The Lamb is cynical by nature.  He is a paid-up subscriber to the axioms “If it sounds too good to be true, it probably is,” and “Where there’s smoke, there’s arson.”

Recently, a friend of The Lamb, Adam (name changed to protect the imprudent), told him about a new website called OneSeason.com.  Adam is a willing, though very suspicious, participant in the OneSeason market.  Essentially, this site allows “investors” to buy and sell shares in their favorite players and teams from the world of sports.  There are both primary and secondary markets.

In the primary market, OneSeason conducts initial public offerings (IPOs) of shares for both teams and players (with a price set at $5 per share) via an allocation algorithm.  These shares are then traded in the secondary market, splitting if/when the price reaches $20 per share.  The company makes money by charging commissions of 5% on IPOs and 1% on secondary trades.  Presumably, fixed and variable costs are de minimus. 

Now for the fun part.  Unlike traditional shares of company stock which entitle the holder to a fractional ownership of that company’s net profits, holders of OneSeason shares simply own the bragging rights to a given player or team.  Unfortunately, bragging rights, much like gold and vacant land, are not positive carry investments.  Then again, land and gold are both tangible assets and offer at least the potential of capital appreciation.

Of course, OneSeason shares can go up in value.  An investor simply has to find someone to pay a higher price than he paid — the so-called “greater fool theory.”  The Lamb certainly feels that OneSeason participants are entitled to purchase shares as they wish – (The Lamb’s Rule #5 — “You pay your money, you take your choice.”)  However, he feels that OneSeason has essentially created a somewhat mitigated pyramid scheme.  This “venture” differs only slightly from the early 20th century Ponzi Scheme. 

Charles Ponzi's Mugshot

The product (service?) OneSeason sells has no intrinsic value save for the aforementioned bragging rights of player/team cyber-ownership.  This may be a good time for potential OneSeason participants to repeat to themselves The Lamb’s Rule #2 — “Know and understand what you own.”

One may ask how this is any different from owning a baseball card or even a work of art.  The difference is that in owning one of these two types of positional goods, an investor has possession of a tangible item, and more importantly, one which is of finite supply– 

Pablo Picasso is not going to be composing many more paintings, and the American Tobacco Company threw away the mold for the T206 Honus Wagner baseball card nearly a century ago.

As amazing as it seems to The Lamb that this market exists, more incredible still is that it has actually spawned websites for OneSeason investors (again, the term “investors” is used extremely loosely here) to exchange opinions and information about share prices of players and teams, much like websites devoted to fantasy football/baseball enthusiasts.  Sites like OneSeasonNation.com and OneSeasonTrader.com garner far more hits than does your editor’s humble corner of the blogosphere.

Trade shares at OneSeason.com if you wish.  But keep The Lamb’s Rule #4 (An asset is only worth what someone else is ready, willing, and able to pay for it) safely in the front of your mind. 

Right now, Adam is wishing he had remembered it…

Last Wednesday night, The Lamb had just finished his last meal for the next 25 hours and was leaving for his thrice yearly appearance at the local temple for Kol Nidre services (sorry, Mom, The Lamb was a little late).  About to turn the TV off, he heard the name of his hometown – Hollywood, Florida — in connection with a story about the ongoing financial crisis:

In the video, Mr. Prince says that he is “very frustrated and very upset” that he is losing money.  The Lamb isn’t really sure with whom he is frustrated and upset.  Investing is tough, but Mr. Prince made his investment decisions of his own volition and now seems to be looking for a scapegoat.

He states that the value of his investments has dropped precipitously, endangering his impending retirement.  That seems a bit odd.  If he is that close to retirement, wouldn’t it seem to make more sense to be invested in cash, or at least in bonds, with hardly any money in stocks, so that his retirement account would be very stable? 

The Lamb believes that a good general rule is to have no more than twice the number of years until you plan to retire as the percentage of your money in riskier asset classes (stocks, commodities, real estate, and foreign currencies), what The Lamb calls SCREF assets.  Keep the rest in cash and high grade bonds.  

For example, if you plan to retire in 20 years, have no more than 40% of your money in these riskier SCREFS.  Unless your time horizon is many decades, why put yourself in a position where you have so much money in SCREFS that you could lose enough principal to jeopardize your retirement?

The Lamb often hears the refrain, “Stocks always come back in the long-run,” and “if I don’t sell it, I’m not really losing money.”  Well, in the immortal words of John Maynard Keynes, “In the long run, we’re all dead.”  Looking at historical data, we can see that stocks can go decades without yielding positive returns.  

Beginning in late 1972 the market went until the early 1980’s before regaining its 1972 level.  Looking back further, following the 1929 crash, it took a quarter century for stocks to reach the breakeven level again.  And from August 1997 through last Friday, stocks have posted a grand total return of zero percent.  Kind of makes having money in boring old Treasury Bills look pretty good (and a lot less risky).

Getting back to Mr. Prince, he goes on to say that the decline in local housing prices has made it “impractical” for him to sell.  Impractical?  How practical was it to continue buying properties or not selling existing ones after South Florida housing prices nearly tripled from 1999-2006?  In fact, even after the recent downturn, South Florida real estate is still up an annualized 7.26% over the past 10 years.

Next, he bemoans the fact that his tenants are having difficulty paying the rent he’s charging.  Hmm, what are the chances Mr. Prince has lowered rents recently to reflect the declining economic fortunes of the area?  The Lamb’s guess:  very slim.  Yes, this would eat into his revenues, but it would undoubtedly be better than the revenue he’d be receiving if the units were empty.

Like a lot of us, The Lamb has gotten crushed by some of his investment decisions.  But if he’s gonna blame anyone, it’s the person he sees in the mirror.  The economy will always go through up-and-down cycles.  And while it’s true that when you pay your money, you take your choice (Rule #5), we each must take responsibility for these choices — good or bad.