Jim Gobetz: The Former Merrill Lynch Finds His Haven

When I first saw @aiki14 and his long beard twitter icon pop up on Stocktwits a few months ago, I read it alki14, believing his nickname somehow had to do with alcoholics.  Since then, not only has he debunked my illiteracy, he has built a conspicuous presence in the investing community that can’t go unnoticed.

aiki14 has  ~1900 twitter followers (as of July ‘09).  aiki14 has been selected as recommended twitters on Stocktwits.  aiki14 has made whopping 7000 content packed, value adding tweets that helped various investors following him.  Hell aiki14 even got interviewed by Howard Lindzon for Stocktwits TV.

So who the hell is aiki14?  Well, I present you Jim Gobetz, the man behind @aiki14 and the former Merill Lynch who now manages a hedge fund.

“So what is your background? You used to work for Merrill. You actively trade everyday.  How did it all get started?”

I Started out with investments in Real Estate, flipping residential properties. I am pretty handy so I could buy the worst place in a good neighborhood and put some sweat equity in and cash out a little on the sale. Eventually my wife and I decided to look at vacation rental properties, where we could buy a place we liked and that would generate a positive cash flow during the times we were not there. We chose beach front properties with in place management and maintenance in places we like to spend our free time. We Love Maui so we began there, and have added some properties in other places we like.

When I was just out of high school a friend was working for a brokerage and got me started in mutual funds. As the online investment and trading platforms became more robust I became more interested in trading for myself rather than let mutual fund managers run things for me.

As a big believer in education before putting capital at risk, I looked into obtaining my series 7. Through a series of lucky breaks and a little hard selling, I was hired by Merrill to work in their brokerage division. I learned a lot there and made some terrific contacts, but my interest is not in selling, it is in trading and investing. When my superiors insisted I partner up with a private banking group within the firm I felt that was a good time to move on and become an independent.

I began work on a partnership which was to be a typical long short equity hedge fund. When the other party to the partnership elected to leave, I formed The Wallingford Trust, which is a provider of Family Office services. We have an equity hedge fund inside the Trust, and I run the day to day investments of that fund as well as set the investment strategy of the trust.

My strategy for trading (as opposed to investing) is a pretty simple methodology, I look for a high beta stock or ETF that has enough liquidity to move in and out of positions rapidly and then use candles, stochastics, and volume for entry and exits, and money management based on risk assessment and confidence to allocate position sizes.Can’t say it’s the best, only that it’s been working for me.

I don’t know that I have an edge in any sense other than that I love this stuff, and it has never seemed like work to me. I find the whole process of trading and investing, and all the sociology and psychology that goes with it, absolutely fascinating. I think that allows me to put in the time and due diligence necessary without it seeming like any effort at all.

I am grateful that the Stocktwits folks have seen fit to include me in the recommended list, and I am honored that Howard chose to invite me to be interviewed. You will have to ask them as to what went into that decision. I hope it’s because I have assembled a fair body of knowledge and that the fun I am having in this game and in sharing that knowledge comes across in some fashion.

Stocktwits has helped in a couple ways. Most obviously is the way it functions as a screener for investment ideas. When someone tweets a stock or idea, they have done some thinking about it and in some cases it moves me to investigate for myself the viability of the idea for my portfolio. There are some pretty sharp folks here who are very generous in this respect and I have traded things that were mentioned here that I may not have found otherwise.

Another way it’s helped me, which is less obvious, is that when I have put an idea out into the stream it gets attacked by some of the same sharp folks. One of the hardest things about trading is that one tends to only look for things that support ones position, and this can lead to overconfidence. I want to take the attacks on, because if I can’t defend my position against them, or I didn’t see the negative in the first place, I know I need to rethink the position.

I hate when people talk about some huge gain they had or some great trade they made in the past, it comes off as bragging at best or utter BS at worst, and there is nothing to be learned from these things in most cases anyway. I have had the good fortune to be able to do the things I want in life due to my participation in the world of investing and I think that speaks for itself.

One the other side, where the learning takes place, are the inevitable disasters that come with this line of work. I have made all the classic blunders and some that haven’t made the standards list yet. What separates the survivors from the trail of broken wreckage is learning from the mistakes, and making the cost of the mistakes as low as possible. I am most proud not that I have made these errors, but that I have survived them and prospered. The only thing that is more obviously BS than talking about every great trade is acting as if you’ve never made a bad one.

For trades I tend to get in in one move, and then get out quickly if the trade is going south. I have set a loss tolerance ahead of the trade so if it goes against me I know where I am going to exit. Occasionally I will leg in if the position is too large to enter all at once, and more rarely I will add to a down position when some set of circumstances occurs that allows me to justify it. If the trade is working, I will usually exit in 1/4’s locking in some profit as the position runs up.

I have an idiosyncratic method, in that I like to take positions in share amounts that are easily divisible. 32, 64, and 128 for instance. I might buy 64000 shares of XYZ so I can sell 1/8, 1/4, or 1/2 positions easily. This might be due more to some latent OCD than logic.

I identify trading picks as I said above, looking for liquidity and Beta. If those two criteria are met you’ll do fine.

For investments it’s a much more detailed process because one needs to have a portfolio level approach as well as a position level approach. I believe the longer the term you’re likely to hold the position the more a fundamental approach is the most efficacious.

There is no substitute for hard work. Don’t look for shortcuts, or easy ways, they are fools errands. Instead be a sponge for information, read everything you can get your hands on, pay attention to what the folks you respect are saying, and learn.

Thanks Jim for your participation. Keep on tweeting good insights for all of us!

On a different note, I am very appreciative of what the internet and technology have brought us.  Whether it’s Stocktwits, investor blogs or  an user generated investment advisor like KaChing, the community that exists today wouldn’t have existed without great ideas and technologies.