RichardGibbons

Yeah, it should have been only one game. The game immediately after the cheating was discovered. :)

It was mentioned in a (non-subscriber) mass email from the The Motley Fool Canada. That may account for it.

This is fun. I wonder, if Einstein near the end of his life decided to open a hedge fund, would he never have been a genius, stopped being a genius, or some other option? We should probably make a list of occupations that are unable to have geniuses, just in case a genius wants to change jobs, but doesn't want to lose their title of genius. I wonder if there was a certain time period before which it wasn't possible to be a genius then. Like, it wasn't possible to be a genius before the Renaissance because no jobs existed which qualified for the "genius" title. Except Ancient Greece, Rome, and Persia, because they had some guys with cool jobs. So, we had geniuses, they all went away, then they all came back.

Saying someone can't be a genius because of their occupation seems nuts to me.

I fit in here. A decade ago, I could have afforded to purchase a home with cash on the west side of Vancouver. However, I rented instead. This allowed me to get aggressive in wealth building, both in investing and starting a business. Now my net worth is roughly 4 times what it was then. That said, I might have done better if I bought 8 houses with maximum leverage. But I think that's irrational outcome-oriented thinking. (i.e. the same seeing a 10 come up in roulette in Vegas, then saying that I would have been better off if I bet all my assets on 10.) These are mostly the same thing. In the first case, your ownership of businesses and their cash flow is the same, while the price people will pay you for them declined. In the latter case, your ownership of the house and its implied rent is the same, but the price people will pay for it has declined. I think the main difference is that the former is likely much more diversified and much more liquid, and therefore less risky. You likely think there is something magical about owning a house and that it shouldn't be evaluated based on its cash flows because you live in Vancouver. Lots of people think that here. It only makes sense to use this sort of reasoning if the cost of the debt is fixed over the lifetime of the debt. Since, in Canada, almost all first mortgages are for a small fraction of the period of time that the debt is paid off, then this is bad analysis. If you want to use this sort of reasoning (which I think is a bad idea, but I'm conservative when it comes to large bets), then the most reasonable thing to do is to estimate the cost over the full life of the debt, then add a margin of safety. The funny thing is that most of us would say that it would be a bad idea to use 5 year debt to finance a project that will take 30 years to pay off that returns an extra 2% a year above cost of capital. The risk of interest rates rising or the business environment worsening is just too high to make a it a sensible bet. But call the project a "home" and suddenly people think it's a good idea....

Sorry Frommi, I missed that you were talking about buying puts 50% out of the money. In that case, you're right of course -- if you miss a couple times, you're screwed. I think you won't find a cost of leverage below 5% annually very often. Perhaps in some ETFs, but even then it would be hard. It's pretty hard to think of a security trading on an exchange that has such low volatility....

You fool yourself when you think that way. See it as 50% of your networth in call options and then ask yourself if this is a prudent thing to do. 2 full losses after one another will wipe out 75%, after 3 you start from 12.5% of your networth again. This is not the same as 50% of your net worth in call options. It's the equivalent of 5% of your net worth in call options. Suppose you have 50% of your net worth in stock, and that's hedged by 5% of your net worth in at the money puts. The worst scenario is that you have to exercise the puts because the stock falls. In that case, you lose 0% on the stock, and 5% on the puts (equivalent to putting 5% in calls, and having them expire worthless.)

Yes, that's a fair point. I think it's probably because of two things. First I was at an age where I actually thought about it. And second, because I believe that some reasonable people could believe that the others deserved it (even if I disagreed), whereas I had a hard time believing that anyone could reasonable believe that Obama deserved it at that point. It seemed entirely motived by his charisma and the judges' racism.

Yeah, I think the Obama one makes the organization lose all credibility. What they heck were they thinking?

OK. Here's the thread, Gio, with a tiny update: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/leveraged-daily-return-etfs/

Bumping this since Gio asked in the painful Fairfax thread. The main difference between my thoughts then and my last post are. I shouldn't have said the ZIV long is comparable to a UVXY short. I'm not sure why I said that, because it isn't very similar at all, and I knew it then. It's similar in the sense that they will mostly move in the same direction, but the magnitude of the moves and the long term results will be very different. To me now, ZIV seems superior to SVXY, just because of its lower volatility and far lower chance of going to zero. That makes it much more tax-efficient, less complex, and less impacted by volatile volatility. I'll still do SVXY trades occasionally, but will be more opportunistic (i.e. caring more about mean reversion and less about contango).

No, you're right, rjstc. I did actually make a buy today -- ZIV. Doesn't belong on this board though, and it has been discussed elsewhere.

These are interesting points, some of which I agree with and many of which I don't. The problem is that I don't think at this point that you actually want to have a good-faith discussion about them, and I feel I've made my position very clear to anyone who cares to read it. Plus, it's annoying discussing many of these things, since you either aren't rigorous with definitions, or are deliberately distorting them to try to make your point. (e.g. "value of security" <> "Richard would pay that value"; "value of FFH shares" <> "market price of securities in FFH's portfolio"), and another reason I won't get into. Plus, I have a feeling that the board is pretty sick of this dialog by now, so I think we should give them a break. Don't worry, I'm sure we'll argue about something again before the year is done. :) Good luck.

Try to reconcile that comment "makes no sense" with this one: Right, so why does it "make no sense" to value the securities at market if you don't disapprove of valuing their securities at market? To me this looks like two different Richards are posting their thoughts. Yeah, that's because there's a difference between "valuing their securities at market" and valuing their security (i.e. shares of FFH) at the value of the securities they hold. Those really aren't the same thing. That's true but it's off-topic. In the first quote I provided above, you said that valuing it (hypothetical Fairfax) at book value made no sense. Thus, in that quote you are valuing the securities on the balance sheet above market. That conflicts with the second quote where you say that you don't do that. No, I'm not. I'm valuing the security (hypothetical FFH) above book value. I say nothing about the value of the securities on their book. (And even if you assume book value is consisting entirely of securities at their current market price, I'm still saying nothing about the value of the securities on their book.)

So, up there you say "in a hypothetical". So do you understand what a hypothetical means? Can you make the leap to figure out why taking a hypothetical and using it as evidence to say that's what I think Fairfax should be worth, is misrepresenting my view? To make it clear, any hypothetical examples I use aren't necessarily representative of how I view reality. For instance, if I say, "hypothetically, if China attempted to land an army in California, USA would probably try to stop them", I'm not saying "hey, China's attempting to land an army in California!" And if you say "Richard's saying China is attempting to land an army in California", you are misrepresenting my views. (To be explicit, as far as I know, China is not attempting to land an army in California.) Is that clear? (Please tell me that you've figured out that the is conversation has long since past the stage where it became pointless and boring....)

Try to reconcile that comment "makes no sense" with this one: Right, so why does it "make no sense" to value the securities at market if you don't disapprove of valuing their securities at market? To me this looks like two different Richards are posting their thoughts. Yeah, that's because there's a difference between "valuing their securities at market" and valuing their security (i.e. shares of FFH) at the value of the securities they hold. Those really aren't the same thing.

Also, please don't misrepresent my position.

Please don't misrepresent my position. I haven't. I said that if they are indeed value investors, and if they indeed have a portfolio of stocks and bonds that is marked-to-market below intrinsic value.... then it must be the case that FFH itself should not be trading at intrinsic value. You disagreed, saying that we must DCF those future capital gains -- therefore, the only way for that to be the case is if the market puts the "magic hat" premium on FFH such that the current market price reflects the intrinsic value of the stocks and bonds that they currently hold. It's okay though if you don't even realize the implications of what you said, but it's not a misrepresentation. Sorry, where did I say that I think they're going to have six-sigma returns? Where did I say that I think that I believe their portfolio is trading below fair value? Heck, maybe I think that they are likely to under perform the market. Please don't misrepresent my position. First, you disapprove of valuing their securities at market. Now, you claim you can't tell if they overperform or will underperform the market. Which Richard will we hear from next? I also haven't said that I disapprove or approve of valuing their securities at market, or claimed that I can't tell if they will overperform or underperform the market. Oh, I think I figured out why you're so confused. You believe that someone saying "I didn't say X" means "I believe the opposite of X". That isn't the case, OK? Saying "I didn't say X" doesn't imply anything about the my beliefs about X. The Richard you'll hear from next is the one who doesn't want you to misrepresent his position, because he's proven you wrong already, is bored of the discussion, but doesn't want people to believe lies about his beliefs. Same one as the last 3 messages. Please don't misrepresent my position. <== This is what I'm saying (just in case it isn't clear)

Please don't misrepresent my position. I haven't. I said that if they are indeed value investors, and if they indeed have a portfolio of stocks and bonds that is marked-to-market below intrinsic value.... then it must be the case that FFH itself should not be trading at intrinsic value. You disagreed, saying that we must DCF those future capital gains -- therefore, the only way for that to be the case is if the market puts the "magic hat" premium on FFH such that the current market price reflects the intrinsic value of the stocks and bonds that they currently hold. It's okay though if you don't even realize the implications of what you said, but it's not a misrepresentation. Sorry, where did I say that I think they're going to have six-sigma returns? Where did I say that I think that I believe their portfolio is trading below fair value? Heck, maybe I think that they are likely to under perform the market. Please don't misrepresent my position.

Please don't misrepresent my position. I've said nothing about the value of Fairfax. That said, you are correct that I do believe in the ridiculous assertion that fair value of a business is the discounted value of its estimated future cash flows. It is in contrast to your belief that investment businesses are special and should only be valued at the value of their assets. Also, I think your definition of value is different. For you, it seems to mean, "I would buy this thing at this price". For me, it means "this is what I think the business is worth".

This is a hilarious response, because it doesn't address any of the counterexample at all. It's like "Oops, I was just proved wrong. Umm, let's wave my hands, talk about option pricing, paying managers money, and hope that people don't notice I was just proven wrong." OK, now I'm going to shut up, because I'm being a bit of a jerk. It's not nice to call people on these sorts of things.

Most Monte Carlo-based studies I've seen indicate that if you only withdraw 3% of your (balanced) portfolio a year, your money will be very likely to continually appreciate. So, my personal strategy is to take an even more conservative 2.5% withdrawal rate. In other words, for every dollar of income I want in retirement, I want $40 of savings. If I were older, I wouldn't be this conservative.

Was done with this discussion, but I thought of an example that amuses me. Company A: Puts all of its $100M in assets in an index, and waits. Company B: Its management has stated that its strategy will be as follows. It will holds $100M cash, except every week, 2 minutes before the SPY options are about to expire, it puts 50% of its portfolio into purchasing the farthest out of the money options that are available. These options will almost certainly expire worthless, so its value falls 50% every week. Per Ericopoly's valuation methodology, these two companies have the same value. (In fact, I imagine he'd be eager to purchase company B, since it would likely be trading at, like, 1% of Ericopoly's fair value. A huge bargain!)

I suspect part of the reason for the low response rate is that many of the pros don't read this board on weekends (simply a hypothesis based on volume of posts). See if anyone answers tomorrow....

Yeah, you know, this doesn't make any sense. Your first clue should have been that this is the thesis of your post: This is nuts, and should have clued you in that your logic is flawed. That said, I've made my point as simply as I can make it, so I don't have anything to add. Good luck.