| Investment Strategy | Building a Business | Investments | Wall Street | Credit Default Swaps |
| 100 | 100 | 100 | 100 | 100 |
| 200 | 200 | 200 | 200 | 200 |
| 300 | 300 | 300 | 300 | 300 |
| 400 | 400 | 400 | 400 | 400 |
| 500 | 500 | 500 | 500 | 500 |
| Final Question | ||||
What was the name of the investment strategy that Charlie Ledly and Jamie Mai employed?
What was the name of the investment strategy that Charlie Ledly and Jamie Mai employed?
Event-driven investing
Generally explain event-driven investing.
Generally explain event-driven investing.
Event-driven investing is an investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event.
Was Charlie and Jamie's investment strategy guaranteed to always work? Why or why not?
Was Charlie and Jamie's investment strategy guaranteed to always work? Why or why not?
No, their investment strategy was a gamble that was sure to result in some losses and some successes.
Why were unsuccessful investments not a big deal in the investment strategy that Charlie and Jamie employed?
Why were unsuccessful investments not a big deal in the investment strategy that Charlie and Jamie employed?
The cost of the options for their unsuccessful investment were simply minute to the gains acquired in the other successful investments.
How did Ben Hocket explain the success of Charlie and Jamie's investment strategy?
How did Ben Hocket explain the success of Charlie and Jamie's investment strategy?
Ben believed that financial options were systematically mispriced, and the market often underestimated the likelihood of drastic moves in prices.
What was the name of the money management firm that Jamie Mai and Charlie Ledley started in 2003?
What was the name of the money management firm that Jamie Mai and Charlie Ledley started in 2003?
Cornwall Capital Management
What was the name of the company that served as the ISDA for Charlie and Jamie's business?
What was the name of the company that served as the ISDA for Charlie and Jamie's business?
Deutsche Bank
What was the "hunting license" Charlie and Jamie needed in order to deal directly with big businesses such as Goldman Sachs and Bear Stearns?
What was the "hunting license" Charlie and Jamie needed in order to deal directly with big businesses such as Goldman Sachs and Bear Stearns?
An ISDA
In what city did Charlie and Jamie start their company and where did they eventually move to?
In what city did Charlie and Jamie start their company and where did they eventually move to?
They initially started in Berkeley, California and later moved to New York City.
What was the starting amount of money for Charlie and Jamie's money management firm?
What was the starting amount of money for Charlie and Jamie's money management firm?
$110,000
What was the name of the company that Charlie and Jamie first invested in that resulted in the realization of their unique investment strategy?
What was the name of the company that Charlie and Jamie first invested in that resulted in the realization of their unique investment strategy?
Capital One Financial
Describe one instance in which Charlie and Jamie's investment strategy proved unsuccessful.
Describe one instance in which Charlie and Jamie's investment strategy proved unsuccessful.
Convinced that there was going to be a coup in Thailand, they bought absurdly cheap options in Thai currency. The coup occurred, but the market didn't budge.
OR
Charlie found a price discrepancy in the market for gasoline futures so he quickly bought one gas contract and sold another to make a seemingly riskless profit. He then discovered that one was unleaded gas and the other was diesel.
Who, in particular, did Charlie and Jamie buy the credit default swaps from?
Who, in particular, did Charlie and Jamie buy the credit default swaps from?
Greg Lippmann
Name or describe two of the three companies that Charlie and Jamie first had success with using their unique investment strategy.
Name or describe two of the three companies that Charlie and Jamie first had success with using their unique investment strategy.
Capital One
United Pan-European Cable (UPC)
A company that delivered oxygen tanks directly to sick people in their homes.
Why was $30 not the "right" price for shares of Capital One stock when Charlie and Jamie invested in the company?
Why was $30 not the "right" price for shares of Capital One stock when Charlie and Jamie invested in the company?
The company was either a fraud or it was honest. If it was a fraud, the stock was probably worth nothing. If it was not a fraud, the stock was worth around $60 per share.
Name three busniesses that could act as an ISDA for small investors like Charlie and Jamie?
Name three busniesses that could act as an ISDA for small investors like Charlie and Jamie?
Goldman Sachs
Deutsche Bank
Bear Stearns
Lehman Brothers
J.P. Morgan
UBS
Morgan Stanley
Merrill Lynch
What does a LEAP allow the buyer to do?
What does a LEAP allow the buyer to do?
It gives the buyer the right to buy a stock at a fixed price for a certain amount of time.
What was the primary error in the Black-Scholes option pricing model that Charlie and Jamie exploited in the Capital One investment?
What was the primary error in the Black-Scholes option pricing model that Charlie and Jamie exploited in the Capital One investment?
The Black-Scholes option pricing model assumed a normal, bell-shaped distribution for future stock prices. It did not account for scenarios in which stocks had a good chance of moving drastically in a short amount of time.
What does the acronym LEAP stand for? These are the derivative securities that Charlie and Jamie purchased in the Capital One investment.
What does the acronym LEAP stand for? These are the derivative securities that Charlie and Jamie purchased in the Capital One investment.
Long-Term Equity Anticipation Security
In the Black-Scholes option pricing model, what is the relationship between the length of the option and the validity of the results that Charlie and Jamie figured out?
In the Black-Scholes option pricing model, what is the relationship between the length of the option and the validity of the results that Charlie and Jamie figured out?
They realized that the longer the option, the more ridiculous the results generated by the model were.
What is the name of the man who played perhaps the most influential part in pitching the idea to buy credit default swaps on subprime mortgages?
What is the name of the man who played perhaps the most influential part in pitching the idea to buy credit default swaps on subprime mortgages?
Greg Lippmann
What does CDO stand for?
What does CDO stand for?
Collateralized Debt Obligation
What event would cause CDOs to collapse?
What event would cause CDOs to collapse?
If enough subprime loans deafulated, the CDOs would collapse.
Why did Charlie and Jamie buy credit default swaps on the double-A tranche of CDOs instead of the triple-B-rated bonds?
Why did Charlie and Jamie buy credit default swaps on the double-A tranche of CDOs instead of the triple-B-rated bonds?
They could pay 0.5% a year for insurance on the double-A-rated slice of the CDO instead of 2% a year on the triple-B-rated bonds.
What two specific traits were Charlie and Jamie looking for in CDOs?
What two specific traits were Charlie and Jamie looking for in CDOs?
1. CDOs that contained the highest percentage of bonds backed by recent subprime mortgage loans.
2. CDOs that contained the highest percentage of other CDOs.
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