“From The Trader’s Desk”: Prince Takes King? – Billions S5 E2

Obsessed with fantasy, possessed with my schemes
I mixed reality with pseudo-god dreams
The ghost of violence was something I seen
I sold my soul to be the human obscene
Megalomania – Black Sabbath

Happy Friday, and welcome back to the Trader’s Desk.

I’m not going to do a deep dive into the whole episode this week, but start off explaining what went down between Dollar Bill and Winston and what a Sharpe ratio is, some observations, then get into what was my favorite part of the episode – Axe’s fireside chat! The scene may have only been 5 ½ minutes, but it had me and my partner talking for hours.

What the hell is a Sharpe Ratio?

Poor Dollar Bill! He is in a slump regarding his book – (his trading portfolio) and is looking for an edge. Luckily for him, he just happens to notice on Winston’s terminal a strategy (algo) he’s running his own money on. Winston says his algo has a Sharpe Ratio of 3.64. (A Sharpe ratio tells us how well an asset’s return compensates us for the risk we take. When we compare two assets against a common benchmark, the one with the greater Sharpe ratio is estimated to provide us with a better return for the same risk – or the same return with a smaller risk.) That is a good number, because if you can get your strategy to have a Sharpe Ratio of 2 it’s particularly good. Bill wants in, but Winston tells him there is a capacity issue. If you put more money (in this case six figures) the strategy won’t give you the same positive returns. This can sometimes be a real issue. One of the strategies I trade has this capacity/scalability issue. Depending on what you are trading, or even the time of day, if you put too much money into a stock you can become the market for that stock. If that becomes the case, your returns will not be in line with past returns for that strategy. And, even though Winston doesn’t really make the trades (he most likely ran a simulation), he shows Bill what would happen if you tried to run the strategy with too much capital.

Bill is a fundamental analyst, and a good one at that. You know he is desperate when he is looking for an edge in the quant world. Fundamental analysts are becoming less and less utilized, and more funds look to quants or more “passive” investments. The pressure on Bill to keep bringing in good returns is a constant worry for real life analysts. Everyone will expect Bill to go to Wendy for some coaching, but I think a few good trades will get the Cheapest Man in America right back on track!

I also got a question on what an allocator is. Endowments, foundations, pensions, family offices, funds of funds and other institutions who want to invest in hedge funds will hire an allocator to research which funds are right for their specific requirements. Their recommendations can make or break a fund, which was why making sure Ali Kashkhokh was given the Lauren treatment was so important.

Observations:

Why would Chuck freeze the marital assets? Not only does that hurt him (he can’t do anything with the funds either) but he is just setting up a situation where Axe can come in and save the day for Wendy, again. He wants to blame Axe for all his troubles, but if you send a fastball down the plate, don’t be surprised when Axe goes all Mike Piazza on you! Also, Chuck goes around telling anyone who will listen that he’s trying to change, but where exactly is that change? He has no issue throwing friends under the bus for his own agenda time and time again. He says the wheels were already in motion regarding DeGulio, but I don’t buy it. I have given Prince the Hypocrite Award in our MVPs for the last two weeks; I may have to give it to Chuck, for as much as I think Prince is a phony and lies to the world, I believe Chuck is lying to himself.

I am so happy to see Wendy taking off the gloves with Chuck. This divorce is going to be epic! She plans on gutting him (I’ll give her the rag to wipe off the blood!) and finally realizes that his happiness is not, nor ever was, her responsibility! Wendy is putting herself first, and I’m here for it!

Taylor telling Axe “I am the one of us who can handle emotions” was telling. Taylor knows Axe well and knows what happens when he lets his emotions cloud his actions. Me thinks Taylor will be using that against him in the future! I also believe Taylor’s interaction with Oscar will only cement Taylor’s plan against Axe. Oscar made it plain that he wants nothing to do with Taylor while they are at Axe’s shop. Taylor getting out from under Axe will not all be about revenge. It just may be about Taylor’s happiness. I also believe that Taylor agreeing to Lauren becoming head of IR at Axe Cap is a move in Taylor’s bigger plan. Lauren will now be in a position to interact with all of Axe Capital’s clients, and that could be a key if Taylor tries to make a move of their own.

I want to like Bonnie, I really do. She is everything a woman in this business needs to be – smart, strong, no nonsense. Being in this very male dominated business has made me try to be “one of the guys” (think Rebecca), without being a guy. I don’t want Bonnie to change, as much as just soften the edges.

Prince seems to have won another battle, but does anyone really think that Ares, I mean Axe, the God of War will lose in the end? I get that Axe seems tired of the constant battles, and of his recent “losses”. Even Tyson in his prime must have gotten worn out from time to time. It’s a bit telling that he now considers what he does “work”, when in Season 3, he considered trading what he needed to do in order to breathe. He is looking at the cushy existence of the bankers and wants to go from being the gambler to being the house. However, can he live without that thrill? There is an energy, and excitement you get from trading that you won’t get from banking. I don’t see Axe being happy making that move (remember the last time he sat on the sidelines?), but let’s face it, Axe doesn’t seem happy with anything!

In this episode, Axe describes himself as a monster and so does Chuck. I have always said these men are two sides of the same coin, and I think Chuck realizes that as well. Chuck says he’s in control of his monster, but the fiasco that is his life certainly says otherwise.

And, last but not least, this was the first fireside chat that I have seen (I’ve been to many a conference where these types of talks are held) that was actually in front of a fire!

Axe: The Carnivorous Monster

I have said several times that Axe is my spirit animal. We have similar backgrounds along with non-traditional paths to Wall Street. Our mutual love of heavy metal is well documented, and in this episode, he finally admits that trading is gambling! I’ve been #TeamAxe from the jump and have only slightly veered from that when he backstabbed Rebecca. The fireside chat at “The Mike” reminded me of why I’m #TeamAxe and will never, ever, never ever, be #TeamPrince.

Billions does a good job of putting both sides of current events or debates on the screen. There is never an angle they are pushing; there are characters on both sides of the fence, and we as viewers can make our own opinions on them and their choices. The discussions on Twitter or even here on our blog regarding some of the choices Axe, Chuck, Bryan, etc., make only prove that Billions spurs conversation in regards to events that are very contemporary. And “New Capitalism” is the topic this week.

Even before the back and forth between Axe and Prince, I know exactly where Axe (and I) are on this issue of “New Capitalism”. No, a resounding no.

Is capitalism perfect? Of course not, but capitalism is the worst economic system, except for all the others. I am a confirmed believer in Milton Friedman, and I would suppose Axe is as well. Prince, not so much.

Prince tries to get Axe to join on the “you didn’t build that” train, but Axe is not having it. Axe knows he is special and has skills that others do not have. Those skills have made him successful, and rich, and he is not ashamed of that. He is not going to buy into the guilt that Prince has for being successful. Prince says he was nothing special, but let’s face it, he must be special in order to be an equal to someone like Axe, to be in the position to name a conference after himself, and swoop in on his own private plane.

Prince and Axe had quite different backgrounds – Axe grew up in a single parent home, was hustling to make money, and was determined to make something of himself. Prince grew up middle class, in the Midwest, having dinner with his insurance salesman dad every night. How did two people, with vastly different backstories get to be sitting together at “The Mike”? They both must have something special, some unique quality that got them there. Axe is not only willing to say he is superior, but wears it as a badge of pride; Prince (and I’ll say it here, I think he is totally playing the role) firmly believes it was only with the help of others, the “community”, that got him in this rarefied air.

Prince tries to tell Axe he was basically handed things: Axe was born in “the wealthiest state, the wealthiest country in the world” and “white and male”. And, that all may be true (although if Axe was born in New York in the early 1970’s the state was on the verge of collapse), there were hundreds, if not thousands of people born in that same state, in that same country, under the same circumstances. However, when I look around, I don’t see everyone from Yonkers in the decabillionaire club. Why is that? If all those ingredients automatically make you successful, where are all the other Bobby Axelrods?

Axe knows what Prince is saying is pure, 100% grade A BULLSHIT. Axe knows the hurdles he had to overcome to get to be on that stage and knows that it was his exceptional skill set that helped him become Bobby Fucking Axelrod. He’s “a monster, a carnivorous fucking monster”, and needed to be one because for Bobby from Yonkers, it was success or oblivion. Axe believes in the individual, and that you need to rely on yourself and your skills to get where you want to be in life. As my favorite columnists once said, “There is a reason that in the New York Harbor there’s a Statue of Liberty — it’s not a Statue of Equality.” I’m not uncertain Axe would agree. (Oh, and Axe’s eye roll when Prince says he’s a cuddly monster was priceless!)

I’m not against “giving back” if you are successful. What I am against is it being an obligation or somehow being made to feel guilty if you don’t “pay your fair share”. Who determines what that “fair” share is? What if I decide to give all my money to animal causes instead of “green” causes? Does that make it not as worthy? If I broke my ass to make my money, and I want to spend it all on Funko Pops, whose business is it? If I make $5, it’s my money. What’s the difference if I make $500 or $5,000,000? It’s still mine, to do what I please with. I guess because I understand the kind of journey Axe had to take to get where he is (and by no means am I at the same level as an Axe!) I understand the feeling of wanting to appreciate and value your accomplishments and successes. When you are self-made you never want to forget it, and you make sure others never forget it either.

Well, as you can see, Billions does cause discussion, and I’m sure many, if not all, reading this will disagree with me (and Axe). And that is not really the point. The point is that we are debating it (sometimes passionately), and we have Billions to thank for that.