Thursday, April 9, 2009

Inside Lenny Dykstra’s 99-1 Record

UPDATE: Lenny Dykstra is Out at TheStreet.com

(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!)

Lenny Dykstra Mock Ad

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:

Lenny Portfolio

(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.

More About Lenny Dykstra:

Lenny Dykstra Gets Lucky With Intel

Lenny Dykstra Was in Bed With AIG

15 comments:

Anonymous said...

Dykstra's been a fraud all his life. First steroid use in baseball, now his fake options trading record. Anyone with half a brain would know that it is virtually statistically impossible to have a 99-1 record trading options. I've known all along about his methodology of determining track record.

Anonymous said...

per my previous post ... his steroid use is "alleged" only

Anonymous said...

You can include a link to this, which includes his closed positions:
http://thelennydykstrareport.com/news/?page_id=80

Notice how he only includes his winners. Hey, the Kansas City Royals pitchers were 75-0 in their wins last year if you follow that logic!

Michael Comeau said...

Anon, thanks for the link, will take a look at it.

Anonymous said...

This is a SIMPLE strategy that employs leverage on long positions. Over the last year, with the market down still 40%+ from its peak, a leveraged long strategy CANNOT possibly have done well. This strategy is risky, has certainly declined in value and I don't believe Dykstra.

Anonymous said...

I follow Dykstra's trades and have done my own, only averaging down at larger intervals and trading in and out of the same ones he does and have made money even as the market has gone down. Granted, his system would work better in a bull market, but these are call options so he's at a disadvantage

Michael Comeau said...

His system would be solid gold in a bull market where maximizing leverage is rewarded with higher returns, especially if some measures were integrated to reduce downside risk.

Nickname unavailable said...

Stop It !!! Most if not all SYSTEMS not counting short people, how tall is Lenny anyway ? Are Gold in a Bull Market.

Michael Comeau said...

I believe Lenny is about 5'9"

:)

Coolair said...

I was intrigued by his strategy so have followed it for a while. His record has been pretty good unless you go back further than the 99-1 score mentioned when he had some large losses (i.e.Hershey) which, of course, are never mentioned. Of course, that wouldn't sell many subscriptions. I think his method could be improved upon:

1) He always averages down on the same series of options even when another series of the same underlying might be a better one, especially near the expiration date.

2)There are sometimes instances where the GTC sell order is too low. If a story stock has a tremendous run for some reason, it would make sense to let your winner run.

Anonymous said...

I'm a subscriber to Dykstra's service. His approach works well. I've made money, although I buy in at a much smaller scale to give myself more room for averaging down if necessary. I also don't jump in until after he's started averaging down. I can't complain about the 8%-20% gains I score every 1-3 weeks.

I find your articles to be more of a witch hunt than anything truly informative. Dykstra's personal finances should not be lumped in with his trading strategy. Once you learn what he's looking at and how he analyzes a company's potential for growth, you can make your own calls.

Mikev200 said...

I looked at his stuff here and there, I also MADE money as did another post here. I ALSO bought in much smaller lots or sometimes waited till his second or third buy. Having said this, I felt his game was risky and did notice when he lost it was a disaster so I never "paid" for his sub. Bottom line, what about the CEO of The street? Ummmmm, Why did Jim allow such a service on his site? The bucks stops at the ceo, right? I pay for aap and will let it lapse as he has a lot of transactions only to see a few positions winners, some after we are out already! I mean these guys are the experts, right? Three years in aap and forgetting about 2008 I was lucky to eek out a couple percent gain and thousands in commissions even @ $8../trades. Even with cheap trades these days, If your not buying in 100 lots it adds up. if your not trading 3 million dollars in One single account (opposed to an ira, ira for wife, trading account etc)you will spend thousands on commissh Just my 2 cents, Dykstra's advice may be bad, but the CEO knew his program and hawked it to. just saying.

Mikev200 said...

What about the CEO of The street??? Should he know weather a "system" is phoney?....Wait thats Jim!..... He hawked Lenny for a LONG time. I used Lenny for several trades and MADE money. Like another post here, I bought smaller and sometimes waited until his second or third avg. down buy. Heck Cramer avg. down all the time!...yes less risk I know. I just saying Jim should know if the "system" was a scam. I pay for aap, forget about 2008 altogether and i'm lucky IF I ekked out a couple % gain. If you dont trade 3 million in one account the aap comissions will eat you up EVEN @ $8.00 trades. I trade 2 Ira and an investment account so I have to balence buys across three accounts which are much less than 3 million so if Jim buys 100, I buy 10 etc.I also see Jim "spin his stuff to..."take profits here", what on 10 shares?! What about the rest of our 200 shares losers? Sounds good in short sound bits. I'm just saying they all spin their stuff and If Dykstra was a bad system Jim should know this as an expert.

Anonymous said...

I have also made money with Lenny. And as most mention, I also went with smaller trades and always after he starts averaging down. So I have missed on a few of his quick $1k hitters. I went into INTC when he doubled up to 880. And I sold well before it hit his average. As with any advice on any site or forum, homework is key. And my approach has worked well. I hope Dr J continues the program successfully.

h4ns said...

Thank you for another essential article. Where else could anyone get that kind of information in such a complete way of writing? I have a presentation incoming week, and I am on the lookout for such information.
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