Profiting off of Regional Biases

Prior to tonight's Game 1 of the Warriors/Mavericks series, the contract for Dallas to win this series on tradesports.com was at 90%. On the surface, this makes plenty of sense. Dallas - the Number 1 seed in the West - finished with the best regular season record, winning 67 games and garnering plenty of national media coverage. Golden State - the lowly Number 8 seed - didn't earn a playoff berth until the final game of the regular season.

Yes, giving the Mavs a 90% chance of winning the series makes sense, given you live anywhere outside the Bay Area. The chances of the Warriors taking Game 1 in Dallas - and perhaps making a real contest out of this "gimme" series - are actually quite strong. Here are some key facts the New York based media has failed to mention to its national audience.

• Golden State has dominated Dallas, winning 6 of the last 7 regular season games. Ignore their last game, if you like. It's still what we refer to in sports as "ownage".


• This Warriors squad has only been playing together since March 5, when a healthy Baron Davis returned to a new line-up featuring Stephen Jackson and Al Harrington. The team went 16-5 to end the season, making GSW one of the hottest teams in the NBA.


• Warriors coach Don Nelson - already a master at his craft - tutored Dallas coach Avery Johnson not only as a coach, but also as a player. Advantage: Nellie.
  

Given these points and the fact that most fans are unaware of them, I smelled an inefficient market and decided to bet on a Warriors victory in Game 1. I surmised the best way to play this was to short the Series contract at 90%. I assumed this contract would give a potential loss of roughly 50% (contract moving to 95%), with a potential reward of 100% (contract moving to 80%), after the conclusion of Game 1.

With Game 1 now in the books as a 97-85 Golden State victory, I'm pleased to report an actual return of 94.5%. While I still believe the Warriors can give Dallas a very good run in this series, I closed all the contracts and took all the profits now. Betting with your heart is a dangerous game, so I'll enjoy the remainder of this series without money on the line.

Bottom Line: If you live outside of New York or Los Angeles, and are irritated by the obvious media biases given to these regions, don't complain about it. Profit from it. You are privy to information the masses are not exposed to, and this information gives you an advantage as a speculator.

Update, April 30: With the Warriors now ahead 3-1 and on the verge of making history, I'm obviously disappointed that I didn't keep some of those contracts open. Not just because I could close them now at a 500% return. Rather, the secret of the GSW is now out and this kind of opportunity to take money from the misinformed won't present itself again for a long while; the market has become more efficient. No complaints, though. This playoff series has been amazingly fun, and money has been made. Never complain about a profit. Or a great game.

Ruminating on the Canned Meat (Spam) Portfolio

April 12 marked the conclusion and "liquidation" of the oh-so-experimental Canned Meat (Spam) portfolio I created on Stockpickr. Two full months of tracking the results of stocks selected via unsolicited emails proved ample time to draw some salty conclusions. While most of the results were predictable, the experiment reinforced some basic assumptions and - not unlike a can of pressed and formed meat - offered a few surprises.

First, the obvious: Investing in - or rather, gambling on - these "companies" is a really poor idea. My diversified portfolio lost 45% in just 2 months. And you thought the 3% you lost on February 27th was bad.

Also obvious: Spam campaigns succeed in pumping the price of the stock - albeit temporarily. Apparently there are still enough foolish and unsophisticated "investors" out there who actually move upon these suggestions. This is frightening, especially when you consider that you share the roads with these people, walk past them in the aisles of the grocery store... perhaps you even let your kids play with theirs. I'll posit these folks are the same type of "investors" who are currently sitting on empty, unsellable condos in Fort Lauderdale and Las Vegas. Not savvy.

Not blatantly obvious, but makes perfect sense: Spam campaigns create temporary liquidity in names that are otherwise dry. Some of the names in my portfolio average a volume of just 100,000 shares traded per day, with most trading significantly less. At the height of the China Fruit (CHFR) campaign, daily volume peaked at 1.65 million shares. This is the crucial second piece necessary for perpetrators to make serious cash on these scams (the first being the artificial price spike). Hey, if you need to dump 750,000 shares, it helps if the volume is there. And as I found early in this observation, the combination of a price spike and high liquidity worked quite well for a major holder of China Fruit.

Now, as far as surprises go, this blew me away. One of the names (CBRP) broke even, while another (ACEN) finished up 47%. While CBRP is now down again, ACEN is up higher than it was when I liquidated. A quick glance at the volume chart suggests that another spam campaign was launched on or about April 5, although I never received any of the emails. The takeaway from this: while not statistically significant, one can casually infer that there is a 1-in-8 chance of making money in this arena. Maybe it's just me, but I'd rather take the 3:2 blackjack at the Tropicana.

The biggest surprise was what stopped happening midway through this project. The once steady flow of unsolicited stock suggestions completely dried up. Indeed, I received my last suggestion on March 9, roughly one month after I created the portfolio. Don't get me wrong. My Inbox is still inundated with crapmail. The difference is that now the spam is exclusively composed of invitations to indulge in life's finer pleasures, such as weight loss products, erectile dysfunction cures, pirated software, and fake designer watches. Could it be that the stock spammers got wind of my portfolio and took me off their list? I highly doubt it. But the stock spam is gone, which suits me just dandy.

Florida Gators

In honor of the Florida Gators' back to back NCAA basketball championships, I'm sharing some pics of actual Florida gators. The majority of the pics were taken at the Oasis Ranger Station on the Tamiami Trail (US 41). The gas station gator - the one wrapped around the post of the amusing Warning sign - is located at the Mobil Station on Alligator Alley (Interstate 75). Both locations are smack in the middle of the Everglades. These pics were not taken at a farm or zoo. This is the real deal. We took these pics on our recent trip to South Florida, March 16 - 19. View the full portfolio of gators here.