Nails
I've posted links to stories about Lenny "Nails" Dykstra several times in the past year. Dykstra was the ex-professional baseball player who claimed to be some kind of financial wizard, allegedly making millions trading in the stock market, starting a glossy magazine (and personal service business) for pro athletes called The Player's Club, and portraying himself in every possible way as the BSD (big swinging dick).He got the "D" right, at least.
The funny thing, is, though, people believed him. He landed a gig as a columnist at TheStreet.com, and Jim Cramer (another "D") touted him as "...one of the great ones in this business." HBO Real Sports did a glowing profile of him last year. Even though there was absolutely ZERO chance that anything he was claiming was more than an illusion, people believed him.
Let me clarify that. It's not that Dykstra wasn't doing things that appeared impressive, like buying Wayne Gretzky's former house for $18M. There was just zero chance that Dykstra was generating the revenue necessary to support his expenditures, and it was clear that there was a massive imbalance.
Today, inevitably, he filed bankruptcy, listing assets of $50,000 and liabilities of $31,000,000. That's right--liabilities outstripping assets by over thirty million dollars.
If only I'd followed Lenny Dykstra's advice, I'd have a million dollars today--if I'd started with a hundred million.*
*Yes, that was shamelessly adapted from a Jon Stewart joke about CNBC, but it still works.
The one thing Dykstra did that was financially successful after his playing career was open car washes. Seriously. He made a ton of money from the car washes and then sold them.
From there, though, the wheels started to come off. He claimed to be a genius stock picker, touting his "consecutive win" streak (which consisted entirely of buying deep in the money calls and averaging down or rolling over contracts when he had an unrealized loss).
This was gigantic red flag, and I'm still stunned that more people didn't understand. Anyone who knows anything about the stock market will tell you that the percentage of successful trades in any "system" is meaningless. Let's say that Trader #1 makes thirty successful trades in a row that net $100 per trade after transaction fees, so he made $3,000 in total (not including taxes, obviously). Meanwhile, trader #2 only has three winning trades out of ten, but those three winning trades were so big that he netted $10,000 in total.
Trader #2 just kicked Trader #1's ass.
And actually, it's more complicated than that, if you want to be entirely accurate. Without knowing how much risk each trader took with their respective trades, it's impossible to compare the trades fairly. The same trader who makes a fortune from taking a ton of risk in a rising market will likely be bankrupt when the market falls quickly, because the amount of risk he's taking is unsustainable in the long term.
So nobody cares about percentage of winning trades, because it's a meaningless statistic. The only scoreboard in the stock market is money. And someone who obsesses over the percentage of successful trades is (almost always) not a good trader at all, because one of the most important characteristics of being a successful trader (or investor) is taking your losses. People who can't take losses are not suited to investing in the stock market.
The second obvious tell was that Dykstra was obsessed with what he owned. In every interview I ever saw with him, he would point out how much his watch cost, how much his house cost, what his car was worth, etc. He was incredibly insecure, which is not the personality profile of someone who is financially successful. He would basically say "How can I not be successful if I own an eighteen million dollar house?"
Well, you're not successful if you can't pay for it.
The full list of creditors is available over at Deadspin, and there are some stunning details, most notably, UNSECURED loans of 12.9M with Washington Mutual and 4.0M with Countrywide/Bank of America. An unsecured loan involves no collateral, so the banks have cleverly managed to lose 100% (apparently) of those loans.
The guy who clearly saw all this happening before it actually went down was Kevin Coughlin, who wrote an article for GQ titled You Think Your Job Sucks? Try Working For Lenny Dykstra. Coughlin was an ex-employee, and his description of working for Dykstra is a business horror show.
I think what's most true about this fiasco is that quite a few people knew that Dykstra was full of it, but as long as they could make money off him (in salary, bank loan fees, etc.), they didn't care.
All in all, it's quite a story, and I'm looking forward to reading the inevitable book.
As long as it's not written by Lenny Dykstra, of course.
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