Ross M. Miller
Posted July 5, 2004
Randy and I had just left
Zero’s suite when I detected a presence behind me. Startled, I turned
around and was greeted by a smile that on anyone else would have been
coquettish. Tara was looking more stunning than usual in a blue suit and
white blouse with matching belt and high heels that brought us nearly
eyeball to eyeball. She was holding a fresh copy of the Wall Street
“You mustn’t do that,” I said.
“Sorry, I just wanted to get your
“Well, you got it,” I said, still
recovering. “Quite spiffy.”
“And the two of you are most spiffy
Tara followed Randy and me into our
suite. We filled her in on the details from the sofa. I ended by warning
her: “You should be on the lookout for anything unusual. Anyone who
might be following any of us.”
“So,” she laughed, “not old
“Not unless they’re with the
government,” Randy contributed.
“I’m interested in hearing about
this astrofinance that Randy’s says you’re working on,” I said.
“While I was visiting with my family
and they were talking about the usual stuff last night, I started
thinking about Percy Lowell and Planet X and wondered if maybe there was
some kind of Planet X affecting the Lowell Aggressive Growth Fund.”
“Planet X, how exciting,” Randy
said without and to no effect.
“The only way I know to isolate this
mysterious force affecting Kenneth Paine’s fund is to convert stocks
into celestial bodies.”
“And that’s why Zero’s been
digging up financial data for you?” I asked.
“That’s right and I picked up this
paper to spot-check some figures,” Tara said. “If you look up at any
“Betelgeuse,” Randy added
“Yes—say Betelgeuse—it has
several numbers that astronomers use to distinguish it from other stars.
First, at each point in time there’s its position in the sky. There
are several ways of representing that, but the most straightforward is
by the star’s altitude, how high it is, and its azimuth, its direction
along the horizon. Those two numbers, each of which is expressed in
degrees, describe every possible position in the sky.”
“What about stars below the
horizon?” Randy asked. “No matter what I do I’ve never been able
to see the Southern Cross from Alaska.”
“As well you shouldn’t. But it’s
still there. From our current vantage point or back at the lab, its
altitude is a negative number.”
“You astronomers think of
everything,” said Randy.
“I wish. Objects also have numbers
that represent their brightness and distance from earth. These numbers
interact because, all other things being equal, closer objects appear
brighter. Of course, distance isn’t something that we can measure
directly, but something that we infer from a series of observations.”
“I think I follow you,” I said.
“Every object in the sky can be converted into a set of numbers that
uniquely identifies it.”
“Well,” said Tara, “stocks work
the same way. It’s just that they have many more numbers and the laws
of physics do not appear to apply to them. Even so, there are patterns
“Such as?” I asked.
“If you think of a company as a star,
the size of the company is like its brightness. GFF, for example, is
among the brightest financial stars.”
“But what do you mean by the size of
a company?” I asked. “Aren’t there several ways to measure it and
aren’t the business magazines always arguing over exactly which
company is the biggest one in America?”
“There are lots of ways to measure
size and I’ve looked at pretty much all of them and come up with my
own way of computing it that makes things work out nicely.”
“I’m always amazed at how you
physical scientists feel free to tweak things until they work out the
way you want them to,” I said. “Mathematicians call that hand
“Well, whatever I’m waving,
astrofinance is certainly not a physical science if it’s a science at
“Sorry to interrupt,” I said,
“sometimes it’s difficult to keep my inner grad student at bay.”
“Understood. Getting back to my
example, size isn’t all that matters for a company. Boiling down all
the hundreds of other numbers—earnings, sales, free cash flow,
dividends, book value, short-term debt, long-term debt, implied
volatility, beta, all sorts of ratios, and lots more—I came up with my
own measurements based on these numbers that capture most of what’s
going on with a company. I call them fluffiness and dependability.”
“Are those astronomical terms or
something that Randy dreamt up?” I asked.
“They’re my terms, if you
“Are you sure that you haven't been
moonlighting on Wall Street? I know that guy. . .now what is his
name. . . Donald Shawn—or something like that—has been putting the
moves on several Alaskans..”
“You can chalk my knowledge of
matters financial up to Harvard's revamped core curriculum and a
roommate who was briefly an econ concentrator until she came to her
“Okay, so what about this fluffiness
“Fluffiness is the degree to which
the price of the company’s stock cannot be supported by its ability to
generate earnings. During the big Internet stock bubble, most of the
dotcoms were extremely fluffy. Ken’s companies had a fair bit of fluff
in them and I would have to put GFF on the fluffy side.”
“What companies aren’t fluffy,
then?” I asked.
“Oh, your traditional companies.”
Tara replied. “Dull businesses that no one gets excited over.”
“And what about dependability?”
“It’s a bit like a credit rating.
Or what a credit rating would look like if an astronomer, and not some
rating agency, issued it. It’s the ability of a company to stay
afloat. Dependable companies tend to have little debt and steady
“It would seem difficult for a
company to be both fluffy and dependable at the same time.”
“It’s not, for the simple reason
that many fluffy companies don’t have a lot of debt (or even a credit
rating for that matter) because no one will lend to them.”
“So, is GFF dependable?”
“Not as dependable as you might
think. They were before Mike came along, but he’s been on a borrowing
binge of late.”
“So what does all this fluffiness and
dependability do for us?” I asked.
“Well, once we compute their values,
we can plot them out. I’ve done that on this laptop computer. While
real astronomy plays out on a spherical sky, this kind of astronomy
requires everything to be flat. The quick reason for this is that while
if you travel far enough east you will end up west of where you started,
not matter how much you fluff up a company, it can’t become unfluffy.”
“The Flat Earth Society must be proud
of you; let’s see what you’ve got,” I said while I looked at
“You know how in planetariums they
usually start the show by turning down the lights so that at first the
brightest stars appear and then the sky fills with the other stars, well
I’ll do that here.”
With a few clicks, the screen on her
laptop first went completely black and then bright white dots began to
appear scattered over the screen. Then, most of the empty space slowly
filled with dimmer dots.
“Where’s the Big Dipper?” Randy
“While it’s a bit much to expect
that the financial sky would match earth’s sky,” Tara explained,
“it does have it’s own constellations. For example, I can highlight
the companies that Ken’s fund owned at the end of the first
quarter—the day before April Fool’s Day—in red.”
Tara pressed a key and several dots
turned red in the lower right-hand corner of the screen and a few clumps
of red dots appeared elsewhere.
“That looks like a toaster,” Randy
“No fooling. Those stars that make up
the ‘toaster’ constellation are the semiconductor equipment
companies that Ken owns.”
“Not to spoil anyone’s fun,” I
interrupted, “but what does all this buy us?”
“Nothing, until we set things in
motion. To put things in perspective, I’ll start by showing you one of
Lowell’s index funds.”
Tara clicked away until most of the
brighter dots on the screen turned red.
“This fund owns mainly large
companies, which is why it looks so bright.”
“Bigger is brighter,” Randy said.
“Now let’s set it in motion. Each
frame represents a single trading day.” The red dots moved slowly when
they moved at all.
“It’s like watching grass grow,”
“That’s my point. Let’s go back
to Ken’s fund and do the same thing.” More clicks. Now the red dots
jittered while they drifted lower on the screen.
“It looks like they’re being sucked
into a black hole,” Randy said.
“Yes, it sure looks that way,” Tara
“Why is this happening?” I asked.
“Beats me,” said Tara. “This
black hole, or whatever you want to call it, is our Planet X.”
“Okay,” I said. “What’s the
answer? How can we solve Lowell’s problems, make Roland happy, and get
back to Alaska for pizza on Friday, all without calling too much
attention to ourselves?”
“I don’t know,” Tara said. “I
still don’t have a unified theory of what’s going on.”
“Which means exactly what in plain
English?” I asked.
“It’s all a matter of cause and
effect. I don’t know what’s causing the companies that Ken’s
losing money on to behave strangely and beyond that I don’t know what
effect this Planet X is having on Ken himself, much less the others at
“And, not to put words into your
mouth, one effect might be for them to engage in fraudulent or otherwise
“That might not be the way any of us
would react, but given all the money that they have at stake, you have
to wonder. Still, I wouldn’t want to jump to any conclusions from this
limited information. Once we can look inside—”
“We’re getting there,” I said,
knowing that no one liked to just hang around. “This morning’s
meeting was a start. After lunch, the four of us are ‘invited’ over
to visit their mutual fund operation, which is run by Lloyd Perkins, an
unpleasant man who is Kenneth Paine’s boss.”
I quickly ran down the details of the
meeting with Tara while Randy listened for any new information that I
might reveal in my retelling of the story. Tara got a less detailed,
more serious rendition of the meeting than Randy.
“It is interesting that the company
is called The Lowell Group while this Lloyd Perkins guy is a Cabot,”
Tara said after I had recounted my conversation with Roland.
“Interesting, why?” I asked.
“It's an old Boston saying that the
Lowells only speak to the Cabots and the Cabots only speak to God.”
“Well, I guess they’ll have to
speak to us,” Randy said. “Anyway, we’ve got Zero.”
I told Tara where Lowell’s downtown
offices were and she said that she knew of a nice trattoria nearby. It
was getting close to noon, so Randy and I parted company with Tara so
that we could pick up any messages before we headed back out.
Upon entering the suite, I saw the
light flashing on the telephone. I called for messages and there was one
from Henry at the front desk. It said, “A car will be waiting for you
at a quarter to five outside Lowell’s downtown offices.” I phoned
down to see if Henry had any other details, but he was away from the
desk. I told Randy about the message and all he could say was, “Hot
Copyright 2004 by Ross M. Miller. Permission
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words or less provided a citation is made to RiggedOnline.com.