(note: This is the second of a series of
three many posts focused on Lenny Dykstra’s trading strategy. I strongly recommend you read the first post, Should We Be Listening to Lenny Dykstra?, before this one. Subscribe to LongShortTrader's RSS feed to be sure you get the conclusion to this series!)
In this second part to my series on Lenny Dykstra, I’ll be providing some color on Lenny Dykstra’s track record in his “Nails on the Numbers” investment newsletter. Just last week in a column for TheStreet.com, he made the following statement:
In this period of market pessimism, investors have taken many solid companies to the wood shed. In the case of really well-run companies, this is an overreaction that will eventually correct itself. The value of solid companies will reassert itself in time. Subscribers who follow my deep-in-the-money newsletter, Nails on the Numbers, will be rewarded when the market corrects. My system has a win record of 99-1.
So with the help of a subscriber to the service, I dived in and took a look at Lenny’s record. I mean, he’s advertising it, he must want us to examine it!
Is Lenny 99 and 1? Yes, but only if you don’t believe in mark-to-market accounting for a portfolio with readily-available prices for all securities. Notice the lack of a current market price for any open position:
(I’m not naming names here because this is a paid subscription service)
Lenny doesn’t count a position as a loser until it is closed out. Until then, it is considered to simply be on the “Recommended List”. In fact, a current accounting for Lenny’s open positions reveals that he is down over $300,000 on them as of yesterday’s close, including three positions which are down over $50,000 each due to averaging down on hundreds of options contracts.
And as for that 99 –1 record, the one loss came with a price tag of $201,350.
Does that make any sense in a system that aims for $1,000 gains? You’d have to pick an awful lot of winners to make up for big losers like that.
As others have pointed out, we don’t know the size of the portfolio, which prevents anyone from making an informed judgment on Lenny’s performance. Saying you’re 99-1 is meaningless when 1) the one loser comes close to wiping out the 99 wins, and 2) the losses on open positions outweigh the gains on closed positions.
So what do we actually know about Lenny’s track record? Not much, because not knowing the size of Lenny’s portfolio makes it impossible to judge his performance. In fact, his performance might compare fairly well to the S&P 500 – but we just don’t know. He’s in the green on closed positions, even including the big loser, but in the red if you add in closed positions, which is appropriate for a portfolio of actively traded call options. And remember given the sheer volatility of a call options portfolio, he can swing wildly to either direction in the matter of a few days.
Stay tuned for the conclusion to this series, which will include some takeaways that may surprise you - like when Lenny Dykstra will make you rich.
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