” one which employs leverage, albeit a fairly simple one based strictly on plain vanilla long call and put positions. Of course its takes considerable aggression to increase an account 100-fold in three years, especially when working on a valuation type basis where positions aren’t entered frequently and take time to make the big moves. This is no day or swing trading strategy. The author looks for the moves to take 6-9 months or longer to unfold.
The aggression goes beyond just using options, though. Camillo takes on position sizes which would leave most traders in a cold sweat – like putting half his account in a single option. His doing so, however, is rooted in the way he funds and views his trading account. It is truly risk capital only, totally separate from his long-term investing funds. His concept of OPM is one worth thinking about for many new, low-capitalization traders. I venture to say, though, that even in this case it takes a certain mentality to be able to risk the loss of half one’s account in one single trade.
My biggest gripe about the book was the author’s constant sniping at Wall Street professionals throughout the book (he also tears into both technical and fundamental analysis, though his strategy would clearly be classified as the latter). The point was made plain enough early on that individuals can take advantage of things overlooked by the pros, with which I fully agree. There was no need for continued pot shots through the rest of the text.
The other issue I had was the failure to include a discussion of the impact of volatility on option prices. I’m on the side of those who don’t think options trading needs to be nearly as complicated as some tend to want to make it, but those thinking to trade them should understand the volatility influence. Camillo discusses intrinsic value and time value, but in his description the latter includes volatility. It could be said, though, that given the length of hold period and the types of moves he’s after, it’s not really a major issue.
Those two complaints aside, I do think Laughing at Wall Street is a good read. It provides support for the ability of individuals to do well in the markets and offers up an interesting concept in the author’s concept of Other People’s Money (OPM). The strategy requires work and effort, and perhaps the risk-taking aspect would need to be adjusted to individual tolerances, but overall the approach is a very reasonable one.
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