The Diaries of Enea Vailatti

[luigidelta]

The Diaries of Enea Vailatti
This thread is about the story of an Italian teenager with a dream, car racing, and a precise goal to achieve: Formula 1 World Championship. Is he a crazy guy? Yes, he is. Is he really motivated, and does he have the talent? Yes, he does. What follows is his story. All the events, characters, activities, and parameters mentioned here are fictional. These events are mainly generated with my favorite car racing game, Project Cars 2. Other simulators are used in the background to generate supporting and ancillary events in Enea’s life that will be relevant to the story.

Short Prologue
When I will be the first modern-era Italian Formula 1 World Champion, some people might be interested in knowing how I got there. Formula 1 is the only sport in the world that has two GOATS: Tazio Nuvolari and Gilles Villeneuve, two very similar drivers. I will never be that kind of driver—in these modern times you don't need to—but my precise objective is to be the best driver of my time. That is the reason why I am starting this diary and in a language that is not mine, because I don’t mind having my diary revised and corrected, but I don’t want it to be translated. I want the reader to feel my emotions, to read my considerations, and to learn my thoughts from me directly and immediately after the events, without the medium of a translator.

January 2010
This will hopefully be a good year for my brand new auto parts retail business. For now it is very small, but it is all mine, including the building and all its furniture. I have put together a small inventory for the initial sales, and I keep a safe reserve of 25.000 euros for contingencies. Now I have just to see how the sales go. This business brings together both of my passions: entrepreneurship and car racing. In this respect, I am very much like the great Niki Lauda. My hopes for this business are that it will financially sustain me and my project to participate in the Italian SMS Kart Championship. If I manage to attend this championship, I... will... win it, and maybe one day somebody will notice my driving skills. I need around 20.000 euros for the 4 races season in the SMS. I have 5.000 euros in my personal account, and the store has 7.000 euros of inventory to sell and to generate profit from. My first customers are my friends, of course, the people I share my fast-lane passion with. In my crazy company of friends, I am called “The Pope" because I am the fastest guy in the bunch, even if I have the crappiest car, a little yellow Fiat Punto 1.4 Sport, which I keep in pristine condition and use as a showcase for the services that my store can provide. I often race the car, equipped with special parts from my store, on the hills around Turin against my friends and sometimes against other people. I often finish in front of much better cars than mine, especially with money on the line. I claim, for everybody who wants to listen, that these results are thanks to the parts I fit the car with. All these parts, of course, come from “Vailatti Ricambi Sportivi Corp." Needless to say, the parts just play a little role in my late-night racing performances, but the potential customers don’t need to know that. As long as I and my little Fiat perform well, it’s good advertisement for my start-up.

 

[luigidelta]

February 2010

If I want to register for the Italian SMS Kart Championship, I need to find 15.000 euros right away: 10.000 for a good racing kart and 5.000 for the first race weekend in Lonato. For now I have had some tests with a rental kart on that track, and I must have gone well because the manager of the track asked me if I race karts. Well, that, I guess, is a good sign. I need a quick way to make fast bucks in the following four months because I need 5,000 euros for each of the four races of the championship, starting like I said next month. A friend of mine, Vaglia, works in the bank, where I have both my account and the store account. So I ask him for advice. Not surprisingly, he tells me that quick bucks equal big risks on the financial markets like on any other market. If I want something fast and doable with my present personal means (5.000 euros on my personal account), there are options derivatives contracts to deal with. He invites me to his place, where he has a fully functional financial trading station with computers, monitors, and all the gadgets you need to trade online, and he explains to me how these things work. Personally He does not invest in derivatives because he says that they are too dangerous, but he says that if I want, he can open a derivative account for me through the bank with a line of credit. He also sets up a demo account for me where I can practice. We spend a couple of nights together so that he can give me some practical examples on how these options work, and then technically I am ready to go and lose all my money. My initial budget is like I said 5.000 euros.

The 5th I am ready to place my first contract. The general state of the economy is good. GDP is estimated to grow at a 1.1% rate in the first quarter and that should help companies stocks. Options are bought and sold on stocks, and they are the option to buy a stock at a certain time in the future. Like I said, you can buy option or sell options. Selling is more risky if the stock moves against you because, in that case, your losses are technically unlimited the more the stock moves against you. Buying is less risky because all you can lose is the premium that you paid to buy, but on the other hand, it’s more difficult to generate profit because not only do you have to decide a reasonable strike price, like when you sell, but you also need to nail the direction of the movement and the period of time in which the movement will occur. So, of course, it is less risky but less profitable on average. Every contract is settled the 15th of each month, but if you want, you can make contracts of length up to two years. For now, I am only interested in very short-term deals.

Another derivative opportunity are the future contracts on the stock index. This is a high-risk, high-leverage financial operation, but slightly less risky than the options, as the volatility is usually lower in the stock index than it is in the single stocks. I decide to start with the index, and I invest 2.400 euros in a future contract expiring in March. The contract costs like 49 grands, but I can put down a deposit of only 5% and borrow the rest from the bank. Of course, if the index moves against me, the losses are calculated at the leveraged amount, and I would quickly be wiped out and probably lose the store in the process, which the bank asks for as collateral to cover such leveraged financial deals. The 15th of March, my first operation with the stock index concludes positively. I doubled the 2.400 euros invested, and now my account stands at 7.050 euros. Not enough for my exigencies of this month, but it’s a start. The rest of the money that I need for this month I will take from the store account. Fortunately, I have a house, and I don’t need to pay rent. I am trying to limit my expenses to one thousand euros a month. Not easy or comfortable, but feasible. Whatever it takes to finance my racing career. After all my operations for March, including the purchase of a race gokart and the registration for the first race of the year, I remain with 2.050 euros and 3.000 euros in taxes to pay at the end of the year. Tight situation, but the beginning is always rough.

 

[luigidelta]

March 2010

The competitors in the SMS Kart Italian Series for 2010 are: Stefano Ilo, Ugo Amaldi, Carlo Mallini, Domenico Scomba, Barbara Lacina (a very beautiful and fast lady), Franco Erve, Nicola Gabbiani, Giorgio Usori, Bastiano Elmanni (the reigning Italian champion), and myself, the rookie.

In this championship, 6 points are awarded for the first position, 4 for the second, 3 for the third, 2 for the fourth, and 1 for the fifth. The pole position is rewarded with one extra point. The first leg of the championship is the traditional season starter at the Lonato kart track in Lombardy, which is the place where I did my short preseason tests with the rental kart. In the qualifying, I don’t do bad, but I could have done better; third time and a lot of regrets. In pole position there is Elmanni. With him in first row, beautiful Barbara, who confirms to be very fast—3 tenths faster than me anyway. Domenico Scomba is besides me in the second row, only 59 thousands of a second slower than my qualifying time. Mallini is fifth, Gabbiani sixth, Amaldi seventh, Ilo eighth, and last comes Usori for this first race.

At the start of the race, in the first corner, Scomba, who had the fourth position, loses his kart and spins out. He will finish 8th. I maintain my third position behind Barbara, who passes Elmanni also at the first corner. So the first three are Barbara Lacina, Bastiano Elmani, and me. In the first lap, Amaldi bumps into me with an aggressive move but doesn’t manage to overtake me. On the contrary, he is forced to slow down, and the drivers behind him need to slow down behind him to avoid a collision. This fact favors the creation of a gap between the first three, Elmanni Barbara and myself, and the rest of the pack.

In the first two laps, Elmanni and Barbara push hard, and I confess that I have a hard time staying with them. I lose some ground, but not too much. By the beginning of the third lap, though, I start closing the gap with Elmanni. I am getting in sync with the track. Barbara continues to lead with authority in front of the defending champion.

At a very hard braking zone, I manage to pass Mr. Champion with a dive. He must have been very upset by my move, because during the same lap, in the last corner before the finish line, he hits a pile of protection tires and loses three more positions, also slowing down the rest of the pack via yellow flags. With that, Barbara and I take off and extend the gap considerably. From there, the rest of the race is an exciting duel between me and the lady. For three or four times we pass each other at different points of the track, but in the last lap I am the one that prevails and secures the first victory of the year. Barbara is second, Mallini third, Ilo fourth, and Amaldi fifth. Elmanni gets one point as well out of his pole position in this race and can claim the provisional sixth place in the standings. The fastest lap in the race is recorded by Franco Erve in 1’08”060. Gabbiani and Usori DNFed. I could not be happier for the result of my first race. I have demonstrated that I can be right in front of the pack. After the race, in the small paddock, I can already notice some eyebrows raising. The rookie wins! I know it won’t be the last time.

For our next appointment in April, we go south to the province of Salerno on the kartdrome of Sarno. This is a very technical and not very fast track where the control abilities of the drivers are tested to the utmost. I guess we shall see.

 

[luigidelta]

April 2010

At the end of March, Vaglia signals me that there should be a stock going considerably high in the month of April. That would be News Corporations Stock, an American broadcasting company. Vaglia says that the stock should go up. I decide to take the risk. I need big money for this month. I will use the store account for this operation and ask Vaglia to set up a derivative account for my company as well. The investment is 9.000 euros for buying call options on 1% of NWS stock. I put the operation underway on the 19th of March with NWS stock at 43 dollars and the strike price at 44.5. The following morning I urn on the computer, and the stock is at 55.6 dollars!! The provisional value of my call option is now 118.000 euros!! This amount is being ripped off an American store chain called A&P International, which is my counterpart in the derivative agreement that sold me the option. By the end of the month, the stock is at 61.33 dollars, and Vailatti Ricambi Corp. has a provisional profit of 170.000 euros taken out of the cash registers of A&P. On the 15th of April, Vailatti Ricambi Corp. closes the operation with 350.000 euros in profit, having halved the bank account of the American supermarket. News Corporation stock closed at the whopping 80.64 dollar mark. An unexpected outcome, way, way over Vaglia’s forecast. He made my company relatively well off in one month. Now the challenge will be how to intelligently allocate this newly earned money. At this point, Unicredit Bank concedes me a line of credit of 370.000 euros, which I intend to use freely to finance the rest of the Italian Karting Championship and to lower my tax level using the passive interests that I will owe to the bank. According to my accountant, this should be a good strategy. Unfortunately, the estimated value of my company skyrocketed all of a sudden thanks to the injection of cash from A&P, and this is considered a capital gain for me by Italian law. So I now owe 8.000 extra euros in taxes if things stay as they are.

Now, as far as my racing season is concerned, first thing, I need a van to move my kart and my portable pit around. I find one at the Fiat dealer of Moncalieri for 12.900 euros. It is in good condition, and I buy it. Then I take my entire mobile racing headquarters down south for the second race of the year. When I come back, I will see how to use the company money to improve the business.

Qualifying at the Sarno kartdrome is interesting. I again record the third time in quali. In pole position, there is Amaldi, and Barbara Lacina is again second. Mallini is fourth, Ilo fifth, Erve sixth, and the Elmanni is only seventh this time. It will for sure be an interesting race.

On this track, Amaldi proves to be unbeatable. I am very disappointed. I tried to stay with him as long as I could, and I managed to for a couple of laps. Then in the third, he started to pull away to my greatest frustration. Also, Franco Erve had a great race. He started sixth and finished second, overtaking everybody, including me in the eighth lap after having passed Barbara in the previous lap. In the process, he recorded again, like in the previous race, the fastest lap in 29 seconds and 935. After this second race, I am still leading the standings with 9 points, but Amaldi is right behind me with 8. Barbara follows with six, and tied at four, we have Mallini and Erve. Like I said, I am very frustrated, and I consider this second race, where I lost two positions and didn’t manage to stay with the leader, a big defeat. I am not the only one to cry. The defending champion, Bastiano Elmanni, had another pretty bad race, starting seventh on the grid and finishing in 9th position at the end. Something must be very wrong with him or with his vehicle. The only point he has scored so far is the one for the pole position in the last race, and he trails now in 7th position in the standings.

 

[luigidelta]

May 2010

In my weekly session with Vaglia, I learn that the economy is slowing down quickly. Estimation of GDP growth for the first quarter is now 0.7%. Many companies stocks are going down in the newly announced difficult conjuncture, but derivatives trading allows the investors to profit even in a declining economic situation. You can bet against companies, and the big investment banks have to take position as your counterpart even in a situation they don’t believe in, just to keep the market liquid. Of course, if you are wrong, your counterpart will still win and you will still lose. It is the predatory nature of the financial markets. Since my new tactic is to minimize my personal taxes and also the company’s, with the recently acquired money I enlarge the store, buy more inventory of tuning kits and car sport parts, and also hire two employees to make operations smoother. According to the accountant, the store has 79.000 euros to pay in taxes at the end of the year because of its capital gains, but it also has a discount for the operative negative profit of the first quarter (8.870 euros) and a bonus for the big investments made in enlarging the company (18.090 euros). In operative profit, because of all the start-up expenses, so far the company lost 6.380 dollars in the first quarter. We will see what happens in the second. After all the investment in April/May, the store still has 173.000 euros on the bank account, and at least part of that money will be used again by the derivative account if some good opportunity presents itself. Big scare this month, when LGI, stock of a big book chain store, fell 10 dollars right when we were closing a selling of put options contract. We could have been wiped out. We didn’t. Instead, Vailatti Ricambi profited 2.500 dollars in option this month. Operative business is also receiving a big sales boost as well. When on May 31st we close the quarter, we will see for sure.

For now, I need to draw more money from my personal line of credit with Unicredit. 1.000 euros for my monthly expenses, and 5 more thousands for the third race of the season and the trip to Viterbo near Rome, where the race will be held. Viterbo Kart Track is a very simple and fast circuit with a couple of very violent braking points. You have to brake a lot on this track. When I get there with my van, the entire circus is there already. I have difficulties socializing with the other drivers. They are my competitors after all, and in any case, I am not too good at social relations anyway. That is one of the reasons why I employed a couple of people to deal with customers. I also allotted 10% of the company profit to advertising, but sooner or later I have to start my own personal advertising by using the products to tune my Fiat Punto and taking the car to show off at some car gatherings. Turin being the town where Fiat is located has a huge underground car racing culture. Illegal racing is part of these gatherings, and I am sure that participating in some of these events with my little yellow and winning maybe against superior cars could be a sale booster by itself.

For now, I concentrate on the Viterbo race, though. I have a single point of advantage over Ugo Amaldi, and I have really focused on qualifying well here. At the end of the qualifying session on Saturday, I am disappointed again. I am third for the third time in a row. The pole gets to Barbara this time; it’s her first one after two consecutive second places on the grid. On a positive note, Amaldi is only 5th after Mallini. Still bad, Elmanni is seventh again for the second time in a row after his pole position in the first race. Something must be really wrong with his kart. I can’t believe that after having won a championship last year, suddenly he doesn’t know how to drive anymore. The weather is overcast, and there is a chance of rain during the race.

This race has been a disaster for me. I finish 6th and fail to score any points. At the start, Erve jumps ahead of Barbara and takes the lead. Great start by Mallini as well, who overtakes me and will finish second. In the second lap, I struggle to stay with the first three, and even Ilo starts to harass my pathetic fourth position. At the end of the second lap, my troubles begin. I have a contact with Mallini and race direction gives me a slow down penalty I not only lose my position to Mallini but also temporarily my fifth position to Usori, who was doing a very good race from his starting 8th position. Fortunately, I wake up in the third lap and regain the fourth position. Now Erve opened a little bit of a gap on Barbara; third is Ilo, and fourth is myself. All I have to do is focus and go win this race. In the last corner before the finish line I overtake Ilo and I am third again. Now on my next target: Barbara. She and Erve are fighting in front of me, which helps me closing the gap. Then, out of the blue, in the S after the finish lina, Ilo overtakes me again. That really made me angry. I want to be the F1 world champion, and I can’t hold an average Kart driver behind! It takes me half of the 5th lap to pass him again, and then all of a sudden I am in Barbara’s pipes at the end of the lap. Battle is on!

6th lap, first hairpin. I hit Barbara and got another slowdown penalty. I lose two positions again, and in the 8th lap, with two laps to go, I made my first big mistake of the season, probably because of the frustration. I overbreak myself in the last hairpin and simply go straight in the corner, spinning the kart out. An unforgivable naive mistake! With that, I find myself in 7th position, and I manage to gain one spot before the end of the race, finishing sixth. Also, by hitting Barbara like the amateur that I am, I caused her to lose control of her kart and to end up the race in ninth position.

All that mess made me lose the leadership in the standings with one race to go. First is now Franco Erve with 10 points, followed by me and Amaldi with 9. Mallini has 8 points and Barbara 7, and I would say that the fight for the title in the last race at the prestigious racing track of Franciacorta is restricted to the five of us. Technically, Ilo, with 5 points, is still in contention, but only all the drivers in front of him have a catastrophic race—not likely. I am not at all satisfied with my first season, even if I win the title. I didn’t manage to dominate as I thought I would have, and at this point we can just wait for the last race.