This commentary originally appeared at 8:43 a.m. EDT on March 26 on Real Money Pro -- for access to all of legendary hedge fund manager Doug Kass's strategies and commentaries, click here.
"What we have learned from history is that we have not learned from history."
-- Benjamin Disraeli
In January 2004, Boca Biff made his debut in my diary.
No character has elicited such a response from so many subscribers and contributors.
Over the past 15 years, Boca Biff has embodied the mentality of the daytrading community. As such, Boca Biff has become a better market barometer than the put/call ratio, Investors Intelligence, mutual fund/hedge fund exposures or any other sentiment indicator. And the Boca Biff Indicator, a measure of the very embodiment of speculation, as it does through Mr. Market's speculative bouts, is again signaling red.
But let's begin by framing Boca Biff's speculative trading history.
1998-2000: The Daytrading Orgy
It all started with that once-in-a-generation orgy of speculation in the late 1990s as a new class of investors emerged on the market's stage -- namely, daytraders.
The 1998-2000 timeframe held a historic precedent that took daytrading to a new art form. The bubble began to burst in the first half of 2000 -- almost, it seemed, as quickly as it surfaced. In time, the Nasdaq fell by about 75% from its highs.
Eight years ago, I introduced readers to the true story about my favorite daytrader, Biff Marksman. (His name has been changed to Boca Biff in order to protect his anonymity and in order to protect our innocent Real Money subscribers from him.)
Biff is an old acquaintance who operates out of Boca Raton, Florida, a locale that former SEC Commissioner Breeden once described as a town where there are more sharks inland than in the waters surrounding it. The city's name comes from boca de ratones, a Spanish term meaning "rat's mouth," that appeared on early maps and referred to hidden, sharp-pointed rocks that gnawed or fretted ships' cables. It is a town where the Ferraris, mansions and over-the-top conspicuous consumption are known to sometimes run wild.
Boca Raton has always been the capital of the daytrading community and ground zero for brokerage boiler rooms that inhabit the resort area.
It is also Biff's, the ultimate daytrader's, home.
Biff Makes $15 million in 1998-1999 Then Loses $20 Million in 2000
As I mentioned previously, I first wrote about Biff in 2004.
I hadn't heard from him Biff since 2000, as I thought that he was cured from the leveraged daytrading influence that took the U.S. and the markets by storm in the mid- to late1990s, contributing to a mushrooming in margin debt, the ultimate speculative rise in our markets and the eventual -- or should I say inevitable? -- piercing of that bubble. Of the daytraders, there were few that played as intensely as my friend Biff.
Biff's first plunge into daytrading was in early 1996 with Iomega. Biff became a certified Iomegean, as Iomega became the "it" stock back then with a market capitalization that peaked at $6 billion as investors believed it was the future of digital storage. The shares peaked out at over $100 a share in 1996 and sold down to $2 a share by January 2000. Biff didn't play hard at that time, but he clearly got the speculative fever.
Unlike most daytraders in the late 1990s, Biff had a real job -- he owned a high-end window and door company -- but as stocks mounted their speculative (but short-lived) ascent in 1998, his primary gig took a back seat to trading stocks. Biff operated out of his den office and turned about $500,000 into almost $15 million in a matter of 24 months by daytrading the most speculative stocks extant.
During that period (1998-2000), I spoke to Biff about 20 times a day. In most of our conversations, Biff ridiculed me for not getting on the bandwagon and trading the most speculative four-symbol stocks on the Nasdaq. Our conversations were one-way, as Biff did the talking, or, in most cases, the gloating, as his disinterest in the companies' business and models was legion.
Coherence of investment thought and clarity of expression were not Biff's forte.
After Biff made the first $10 million daytrading Internet stocks, I suggested that, after all our conversations, he had absolutely no knowledge of his trades/investments and that he should stop trading and book his profits and place them into municipal bonds. His response to my recommendation is not suitable for these pages, and off on his daytrading merry way he went, adding another $5 million or so of profits into late 1999-early 2000. His original trades of 5,000-10,000 shares in size quickly turned into investments of 150,000-200,000 shares in some of the most speculative stocks extant.
His investment vocabulary and stock holdings included such beauties as eToys, Pets.com, e.Digital, theGlobe.com, InfoSpace (INSP), Exodus and Xcelera.com, a group of companies that quickly disappeared from sight and caused a generation of daytraders and speculators to return to their original professions.
Biff lost not only his $15 million of profits but an additional $5 million, leaving him in a deep financial hole. He also had a tax problem as he received extensions on his tax returns because he wanted to defer paying taxes on his short-term gains in order to "have more capital to play with."
Humbled and broken, he went back to his old day job on a full-time basis -- that is, after selling a minority interest in his company to a well-to-do relative in order to raise funds for federal taxes he owed.
His cumulative loss since1998 now stood at $5 million (before federal tax penalties and interest charges).
From Iomega to Taser: Biff Repeats His Mistake in 2004
In 2004, I received a telephone call from Biff, as if nothing had happened and as if we had maintained a dialogue over the previous four years. (We had not!) Biff was back daytrading in force, seduced back by the emerging speculative forces and the rewards he reaped from them.
The emergence of "worldwide liquidity" and low interest rates were the watchwords of his stock market faith.
Back was Biff, touting those four- and five-symbol stocks sans business models and purpose -- except possibly to briefly enrich the daytraders and reward the insiders who were selling their holdings to the daytraders. At that time, in my numerous conversations with Biff, it was almost as if he believed that the 1990s were a dress rehearsal for the mid-2000s.
In 2004, his stock du jour, Taser (TASR), replaced his infatuation with his original spec venture in Iomega in 1996 and then the Internet stocks back in 1999. (Most of his holdings back then went to zero.) He more doubled his money in Taser, which climbed from $15 to $35 in 2004 only to fall back to $5 a share later that year.
From Taser he parlayed his profits into a package of homeland security stocks. Here is what I wrote in 2004:
[I] just picked up the telephone to hear the shrieking, hysterical voice of Boca Biff, who is all over the homeland security rage.... he stocks -- IPIX, Mikron Infrared and Mace Security International -- all sounded like he was bellowing about his speculative choices of yesteryear.
Unfortunately, the outcome was the same. The air fell out of Biff's speculative homeland security universe as the year came to a close. Very soon thereafter, all of these plays disappeared from the face of the stock pages.
Biff made a slight recovery in Google's (GOOG) shares after the homeland security debacle, but forays into crude futures, Overstock.com's (OSTK) shares and a large investment made in Pulte Homes (PHM) and some other "homewreckers" were his undoing. By the end of 2005, he was wiped out again.
His cumulative loss since 1998 now stood at about $15 million.
2006: The Return of Boca Biff (Part Trois)
By December 2006, an unrepentant Boca Biff returned to the markets in force for the third time in nearly a decade.
During that time, I wrote on TheStreet.com:
He's back! Last night, here I was, minding my own business on the cold linoleum floor, drinking cheap tequila, when the telephone rang. It was Boca Biff!
Boca Biff has been licking his wounds....
He promised his family, which apparently could no longer tolerate the ups and downs, that he wouldn't again venture into the stock market. Nor would he speculate in homes and land. After casually responding to one of those spam emails to refinance his home, however, from an eager mortgage broker that was about to go out of business -- he's got a beautiful old Mizner-style home in Boca -- he found himself very soon thereafter (in early 2006) with about $1.5 million of loose change.
His wife forced him to give the proceeds of the refinancing cash out to a mutual friend who dutifully put these monies in a money market account and far from the hands of Boca Biff. When the market bottomed in the spring, Baron Von Broker turned bullish and encouraged Boca Biff to buy oil and gold stocks (two sectors that he correctly felt had promise). True to his promise to his wife, Boca Biff demurred and kept his monies in the money market account.
As Boca Biff related in our telephone conversation last night, he watched and watched the market's unrelenting rise through the summer and into the fall until he couldn't take it anymore and finally made the plunge last week -- on margin! Stated simply, Boca Biff is trying to make back his accumulated $20 million-plus -- this is the truth! -- by purchasing a package of out-of-the-money calls on a group of high-beta stocks that recently have made a 52-week high, including Apple Computer (AAPL), Goldman Sachs (GS), Merrill Lynch, Google, First Marblehead (FMD), Fairfax Financial, Research In Motion (RIMM), Allegheny Technologies (ATI), U.S. Steel (X), Baidu.com (BIDU) and Las Vegas Sands (LVS).
He tells me the notional value of his calls (if exercised) exceeds $30 million! When asked why now, Boca simply said, "Don't be a moron, Dougie: It's global liquidity. Don't you get it?" And then he actually said to me that he heard from his driver that General Electric (GE) will receive a bid by a private equity sometime in the next six months.
I should add that Boca Biff transferred all his money from the money market fund from Baron Von Broker (who being a conservative and intelligent fiduciary, refused to accept Buff's aggressive strategy) and purchased the call positions from a newly formed, Boca Raton, Florida-based brokerage, Penny, Shark & Oakmont.
I should also add that Boca Biff is currently being divorced by his wife.
While this venture back into stocks (and call options) proved profitable, he recaptured only about one fifth of his losses as his capital base had been depleted and limited his exposure.
Fortunately, his window and door business collapsed a few months before the Great Decession of 2008-2009 became a reality, and with that warning sign, Biff cashed out well before the collapse in the U.S. stock market.
His cumulative loss since 1998 now stood at about $11.5 million.
After the 2009 Generational Bottom: Boca Biff Returns (Part Quatre)
With more lives than an alley cat, Biff, the ultimate plunger and that paragon of speculation, was back, resurfacing in the early winter of 2009 as the markets rallied off of the generation bottom in March and began to stabilize.
Biff and I hadn't spoken in a while; I think he was embarrassed to call me. He had been licking his wounds, which included unprofitable forays in the stock market, large losses from speculating on homes in South Florida, a collapse in his window and door business and, after all of this, a failed marriage.
As Boca Biff related in a telephone conversation with me, he got remarried in 2008 to a woman who had received a reasonably large divorce settlement. Biff went on to say that he watched and watched the market's unrelenting rise through the summer and into the fall until (again) he couldn't take it anymore and finally made the plunge last week -- (again) on margin.
Boca Biff was back in the game.
I asked, "Why now?"
He responded, "Don't be a moron, Dougie. It's global liquidity. Don't you get it? Moreover, I am getting 11 basis points currently in my cash reserves at my brokerage account with Baron Von Broker." He went on. "Importantly, I have remarried, and my new wife not only comes with some money but she has no clue regarding my investing mistakes of the past. I managed to keep my Mizner home in Boca. She loves it here, and she adores me."
His favorite stock? American International Group (AIG).
"Why?" I asked.
"Are you nuts?" he replied. "I heard from my new brokerage firm, Kennedy, Fitzpatrick and Gould [a Boca Raton-based brokerage named after the first three commissioners of the SEC] that AIG has normalized earnings power of $40 a share. And FMG (my brokers) tell me the government will be forced by Hank Greenberg (who is coming back to the Board of Directors) to help renegotiate their debt with the company."
"What qualifies them to make that analysis?" I asked.
"I'll tell you what, dope. Two of the guys still have their Ferraris, so they've gotta be smart. And they have tripled my accountant's brokerage account with them in the last three months after buying the private mortgage insurers, PMI Group (PMI) and MGIC Investment (MTG). That's why! Oh, they had been out of business until seven months ago; they had a little problem with the authorities and were barred from doing brokerage business for a couple of years, so they are hungry and aggressive and need to make their new clients some ca-ching. I forgot to tell you that they are so confident that they will make me money that they didn't even charge me commissions for the trades; they said all they wanted was 10% of the profits."
I told Boca that was illegal. His response? "Whatever, loser. They've gotta live."
"Fannie Mae (FNM) and Freddie Mac (FRE) are going into double digits on the heels of a 'V' recovery in housing. And they have huge short positions. The government is saving everybody. You can't lose."
"Yeah," said Boca Biff, "but my brokers told me they would break my legs if I mentioned them. They haven't finished buying yet."
"Come on, Biff," I said, "Give at least one name up."
"There's one, Kennedy bought me 4 million shares at $2.12 last week. He has a lot of confidence in it. I think he put over three-quarters of my account in it. It's run by Kennedy's niece. She's young (I think 28 or 29), but she was a really big mortgage broker in Delray Beach in the day, and the company she runs is now buying subprime mortgages from a bunch of banks in South Florida. After the housing markets blew up, she went to Nova Southeastern University in Ft. Lauderdale and got an associates' degree in real estate in May. She's a smart one, I tell you."
"What's the name of the company and the symbol?" I asked.
"It's called Boca Industries, I don't know the symbol. It's on the pink sheets or something. I can only get a quote from Kennedy, my broker. I think his firm owns most of the float, so he has to know something."
Suffice to say, Boca Industries was a total fraud and soon went belly up, and it turns out that Biff was buying his brokers' stock position that they had received to promote the company. Biff was forced to liquidate his other stock holdings after once again blowing up, and Kennedy and his broker partners along with the management of Boca Industries all went to jail as they were convicted of a three-year pump-and-dump scheme.
Biff lost another $8.5 million on Boca Industries plus another $5.5 million in the other trades/investments. His aggregate losses in daytrading and investing over the course of the ten-year period were back up to nearly $25 million.
Boca Biff Finally Makes a Score
I hadn't heard from Biff again until late 2010. I thought that perhaps his last unprofitable foray from 2004 to 2009 (and the credit crisis that stamped out his profits) coupled with a near-$9-million loss from an investment in Boca Industries that he purchased in late 2009 were enough to rid him of his market jones.
After yet another divorce, however, Boca Biff, who obviously has a way with the opposite sex, married the young daughter of a well-known New York City real estate magnate who owns a professional sports team in Miami.
In [another telephone] conversation, Biff told me that he has been purchasing out-of-the-money calls in his new wife's name (and with his wife's money) on only two stocks: Netflix (NFLX) and Apple. For a total investment of "only" $4 million, Boca Biff tells me he has calculated that when the securities rise by another 50%, he will recoup his entire losses of the last decade back.
When I questioned the wisdom of putting all his eggs into two baskets, he laughed at me.
"Moron, these stocks go up every day whether the market rises or falls. An idiot can see that these stocks will go up another 50% in the next few months. And maybe I am too conservative; they could double. Jim Cramer hasn't even put the symbols on his knuckles the way he used to do with Google on his 'Mad Money' show! Just you wait for that!"
"How do you know for sure that they will continue to rise, Biff? Isn't holding out-of-the-money calls on only two stocks very risky?" I asked.
"My stock broker is my new stepson. Do you think he would hurt his mother? Dougie, don't you read Warren Buffett's rules of investing? He says that wide diversification is only required when investors do not understand what they are doing. I know what I am doing! Anyway, how else can I get my money back?"
He advised me to tell you that he is, "laughing all the way to the bank with his Netflix and Apple out-of-the-money calls." With his profits he bought Amazon (AMZN) out-of-the-money calls and made some more money.
On a roll, Boca Biff was getting more and more cocky.
He suggested that if I have a blog, then his recent "picks" should entitle him to his own blog next to Jim "El Capitan" Cramer's.
I told him that it was a good idea and that it should be labeled, "Over the Cliff With Biff."
He hung up on me!
Biff made back nearly $11 million in the calls -- he would have made more but a health scare forced him to cash out (profitably).
His cumulative loss since 1998 now stood at $14 million.
Biffy the Angel
Let's fast forward to the present and catch up with Boca Biff as I did last week as his guest at a lavish dinner at Trump's Mar-a-Lago Club.
Biff and The Donald are new BFFs and Biff is a new member of Mar-a-Lago; they became friendly when Biff's company provided the 145 doors and windows in a renovation of Trump's palatial estate.
Our conversation went something like this:
"My cancer is licked now, but it has been a rough road," Biff said. "Between the hospital visits and a debt restructuring at my window and door business [he had expanded too aggressively and couldn't withstand the South Florida construction drop], I had no time for the markets, which kind of sucked.
"But my new stepson is this genius who attended the California Institute of Technology. He and his pals started some kind of company -- I am still not sure what it does -- that I invested only $400,000 in. They sold it to Google late last year and I cleared $9 million! I put $1.5 million into three new Silicon Valley startups with my stepson. (He is running one of them.)
"I am a Silicon Valley angel now. I go out to the West Coast twice a month, and I am part of a group that listens to these 25-year-olds talk about their startups. They call me Biffy the Angel.
"And I am now back in the game, Dougie."
"Please don't tell me you are speculating in pinksheet tech stocks now or in the latest craze in the stock market." I implored.
"What, do you think I am an idiot? This venture stuff is 'free money.' It's hard to lose; the appetite for these companies is growing exponentially!
"There is one and only one stock I want to invest in: Apple! But this damn stock is a money burner at almost $600 a share, so I have been buying these weekly call options. I trade thousands of 'em every day. A lot of action. The premium hurts and I haven't made any money yet, but I am feeling more confident in this play than any other I have done in the last few years. I know 'cause I even read Walter Isaacson's biography on Steve Jobs.
"Well, maybe there are two stocks to invest in. To be conservative and diversify a bit, I am buying a few thousand out-of-the-money Priceline (PCLN) calls."
You just can't make this stuff up.
Biff's cumulative loss is now down to only $5 million -- after losses of about $25 million three years ago.