RichardGibbons

Suppose that he bought WFC in his personal account rather than JPM. And then, suppose after a couple of years, he decided that, amid WFC's recent scandals, the bank had lost a significant part of its competitive advantage and it was time to sell. He knows that Berkshire selling would likely have a negative effect on price, which would hurt the position in his personal account. So, what does he sell first, Berkshire's stake in WFC or his own? Since his personal account potentially benefits from front-running Berkshire, that's a conflict of interest. By ensuring his personal stockholdings don't intersect with Berkshire's he can avoid this issue.

Good point. Sorry for misunderstanding your post, indirect. That is pretty interesting, and is some huge volatility skew. It would be interesting knowing how often the market's gone up more than 5% in 3 months and what the average gain has been vs. how often it's gone down 5% in 3 months, and the typical loss. (Not to say that the market today is like the average day in the past 100 years, but rather it would be interesting just knowing that as a starting point for thought.) One other method of exploiting this might be by taking some of that short put money and hedging with some VXX calls (because the trade is probably only a disaster if the S&P 500 crashes, and VXX calls would do well in a crash.) Or changing the short put to a bullish put credit spread to reduce the downside. Maybe I'm just getting more complex than necessary, but I just hate getting into positions with potentially huge losses (e.g. a 25% crash like 1987 would cost almost 50 points).

I'm not quite sure where you're getting your data, but I think the source is incorrect. Put/Call parity means that, in a liquid, shortable security, puts and calls are typically close to optimally priced relative to each other. (By put/call parity, I mean a call is equivalent to long shares plus a long put, and a put is just short shares plus a long call.)

To me, the negative opinions on Fairfax are far too extreme because, based on the outcome of a single event, people seem to have concluded that Fairfax can't do macro. But suppose that, at the time the last macro bet were made, there was a 50% chance that the bet was right. If that were the case, Fairfax was betting on a coin flip, where, if it came up tails, they'd lose $X, and if it came up heads, they'd make, say, $6X. Well, it turns out the coin came up tails, so they lost $X. But now to claim because of that single bet that Fairfax's are likely to be low in the future--particularly when that single bet may have been a good bet to take--simply because the bet had a bad outcome seems illogical. It kind of smells like outcome-oriented thinking unless you believed strongly seven years ago that the bet was a bad one. And to my (faulty) memory, I don't remember many people making strong claims back then that the macro bets were a bad idea. (In fact, if it were the case that the odds were like the coin-flip described above, I'd be delighted if Prem et al make those macro bets again and again. The more the better.)

One alternative that gets you American exercise is to go with SVXY or UVXY options, but that's at the cost of value decay from contango in the underlying while volatility is low (reversing to backwardization when volatility is high). I agree with you that there doesn't seem to be a good alternative for volatility options with long duration that doesn't suffer from either European exercise or decay due to contango.

One subtlety to these that is worthwhile noting for those who might be considering a similar trade is that VIX options are European exercise--they can only be exercised on their expiration date. What this means in practical terms is that, if the VIX hits 50 in October as a result of a crash, these options will be worth much less than $35 then. With deep-in-the-money European exercise options, the time value works against you.

Yeah, I think you're right about the headwinds versus the tailwinds. I think you can get pretty far simply by reducing the headwinds dramatically with better education. http://www.huffingtonpost.ca/entry/social-immobility-climbin_n_501788 The other concept that's useful, and I think Scalzi has written about, is financial resilience to handle random bad events. e.g. If you're middle class, and your car breaks down, you get it fixed, and maybe take temporary hit to your credit card, but nothing insurmountable. If you're poor, and your car breaks down, you might not be able to get it fixed, and so you might not be able to get to your job, so you might lose your job. Essentially, parental wealth (middle class+) gives you a greater buffer against random bad luck.

Fair point. I thought when you said "banking system", you mean the entire system (i.e. including the CMHC, the Bank of Canada, and the governments). If you mean just the banks, then I think you're more right than wrong--there's a lot of truth in Chuck Prince's comment that "you dance when the music is playing".

To me, this is a very odd thing to say when we're in the middle of a massive housing bubble, when--in a world where houses are considered affordable at three times income and grossly unaffordable at five--houses in Vancouver are going for eleven or twelve.

Package sorting and warehousing management.

One of my friends founded a robotics company. His business model is not to sell the robot, but rather rent it out for the equivalent of the cost of a human (i.e. if the human would be paid $30k/year, the rental for the robot is $30K/year). But the robot doesn't take sick days or vacation, doesn't get benefits, and doesn't quit and need to be rehired and retrained. With this model, if the capabilities of the robot are the same as the human, the risk of using a robot is low since costs are automatically lower. When I look to see at the places his company is gaining traction, I have little doubt that cost will be a problem--he's already replacing fairly low playing jobs, and efficiency will only improve. Thus, I think almost anything that can be roboticized will.

This is an interesting observation, considering that Canada has more businesses started per capita than the USA. (e.g. 78K in Canada in 2014 versus 452K in 2013 in the USA. I'd expect this just from the difference in healthcare policy--if the finances and literal survival of your family depends on you working for a large corporation that provides decent health insurance, it's pretty irresponsible to do a start-up. So it makes me wonder if your observation is simply anecdotal and not representative of reality, or if Canadian immigrants do start-ups at substantially lower rates than families that have been in Canada for longer.

This is quite good, I think, rkbabang. It makes me wonder about how to achieve this efficiently in a world with Putin. Like, tiny groups can't efficiently do defence, or highway systems, or big buildings, or law systems, or healthcare. But is there some easy way to take a bunch of tiny groups and make agreements between them to deal with these bigger issues, and then agreements between these bigger groups to deal with even bigger issues etc.?

In the spirit of continuing the list, I too care about these ones. I also care about: 3) Concentration of revenue by customer 4) Terms of convertibles & preferreds (basically looking for anything where management or investors are incented to drive down the share price, like saying a preferred can be converted into enough common shares that its value will be $25.) 5) Distribution of revenue by product type or geography (looking for incongruences between what I believe is happening in the company, and what is happening in the company) There's probably more, but I can't think of them now. The checklist is a really good idea for this one, rukawa.

I'd be into trying it and seeing if it actually works. That said, I suspect it wouldn't work because medicine is one of the markets where price signals to consumers don't actually work because consumers are incapable of understanding what medical treatment is required, nor judging the quality of the treatment that is delivered. Combined with profit-maximization in medicine, the result is overly inflated costs. Munger's heart-surgery example from the Berkshire AGM is a good example of the problem. Nevertheless, it seems worth trying because without experimentation, it's very hard to know what works. I feel like you almost need 10 states to sign up for 10 different approaches, wait a decade, and see what worked and what didn't.

Almost everything I know about Libertarianism I've learned from COBAF. Thanks rkbabang! :) So for me, I use the word libertarianism somewhat as you describe: "The most sacred value is individual freedom as long as one's freedom does not infringe or harm other's freedom. " But I don't mean this part: "The society facilitates this by creating and enforcing laws to prevent harms against individual freedom." Because rkbabang's prescription against use of force forbids taxes, which eliminates the ability create and enforce laws (well, unless you mean the guy with the most money who builds the biggest private army makes the laws, but that seems to violate the "freedom" thing). Yeah, this makes sense to me, and the "pairing" strategy you talk about is new to me, and an interesting idea. (That said, I think socialism is stupid also--there needs to be great rewards for innovation.) I think your argument about why the right tends to have religious values is probably flawed. I suspect it's actually based on attributes of the individuals involved (e.g. belief in authoritarianism, belief in luck vs. hard work responsible for success, intelligence etc.) rather than a deliberate pairing. I think the optimal strategy for humanity is to throw out ideology, figure out what works, and moving in that direction, where "what works" means good happiness outcomes for most members of society, and almost no members of society for whom the outcome is abysmal. (i.e. avoiding awful genetic lottery outcomes).

The problem is that this doesn't work even for trivial examples. It's as practical as the communists saying that the best economic system is everyone working to the best of their abilities and sharing the output of their labor. (Unfortunately, I agree with your argument that someone is eventually likely to cause widespread destruction.)

Thanks for the response, wachtwoord. I think it answers my question very well. I suspected that was the answer, but I was still curious.

You're right--railing was the wrong word. Sorry. It's because I'm reading a book by Guy Gavriel Kay, so I naturally become flowery. Overly, in this case. It's hard to understand your position because, if you a deep evil being committed against someone and have the ability to prevent it, and yet choose not to, then you are complicit in the evil, and I believe that most people recognize that. There actually isn't that much to discuss, simply because the case is so clear-cut (which I think was the point of that case). One thing I was thinking about last night is this core belief and how it negatively impacts the communication of the libertarian message. (I'm going to take at face value that you guys actually want a libertarian state, and aren't simply espousing libertarian beliefs because it's fun to complain about taxes.) One seems to need to have these sort of core beliefs to be a libertarian. But, to a great majority, some of these core beliefs are abhorrent (ignoring a child rapes) or impractical to the point of ridiculousness in the real world (taxation is theft, government exertion of force is almost always unethical), or inconsistent (people shouldn't hurt other people, but regulations that stop people from polluting shared resources are bad). So then, if you're trying to persuade someone that libertarian ways are good, but you don't see any problem with ignoring a child rape, you're probably going to have a hard time persuading them that libertarianism is good, simply because child rape is so abhorrent. In other words, your core beliefs essentially make it hard to persuade anyone to agree with you politically. It puts you on par with the communists--passionate about their cause, consistent in their beliefs, and utterly unable to convince anyone because of the impracticality in the real world. So your options seem to be persuade people as children (akin to organized religion), or deviate from your core beliefs enough to be able to make reasonable arguments (which most libertarians I've met don't seem to want to do.) Neither one of these possibilities seems promising, but maybe there's a third option I'm missing? It is interesting, because I think there's a lot to like about libertarianism, and people who believe in the free market should be naturally receptive to it. But, if I look at myself, maybe the difference is that libertarians believe in the free market because of ideology, while I believe in the free market because of evidence that it works (and would be willing to abandon free markets if something better came along (and in fact do abandon free markets in medicine where better options have been proven). I guess from my perspective, this is a pretty good outcome--the world gets to learn the libertarian ideas that work, and ignore the ones that are goofy. But looking at it from a libertarian perspective, it would be frustrating, being unable to convince people of the rightness of libertarian ideas because the core beliefs prevent that. I'm curious if you guys (wachtword, rkbabang, onyx) have a perspective on this. (For you, is it as simple as believing your beliefs are so clearly correct that everyone should be persuaded by your arguments, so my point about problems persuading people doesn't make any sense at all?)

Yeah, I think this is a great example supporting your first post in the thread. You've basically proven your point, but if libertarians accept that there is a moral imperative to save kids from being raped, then huge part of their core beliefs come crashing down around their ears. Thus, we get wachtwoord and rkbabang railing against your straightforward argument, just as the comic suggests they will. Very elegantly done, Liberty.

Don't worry about it. The MLS chart actually disproves Frank's point. The only reason it looks like SFH have gone up more than apartments is because the scale is linear rather than logarithmic. That always makes the higher line on the chart look steeper when in percentage terms, it isn't. If you look at the numbers, two storey SFHs start at $355K and end at $960, an increase of 270%. Apartments start at $150K, and end at about $425K, an increase of 283%.

I agree that the degree is far less important than the person, though I think it's more than simply social signalling. My interview questions focus on some stuff people have learnt in school not because I care if they went to school, but rather because I know that if they don't understand how to apply concepts like computational complexity, the odds of them being awesome at a programming job is low. I think the Ben Graham stuff is part of evolution. It's easier to be revolutionary if you have a strong grasp of the ideas of others. Or at least that's my experience. I'd be surprised if a huge portion of the people here lie about their returns because it seems pointless and rather stupid. Instead, I think it's selection bias--there are a bunch of people on the forum, and the vast majority of the ones who want to talk about their returns are the ones who have outperformed. Jurgis has been quite open about when he's had subpar results, but I think he's exceptional in his intellectual honesty. I'm not sure about the extent the lemming thing may be true or not, or whether this forum would be better or worse than anything else. I feel like the length of the threads on things like SHLD and VRX are more representative of the controversy of those companies than the board's interest. Since this is a value board, and value's been underperforming for a while, I'd expect that, in the last few years, bad returns are more likely on this board than a growth board, but I don't think that's necessarily representative of long term performance. It is certainly an interesting question.

It's because with an engineering degree, you can build cool stuff like robots. QED. You place way too much emphasis on disparaging the conventional as if unreasoned unorthodoxy is something to be proud of.

Yes, there is. It's called bankruptcy. Yes they are--their student loans aren't dischargeable in bankruptcy. IMO, they should allow student loans to be dischargeable. The result would be fewer student loans since lenders would have to care a bit more about creditworthiness. But I think it's probably a good thing if people are unable to borrow hundreds of thousands of dollars to get degrees in 16th Century Austrian literature.

The thing I'm curious about is whether the electorate would see an increased inclusion rate as a good or a bad thing. The world, and the Liberals in particular, are certainly regressing to class-warfare rhetoric. So does the electorate overall buy into the argument that increasing taxes on savers and investors is good? (Essentially, "we spent so much on our overpriced house that we need to take money from anyone who actually invested their money prudently to pay for our retirement?")