What is the Transparent Investment Management (TIM) portfolio? Timothy Sykes, an investor and former hedge fund manager at the tender age of 26, essentially turned $12,000 into over $1 million. You can read more about his accomplishments, his book, and his trading DVD on his website. Recently in an attempt I think to quiet his critics about getting lucky during the dot-com era, and his disgust for the secrecy in the markets, he’s decided to recreate his previous feat with complete transparency. Enter the TIM portfolio.
Meet TIM, or Transparent Investment Management. TIM is a new kind of fund that takes the best characteristics of the most evolved investment funds—that being hedge funds—and their ability to pursue all investment strategies, no matter how speculative, while at the same time, improving upon their many shortcomings, namely their inability to detail their businesses and strategies to the general public. Unlike other investment funds, profits are not TIM’s sole concern. Instead, TIM’s goal is to profit while also detailing all investment activity on TimothySykes.com, allowing the general public never-before-seen access to the investment process behind financial speculation. Due to the duality of TIM’s mission, the fund’s success will not be judged on performance alone, but on the educational and entertainment value of the commentary and investor community that it will nurture.
In terms of education and entertainment value, I believe the TIM portfolio hits the mark. Timothy is well versed in the child to teenager priced stocks and has a knack for identifying patterns in their charts. And of course there’s always some sort of entertainment when you see someone constantly beat themselves up (enter Jim Cramer). However, even with a 50+% return according to Covestor (which I believe is completely inaccurate since the TIM portfolio is currently valued at $14,404, or a 16% increase in value), the TIM portfolio has violated the one rule that, in my opinion, hurts the smaller trading accounts.
Enter Exchange Rule 431.
Exchange rule 431, also known as the margin requirement rule, includes something known as the pattern day trader rule (PDT).
An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
An individual deemed a pattern day trader must hold a minimum of US$25,000 in equity in his or her account before being allowed to day trade. This $25,000 equity amount must be maintained in the account at all times because it addresses the additional risks inherent in leveraged day-trading activities and ensures that customers, before continuing to day trade, cover any losses incurred in their accounts from the previous day.
If you take a look at the TIM summaries in the past week, you’ll notice the portfolio hasn’t held a position overnight in the last 5 trading days. Since the pattern day trading rules takes place over the last 5 trading days, if the TIM portfolio has had more than 3 day trades in the past 5 trading days, it should be flagged and hit with the $25,000 margin call that the smaller traders fear.
9. 9 day trades in the past 5 trading days. How is the TIM portfolio allowed to trade where the rest of us would have been restricted, locked out, or hit with a margin call? My guess is either the TIM portfolio has a higher value than what’s being reported or the TIM portfolio has a link to a much larger account which allows it to bypass the rule that most of us in the same position would face.
While I’m not criticizing Timothy for his hard work (it really does take hard work to turn such a small amount of money into a tidy sum), I do criticize his attempt at making his portfolio as transparent as possible. Something is going on behind the scenes that we don’t know about. Not to mention that the Covestor badge is showing an over 50% gain for the TIM portfolio really leaves me scratching my head. Something just isn’t adding up. I brought the issue up on his blog a few days ago. Here’s the exchange:
As much as I enjoy following your attempt at recreating your initial success, I really think you should be playing by the rules. Granted, if thinkorswim hasn’t said anything, then you’ve lucked out. But folks that aren’t as lucky would have been nailed with margin calls with the heavy amount of day trading your TIM portfolio’s been executing. I don’t care for the PDT rule either, believe me, but if you’re going to execute the TIM portfolio properly, you should do it with the current rules in place, even if, for whatever reason, your TIM account doesn’t seem to be affected by it.
Rules–sure, I make a few day trades, but it’s not nearly as many as i would like, this is like telling a painter he can only use a few brushstrokes, this is an art not a science. I’ll trade as closely to my norm as anyone will allow.
The difference between a painter and a trader is that the painter doesn’t have the American Artist’s Guild limiting his or her work.
While the TIM portfolio has good intentions, the fact that it isn’t following the same rules that other traders follow, for whatever reasons, in my eyes is a failure. Please understand that I’m not taking anything away from Timothy or his accomplishments. In fact, I wish I could replicate his achievements, break the bonds of the daily grind, and do something I enjoy. But trying to replicate your results and not following the rules set forth since your initial successful run undermines the educational value of what the TIM portfolio is trying to accomplish. If our smaller accounts have to live by those guidelines then so should the TIM account. And if there’s something going on behind the scenes to circumvent those rules (legally, of course) then that should be made public in order to keep the T in TIM valid.
