The recent spate of investor redemption requests and the UK funds’ inability to deliver on those commitments is a stark reminder (if one was ever needed) that real estate is fundamentally an illiquid asset class where a real estate fund offering daily liquidity is as real as a dragon breathing fire. It does not exist. The asset management industry ought to start setting realistic expectations around liquidity — which means, lock-up periods that at least correlate with the time it takes to close a real estate transaction — which can vary from three months to a year.
I had an idea about a capital markets game the other day. It is discussed below.
The oldest, the most universal, and perhaps, the greatest game in the history of human kind is: Trading.
It is hard-wired in our DNA to engage, to deal, to play, to out-wit, to conform, to rebel…to trade.
We like to play games.
We like to flirt…with risk.
The thrill of a “killer” deal satisfies our reptilian mind.
Trading harnesses our intellectual, emotional, and physical energies.
It is, therefore, a powerful visceral experience.
To paraphrase Prof. Robert Schiller, it connects us with our “animal spirits.”
Also, lest we forget, from the bazaars of ancient India to the souks of medieval Silk Route to the high streets of Victorian England to the dark pools of global finance, trading has always been (and always will be) as much a “social” experience as it is a “transactional” one.
In essence, trading is the widest (if not the lowest) common denominator of social interaction for human kind.
It is in this context, Alpha Trade is proposed as a global, multi-platform, real-time game where ‘Alpha Traders’ compete in a “winner take all,” real money contest for generating the ‘Alpha Trade.’
Game Description / Rules of Engagement:
- Alpha Traders pay a “commission” of $9.99 per trade of ‘real’ US dollars to put on a trade worth $100,000 of ‘Alpha Dollars’ per trade in a single security or asset.
- Notably, Alpha Traders can put on as many trades as they like so long as they pay $9.99 per trade.
- The Alpha Trader chooses the entry and exit prices for his/her trade at the time of putting on the trade.
- At the end of each trading session, the trade that generates the highest absolute return earns real money in US$ worth the entire sum of “commissions” placed by all the “Alpha Traders” for that specific trading session. The ‘Alpha Champion’ takes it all.
- Larger the number of trades, bigger the ‘Alpha Pool’ of commissions, and greater the size of the prize.
Alpha Trade sits at the intersection of three powerful and sustainable global forces where: Behavioral Finance meets Social Networking meets Online Gaming.
The game is laced with skill, thrill, intuition, risk, luck, timing, emotion, intelligence, knowledge and much more.
Why the game will have legs is because it is also a pure, unvarnished meritocracy.
Rules are plain and simple.
Winning is clear and absolute.
Hence, the Alpha Trade is also, at once, incredibly timely and utterly timeless.
After all, in a world where the “other 99%” feel the game is increasingly rigged, Alpha Trade is a “fair” trade; a “just” game.
You pick the right stock, you will win. You don’t, you won’t.
You eat what you kill.
And yet, it also has elements of an “asymmetric trade” as a $9.99 gets you ticket to the dance where you can:
“Win it all!”
The target demographics are: 15 to 65 year old expert, intermediate and beginner traders. The game has incredibly wide and global appeal due to the reasons stated in the context discussion above.
Revenue Model / Streams:
The Alpha Company will be the developer, marketer and distributor of the Alpha Trade game.
The company’s revenues would come from the following sources:
- Transaction Fees ($1 per trade);
The advertisers (and sponsors) could be institutions who are looking for new brokerage clients, or money/asset management clients, or high quality trading talent, or simply, for support within the buy-side community to meet their commercial and marketing objectives. The advertisers could be:
- Retail Brokerages
- Mutual Funds
- Investment Banks
- Universal & Retail Banks
- Money Management Firms
- Hedge Funds
- Financial Media (Bloomberg, Thomson Reuters, CNBC, Financial Times, Wall Street Journal, etc.).
In due time, additional revenues could be generated through:
- Licensing (for TV and Movie deals);
In order to initially generate “buzz” and comfort, a “floor” will have to be set for the minimum daily cash prize for the “Alpha Trade of the Day” prize. For example, a minimum of: $1000.
This $1000 cash prize will be one of the best marketing expenses in the initial phase of the Alpha Game’s launch.
In a steady state, this prize floor can be achieved by approximately 100 trades made by Alpha Traders in any trading session. Let us remember, each Alpha Trader is allowed to make unlimited number of trades in any given trading session.
Access & Distribution:
‘Alpha Trade’ will be available to anyone, anytime, anywhere through almost any device.
The game will be launched for the web interface and for Apple, Google-Android, and potentially, the Microsoft tablet/smart phone ecosystems.
Coverage & Ubiquity:
There are three major trading sessions each day around the world:
Following are the asset classes that Alpha Traders could trade:
- Commodity Futures;
So, in effect, Alpha Traders could trade almost any time in these major liquid asset classes around the globe within any given 24-hour trading cycle.
Critical Success Factor(s):
- Alpha Traders to put on trades on a regular basis;
- The group of Alpha Traders to grow at a healthy pace.
Stock Wars is, perhaps, the only other tangentially similar competitor with a weak following where users are asked to develop portfolios not pick specific trades. Tradefields is another, even weaker competitor.
Product Extension / Scalability:
In Phase 1 of the game’s launch, there would be one “Alpha Trade of the Day” winner across the three different trading sessions (Asia-Pacific, Europe, and Americas) in a 24-hour cycle in one asset class: Stocks.
In Phase 2, there would be “Alpha Champions of the Day” winners across four different asset classes (Stocks, Commodity Futures and Currencies).
Eventually, Alpha Traders could choose to place trades for any of the following trading periods depending on their preferred time horizons across the four asset classes:
- Day Trading Period
- Weekly Trading Period
- Monthly Trading Period
- Quarterly Trading Period
- Annual Trading Period.
Key Uses of Funds:
- Product Development
- Advertising & Marketing
- Business Development & Strategic Alliances
Amount of Financing Required:
Gross Margins / Bottom line:
- Seed Round: TBD – better done in-house within Kapitall
- Series A, B, C, etc. Rounds: VC’s and Strategic Investors.
Potential Strategic Partners / Investors:
- Financial Information Providers: Bloomberg, Thomson Reuters, CNBC, Marketwatch, Google Finance, Yahoo! Finance, etc.
- Retail Brokerages: Interactive Brokers, Schwab, Fidelity, TD Ameritrade, ETrade, etc.
- Gaming Companies: Zynga, Sony, Microsoft, Electronic Arts, Activision Blizzard, etc.
- Acquisition or IPO within a 3-year window.
Alpha Trade has the speculative immediacy of a daily opportunity “to win” and “to win big.”
There is a sense of tension, timing and momentum investing on the day trading contests.
There is a greater sense of skill, independent thinking, and value investing baked into the quarterly and yearly trading contests.
There is a bit of both on the weekly and monthly trading contests.
There is something for all stripes of investors.
As the winning amount of cold, hard cash is unknown on any given trading session, there is a sense of mystery, adventure and attraction for Alpha Traders to keep coming back to the game.
On the other hand, there is a minimum “floor” for the cash prize.
Notably, most games in the online world take people’s real money for them to buy virtual goods, and it ends there.
In the Alpha Game, you stand to get more – much more – back in real money.
So, the Alpha Game will be unique, trend-setting, game-changing (pun intended), and to use a 90’s dot com word, a “sticky” one.
Day in and day out…around the world…over the years.
“The child is father of the man:
And I could wish my days to be
Bound each to each by natural piety.”
– William Wordsworth
The ebbs and flows of economic fortunes of nations and companies have a direct correlation with the social and psychological ”health” of the people who inhabit those nations and corporations.
It is common knowledge that dysfunctional societies (where crime rates, divorce rates, teenage pregnancy rates, suicide rates, high-school dropout rates, illiteracy rates, etc. are high) also have low levels of productive economic growth (GDP per capita); high levels of unemployment and under-employment rates; low, flat or negative real wage growth rates, etc. It would be interesting to explore whether the psycho-social indicators precede economic indicators or vice versa.
We know, as a self-evident truth, that psycho-social maladies result in economic stagnation and even decay for a vast majority of the population whose economic fortunes are tied to the geographies or corporations under consideration. We also know that individual or family financial stress leads to many mental and psychological health conditions such as insomnia, depression, hypertension, heart disease, diabetes, low self-esteem, etc. We know that national economic malaise leads to several social problems such as increased destitution, drug use, prostitution, suicides, and so forth.
What comes first and what follows? What is the cause and what is the effect?
Perhaps, George Soros’ “Theory of Reflexivity” applies to this situation. Psycho-social turmoil leads to economic instability — which in turn — leads to more psycho-social turmoil with an ever greater pitch and velocity in a continuous downward spiral that can be stopped and reversed only by significant, firm and far-reaching policy mechanisms such as Keynesian-style deficit-spending economic stimuli to jump-start productive activity within an economy.
There is a certain ecosystem in which humans thrive, grow, and prosper. Such an ecosystem is defined by the opportunity to the entrepreneurial, the clever, the industrious, the agile, the innovative, the adaptive, the meritorious individual or company to reap the rewards of their labor in a relatively safe, fair and equitable society. Conversely, in an environment antithetical to promoting merit — innovation, entrepreneurship, value creation and the capitalist ideal are more or less suffocated and frustrated.
There are numerous examples of the above stated phenomena:
Just one such example is:
Over several years, Colombia’s decline across a wide gamut of economic indicators can largely be attributed to the descent of Colombian society into a brutal and unrelenting civil war. Or was it the other way: Did civil strife drive away investors and the profit motive for sharp, industrious, capitalist-minded individuals?
Question is: Does a strong moral fabric predict positive economic performance — both for the individual and for the society. In effect, does it pay to be good – not just in the hereafter — but also in the here and now?
More concretely, can one develop profitable trading strategies based on the psycho-social “performance” indicators of economies, and even, companies. Can we, for example, see a conclusive and positive correlation for a specific company where strong corporate social responsibility “performance” results predict strong corporate earnings and subsequent stock performance…over the long-term…factoring out any potential short-term “noise” or “bump” that comes from the PR-spawned corporate announcements about CSR initiatives?
There are numerous quantitative analyses that can be run to track asset (stocks, bonds, derivatives, currencies, real estate, etc.) performance vis-à-vis psycho-social indicators. Infact, if proprietary traders and hedge funds are not doing this already, a new school of investment philosophy could be developed where the study of psycho-social indicators across various economies and companies would inform investment and trading decisions.
…to be continued and detailed out further.