"Tomorrow's Paper Today"

I heard a really great quote from the only guy on 'Fast Money' who I can actually stand to hear. Not that I've ever voluntarily watched it for more than about 5 minutes. But occasionally, I am subjected to it in a locker room for longer than that.

John Najarian (?) is an options guru. He has a recurring spot as guest options analyst on CNBC's morning program, Squawkbox. He is eminently sensible, modest, and funny. I believe he also appears on Fast Money after the market closes.

This morning, he appeared to discuss the probably-illegal uptick in 5-day duration December call options in Trane, which was involved in merger activity yesterday. He and Jacob Frenkel, a one-time securities cop, opined on how the pattern of options trading last Tuesday through Thursday almost certainly will lead to charges of insider trading.

Ironically, though, if one were simply observing that options volume, and deduced that someone else knew something, then one could legally buy Trane equity or call options and benefit from any subsequent activity which sent the stock higher, per the options behavior implications.

Thus, Najarian's quote. When Joe Kernen asked about the unusual activity, John replied that it looked like someone thought they had

"tomorrow's paper today."

In essence, my own equity portfolio strategy behaves as if I have a paper dated six months from now. That's the beauty of focusing on consistently superior company performance. By using that quality of a company's performance, it is its own reward. And, truly, in a portfolio sense, lets one effectively read a six-month future paper today.

By contrast, Legg Mason's vaunted Bill Miller's equity portfolio was at -6% , as reported in this morning's Wall Street Journal. He's the guy whose S&P500-beating streak ended last December, after something like 14 consecutive years. This morning, live, my equity portfolio has a 28.5% return, gross, for the year. The S&P is at roughly 1.5%.

Early this year, my partner and I still were working on the premise that we would raise funding for my equity portfolio strategy by establishing it as superior when pitted against someone held in high regard, like Miller. In addition to this, he had me writing chapters for a book we would publish via Google, online, describing some of the research and theories which underpin my approach to equity portfolio investing.

However, with my partner's realization that call options might be a more efficient and effective manner in which to use my equity selection approach, all that became moot, for now. Since we have moved to long-dated call options portfolios, with commensurately much higher, unleveraged returns, comparisons with Miller's equity results are no longer valid, nor necessary. The corresponding fall in required investment capital meant that we no longer have to actively seek many investors in order to profit sufficiently from my applied equity research.

My partner's July options portfolio, alone, has returned 31% to date. Given the half-year duration of the portfolio, and, thus, its use of the capital twice, a conservative estimate of that capital's full year return would be approximately 69%, or the July-to-date return, plus the current average of outstanding portfolios, 37.5%, on a capital-day-weighted-average basis.

Coming on the heels of the post about sell-side analysts, I have to say that, even with the prior six weeks of rocky market and portfolio performances, I'm quite pleased with the past, and evolving, long term performance of our equity and options portfolio strategies.

They very much seem to be allowing us to read future editions of papers like the Wall Street Journals today.