Rubenstein's Augur Read online

  Rubenstein shrugged. “That is doubtless true, but it isn’t relative. My results are raw numbers. There is no concern with the psyche of an investor. If you were to employ my capability, it’s you whose conviction might be tested.” He stood and offered his hand. “I think we’ve covered everything we can at this point. Please be in touch with Tom if there’s a reason to meet again.” He walked away.

  Cooper smiled. “Damned interesting, am I right?”

  “Theoretically. Let me think about it.”

  “You’re not the only guy I’m contacting, Sam.”

  Larson smiled. “Nice try, T.C. And, by the way, let’s be sure about who’s on what team. If I do anything with your man, he’s paying you—right?”

  Cooper hesitated. “Right.”

  Chapter 6

  April 10

  Larson was at The King’s bar the next day when Rubenstein arrived. “Our table will

  be ready in a few minutes.” He pointed at his drink. “Martini?”

  “Diet Coke, please.” Rubenstein looked around the room. “I’ve never been here

  before. Out of my reach.”

  “The costumes and references to life in the Eighteenth Century are a little overdone,

  but the food’s good.”

  Rubenstein chuckled. “In any case, it beats The Varsity.”

  A woman in a costume reminiscent of long ago London managed to wiggle most of

  her body as she wrote their orders.

  Larson sighed as he watched her walk away. “I think I can concentrate now.” He

  raised his glass. “Your health.”

  Rubenstein nodded. “Thank you. To work?”

  “Please.”

  “Tom tells me you want to observe my program’s performance. What do you

  propose?”

  “To watch the output for a month—twenty trading days.”

  “That’s not much of a test.”

  Larson raised a finger. “First phase.”

  “Of how many?”

  “Two. First, I’ll evaluate the black box’s—”

  Rubenstein raised a hand. “Augur, if you will. I don’t find Tom’s description

  amusing. I call it Augur.”

  “Auger? The old-time woodworking tool?”

  “Wrong spelling. A-u-g-u-r. In Rome, augurs were officials in charge of making

  prophecies.”

  “Really? Okay, good name—very good name. But to continue. I’ll evaluate the

  program’s performance for a month. If all is well at the close of the twenty sessions, I’ll

  begin my next test.”

  “How long will that require?”

  “A year.”

  “A year?”

  “Nothing less. I’ve got to be able to tell a prospective investor that I employed your

  predictor every trading day for a year and on an investment of X dollars, I had a return of

  Y dollars.”

  “How much will you invest?”

  “The calculation will be based on one hundred thousand dollars.”

  Rubenstein leaned forward. “So much?”

  “A bare minimum for this sort of test. Only money of that size will impress the

  people and institutions I’ll be approaching.”

  Rubenstein shrugged. “You know best. Now, how will you follow Augur’s

  performance?”

  “There’ll be no investment at this juncture. I’ll record your prediction—the sign and

  the pressure, the time I received it, and the actual S&P500 close. Then I’ll have someone

  test the results statistically ”

  Rubenstein nodded. “I’m getting a feel for Tom’s difficulties.” He stood. “One more question? What about security?”

  “It’s secure.”

  “You’ll understand if I’d like an expansion of that statement?”

  Rubenstein sat. “Yes. Forgive me. A little history. Just as I perfected the initial

  version of Augur—that was September, 2000— there was an attempt to steal it.

  Unbeknownst to me, a colleague had become aware of my hobby and its goal. He

  learned of the upcoming solution of a computer hardware problem I was having and

  believed I would have a viable product as soon as the problem was resolved. He hired a

  hacker, who, as soon as the fix was made, broke into the Atlanta NOAA mainframe and

  copied the code. Fortunately for me, the security system I was using enabled the FBI to

  find the hacker. His copy was deleted, the hacker prosecuted, and my colleague

  discharged.”

  “What about other hackers?”

  “NOAA’s Atlanta security system was improved after the break-in and I put Augur

  under its protection.” He paused. “And instituted one additional security facet of my

  own. I assure you that Augur is secure.”

  April 11

  Cooper was eating his third cheeseburger the following evening when Rubenstein

  arrived at The Varsity.

  “Well?”

  “Larson has proposed an initial onemonth test.”

  “Initial!” Portions of Cooper’s sandwich flew across the table.

  “A preliminary look to determine whether to undertake a serious one. It’s what I’d

  do.”

  Cooper stuffed the remainder of his sandwich into his mouth, then shook his head.

  “I’m sick of this. I’ve got to get something done.”

  “Be patient, Tom. You now have someone interested. The predictions will be as

  accurate as they have been and I think we can work with Larson.”

  “Glad to have him, but he ain’t my favorite guy.”

  Rubenstein waited, but Cooper had nothing more to say. “You’ll get the prediction

  from me every day at the NOAA office and telephone it to Larson. Please call him to

  make arrangements.”

  Cooper nodded.

  “Every day, for twenty trading sessions. By ten o’clock. Without fail.” Cooper nodded.

  “Tell him he can expect his first prediction tomorrow.”

  May 19

  The twenty-day test ended on May 16. Three days later Larson met Rubenstein at

  The Varsity. “Aaron, I’m impressed.”

  Rubenstein nodded.

  “Except for one call from T.C. when he sounded as if he were lucky to be able to talk

  at all, the delivery was satisfactory.”

  Rubenstein nodded again.

  “The predictions themselves were incredible.” Larson handed him a sheet of paper.

  “Here’s our data.”

  Rubenstein glanced at the sheet.

  “You agree?”

  “Of course.”

  “I faxed the data to Mike Fletcher this morning. He—”

  “Fletcher?”

  “Mike Fletcher, head of the local DDQC office.”

  “The big CPA firm?”

  “He ran the statistical analysis I mentioned. He covered himself with the usual

  outs—small sample and so forth—but he reported the predictions were beyond chance at

  a level of confidence of .05.”

  “That may be the best he could do, given the size of the sample.”

  “So, now we’re both believers.” Larson smiled and extended his hand. “Oh, one

  thing. Your May sixth prediction. Your positive pressure reading was way, way too

  high.”

  Rubenstein nodded. “It happens. The news of Clifford Fuller’s death, CEO of

  Pacific Development, was delayed.”

  “I see.”

  “Let me make certain that you do. Augur’s predictions are very fragile. Not only are

  initial conditions critical, but so are what we call perturbations. Fuller’s death is an

  example. He was alive when the day began—when Augur examined the market—but

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sp; dead an hour or so later. Those kinds of occurrences are why I can’t predict more than a

  day in the future—and, as you see now, sometimes not that far.”

  Larson nodded. “I’m ready to proceed if you are. It’ll be the same as our month-long

  test, with one addition. After T.C. calls me, he then calls the prediction to Fletcher’s

  man at DDQC.”

  “An impartial third party. Science. And, I recognize, preparation for making your

  case to potential investors.”

  “Exactly. Have T.C. call me for directions regarding DDQC.”

  “I will.”

  “And there it is.” Larson stood.

  Rubenstein raised his hand. “One more thing. I’m afraid we have a problem with

  Tom.”

  Larson sat.

  “He’s desperate for money.”

  “Let me tell you something about Tom Cooper, Aaron. I don’t think you could have

  picked a worse associate.”

  Rubenstein frowned.

  “First, tell me how you got mixed up with him.”

  “He was sitting in the row below me at a Hawks game, maybe a year and a half ago.

  One of my friends asked me about the predictive work I was doing regarding the stock

  market. I answered. Then Tom turned around. He told me he had been in the market, as he put it, and would like to know more about my work. I described my hobby. He asked what I was doing with the capability. I told him I wasn’t doing anything—it was just a hobby. He asked for my card. He called. We met. He was impressed with the performance and said he’d like to find a way to employ it. I resisted. Employing my predictions didn’t interest me, but he convinced me that I wouldn’t know if it worked unless it was tested in what he referred to as the field. I agreed for him to look for someone to employ Augur in the market.” He sipped his drink. “And that’s where we

  are.”

  “If he’d been that energetic earlier, he might still be in the brokerage business.” “Why isn’t he?”

  “He was caught making unauthorized transactions and then lied during the

  investigation. He was fired. The record of the hearing written so that he couldn’t work

  in the industry anymore.”

  “How do you know all this?”

  “I was the assistant branch manager at the time—which explains his attitude toward

  me.”

  “I see.”

  “Now tell me about Tom and money.”

  Rubenstein hesitated. “I’ve lent him a little, but I can’t do any more.” “As long as we’re discussing problems with T.C, there’s one more.” “Yes?”

  “One of my chief concerns is the likelihood he’ll shop your program.” “Shop?”

  “Try to sell it to others. Nothing worse for me than trying to sell something that’s

  shopworn.”

  Rubenstein nodded. “So we’d like for T.C. to be quiet?”

  “Very quiet.”

  “A question. If the program performs as well during this second test as it did during

  this first, how much will you earn?”

  Larson hesitated. “I’ll be pretty conservative at first, of course, but—well—I might

  gross—maybe—sixty or seventy thousand—maybe more.”

  “Really! Why don’t I use the program myself?”

  Larson frowned. “A very good question. Does that mean our meeting’s over?” Rubenstein shook his head. “Over? Good God, no! Forgive me. That was just a

  little mental hiccup. I’m a mathematician, not a securities investor. Please forgive me.” Larson nodded.

  “Do you think some of those profits might accrue to Tom and me?”

  Larson hesitated, then nodded. “Yes, I do, Aaron. Sure. I hadn’t thought it through.

  Sure. What’d you have in mind.”

  Rubenstein was silent.

  Larson smiled. “Pretty good negotiating technique for an academician.” Rubenstein didn’t respond.

  “Okay, how about half?”

  “Half! I didn’t have anything like that—”

  “If your data and my investing techniques are productive, that would be a reasonable

  split.”

  “In that case, what if we sent Tom away?”

  Larson frowned. “Away? I don’t follow.”

  “Give him a stipend that will get him out of the picture for the year.” “There’s an idea. How much did you have in mind?”

  Rubenstein hesitated. “How about three thousand per month.”

  “Thirty-six thousand?” Larson chuckled. “We could have him hit for less than that.” Rubenstein’s face paled.

  “Just kidding, Aaron, just kidding.”

  Rubenstein relaxed.

  “Sure, I could do that.” He paused. “Okay, I’ll give him three thousand a month for

  a year—unless, of course, we stop the test.”

  “Stop?”

  “If your predictions fail.”

  Rubenstein shook his head. “Not a concern. In advance? Monthly?” “Sure, wouldn’t want that slob to have to cut back on his rations, would we? Now, a

  related idea?”

  “Yes?”

  “What if you guarantee me getting the thirty-six back?”

  Rubenstein frowned.

  “Insurance,” Larson said. “If I don’t earn at least the thirty-six, you reimburse me for

  any shortfall?”

  Rubenstein stared across the room. “That assumes you know what you’re doing, of

  course.” He paused. “But, if I don’t believe in my program, where am I? I agree.” “I’ll draft a letter of agreement.”

  May 20 The following day Rubenstein and Cooper sat at the bar at Tangy’s, a country -andwestern bar off Atlanta Street in Marietta. Overhead fans were proving inadequate and the fresh layer of sawdust did not mask the odor of twenty years of spilled beer. Cooper was ordering two bottles of beer at a time.

  “Thirsty, I see,” Rubenstein said.

  “Had to change a flat tire.”

  A guitarist was testing his sound system while a female singer almost kept pace.

  Rubenstein shifted his chair to distribute the pain between his ears.

  Cooper finished another bottle. “So, tell me why you called this meeting?” Rubenstein described Larson’s offer.

  “Shit, Aaron, I spill more money than that in a year!”

  “These days?”

  Cooper hesitated. “No.”

  “Well?”

  “Why does he want me to go away?”

  “Frankly, he says he wants to be sure that you’re not showing Augur to anyone else

  during the test period.”

  “Let me tell you this. Sam Larson has jumped a bunch of notches on the list of folks

  I’m going to deal with some day.”

  “Look at it this way, Tom. You’re on vacation for a year.”

  “All on a hundred bucks a day.”

  “Be frugal.”

  “Fat chance.”

  Rubenstein frowned. “Well, Tom, do we have a deal or not?”

  Cooper studied the label on his Budweiser bottle.

  Rubenstein pushed his Diet Coke away. “It’s just about take-it-or-leave-it time,

  Tom.”

  Cooper finished the beer, wiped his hand across his mouth, and nodded. “It’s a deal,

  but as soon as the year’s up, I’m right back in this game. I made this happen and you and

  that twit Larson owe me.”

  May 21

  Larson stopped typing the letter of agreement and called Rubenstein. “It’s not

  relative to you and me, but with the T.C. in the deal, I’d like to know what his financial

  arrangement with you is.”

  “Ninety-ten. And his participation ends five years from the date of our original

  arrangement.”

  “That’s okay. If we have a winner, T.C. will have ea
rned a piece.”

  May 22

  Rubenstein sat in the farthest corner of The Varsity at lunch and read the agreement

  letter.

  “Looks fine.”

  He signed both copies.

  “You understand this is just a memo of understanding? Unenforceable?” Rubenstein smiled. “I suspect you and I will need nothing more than this.” Larson nodded. “Now, an operational question. With T.C. out of the way, how will

  you transmit the predictions?”

  “I have a niece who works part-time at the NOAA office. She’ll be happy to make

  the calls.”

  “Good.”

  “Sheila Rubenstein.”

  Larson laughed. “Another Irish-Jewish mixture?”

  “Her mother was an O’Malley. Only a quarter of her genes are Jewish, poor girl.” Larson smiled.

  “She’ll call you when we’re ready to begin.” He stood. “So, we’re ready to go?” Larson hesitated. “Not quite. I haven’t been very active in options in the past. I had

  planned to invest in S&P500 options, but there’s a better option—one based on the

  S&P100. It’s called the OEX.”

  “OEX?”

  “Very popular—heavy volume and excellent fluidity. And, most important to my

  trading plan, it settles Americanstyle, meaning I can close my position daily.” “But I don’t predict the S&P100. Just the five hundred.”

  “I know, but it’s important. How much trouble would it be for you to adjust? To

  predict a subset of the S&P500?”

  Rubenstein closed his eyes. “Very few adjustments will be required.” He opened his

  eyes. “Just a matter of removing the data for four hundred stocks and then adjusting the

  parameters of the processing software.” He chuckled. “I won’t bother you with the

  details.”

  Larson chuckled. “Very kind of you. How soon can you be ready?” “A few hours.”

  Larson stood. “I’m looking forward to your niece’s call.”

  Rubenstein called Larson later that afternoon. “A necessary change in plan, Sam.” “Oh?”

  “The new chief of administration in Washington has been reviewing the employee

  vacation schedules.” He chuckled. “It turns out that I haven’t taken any vacation since the summer of 1999. I’ve been ordered to take some. I’m persona non grata in the office until at least June 12. I’ll be back that day.”

  “I don’t think we can fight that. Maybe I’ll take a few days myself.” Larson looked at his desk calendar, then called Elizabeth Douglas. “I have an unexpected break in my busy and important schedule. You have any interest in playing in the Seniors at Callaway this weekend?”