racemize

In this case, I deliberated said I can only lose $2 from BAC. I wasn't being verbose by accident -- in other words, I'm not ignorant to the fact that WFC can drop below $30. I've been down 50% on multiple occasions -- in 2009 for example I was down 50% below my 2008 high at one point, and then again last year I was down 50% at one point off of my early 2011 peak. I'm not trying to protect against that, I'm trying to protect against an event that is specific to BAC. Yeah, so I think I've been pairing this a little differently in my head (figured this out about an hour ago). I was pairing the WFC and BAC options together and you are pairing the BAC option and BAC position together. I got stuck in that line of thinking since they were a paired trade, but I see what you mean now. For explanation, if you think of the WFC and BAC together and offsetting (e.g., if they both move in concert), then you don't have protection from BAC at 7 dollars, since the BAC option is effectively nullified by WFC option. Conversely, you could say you are protected for BAC, but you are now underwater on the WFC option. All that being said, I understand that you are protecting against a particular event, and the above is not that event.

I've only got 2+ years, so I don't think I can respond with any meaning. The current year has made my IRR for the overall about 50%, so that's totally useless...

I think of options in a more fluid sense - I see it as managing likelihoods. 1. This still leaves you with the loss on BAC original position - if you sell your underlying position at that point. Selling the puts on WFC is an attempt to avoid having your protection move up and down in concert so if they do, it is more likely to be from Mr. Market and this presents an opportunity to sell profitable put position and buy more underlying. sure, I was just trying to reconcile the statement of "you can sleep at night knowing your loss is at most 7". To confirm, that sentence is missing "as long as WFC doesn't go down the same amount" I believe? This are my original words before you edited out the important part (now in bold): Now you can go to sleep at night knowing that the worst you can lose from your BAC position is about $2 per share. Right, that's what I was referring to, though I misquoted it--it is missing the "as long as WFC doesn't go down the same amount" though? i.e., if both your WFC and BAC options move down the same amount, they offset each other, leaving you naked on your BAC position, right? Thus, you can lose more than $2 on your BAC position in that case? I just want to know what assumption there is in your statement!

I think of options in a more fluid sense - I see it as managing likelihoods. 1. This still leaves you with the loss on BAC original position - if you sell your underlying position at that point. Selling the puts on WFC is an attempt to avoid having your protection move up and down in concert so if they do, it is more likely to be from Mr. Market and this presents an opportunity to sell profitable put position and buy more underlying. sure, I was just trying to reconcile the statement of "you can sleep at night knowing your loss is at most 7". To confirm, that sentence is missing "as long as WFC doesn't go down the same amount" I believe?

Never risk more than you can afford to lose. That is a true quote from my grandmother, who herself was a stock picker. I am hedging accordingly. Some of the BAC position is not hedged at all, just like those who are diversified. The part I cannot afford to lose is hedged. Yes, of course I take on the risk of WFC declining. In this regard it is the same as what everyone does when they claim to be diversifying their risks. That's just plain vanilla flavor, only it's not regular ice cream -- some kind of weird frozen yogurt. Sure, I get that part, I just wanted to confirm the mechanics--mostly, is 1 correct? I think I get it at this point.

I just look at the strikes and the prices and then figure out what I want to do. Use WFC for example: http://finance.yahoo.com/q/op?s=WFC&m=2014-01 Supposing you want to hedge a $30,000 BAC position such that you don't want to accept any losses below $7 per share. 1) Write the $30 strike 2014 WFC put for what looks like about $3, which is 10% of notional. 2) Buy the $7 strike 2014 BAC put for what looks like about 11.5% of notional. Now you can go to sleep at night knowing that the worst you can lose from your BAC position is about $2 per share. Ok, so I was trying to follow your conversation with meiroy, but I think I failed. I'm just trying to get the mechanics of the above. First, are you fully hedging your whole position of BAC with the above? 1) If they both move up or down in concert, then they offset right? That still leaves you with the loss on BAC in your original position? 2) If BAC drops to 7 or lower, and WFC holds, you get your protection. 3) If WFC drops and BAC goes up, you lose? (except your main position has increased, but if you fully hedged, then you'd have a corresponding amount of WFC to deal with) On the, "you can go to sleep knowing the most you can lose is 2 dollars", bit, that's only true if they both don't go down a lot, no? i.e., if they both drop by half, you don't have any protection on your main BAC position since the other two offset each other?

I'm wondering if anyone here views BAC as a forever holding?? I think anyone who was able to buy BAC at $4,$5, $6, $7 is sitting on something very similar to Philip Morris Companies, Inc back in 1999/2000. This would be the old Philip Morris that included Kraft, Nabisco, Miller Brewing, PM International, and PM Capital. This was a $20 stock with a 9% dividend. No one wanted it and it was in the $20's for years. Today those pieces are worth $150 and your dividend yield would be approaching 35% The sentiment shift on this will not be something that happens overnight. BAC could compound 20%+ for decades. Why would anyone sell that? Just curious. Did Buffett ever sell any AXP shares? I'd view BAC in the same category as American Express and Philip Morris. By the time BAC is $20, book value may be $30. By the time BAC's $30, book value could be $40. This can go on forever. The dividend could rise annually for the rest of our lives beginning in 2013. Sorry if I'm sounding overly hopeful here, I'm only 35 years old. I wish I had more Philip Morris back in 2000... And I say that even though I had over 25% of my portfolio in it. I'm hoping it is a forever holding. My issue right now is that I've got so much financials. Assuming they do what I think they will, and I keep holding, I'll be very heavy financials later too, when they get closer to IV/normal operations. It seems like there is a recurring theme of financials killing themselves over long periods of time, so perhaps that would not be so wise...

Yeah, this will be a big upgrade to me from my iPhone 4. The thing is, the competition has to be much better for me to want to switch ecosystems, setup, etc.

It was mostly devoted to individuals, so I assumed those where the same. I was reporting how much I was personally managing as opposed to net worth (e.g., 401k/home equity etc.). I probably should have just said AUM.

The poll is currently showing less than 10% at 50k or less, which is within the bonds of my initial assertion. Besides, most of the college students without much capital have already identified themselves, so we already knew who a few were.

that was certainly my impression. Girls speak up!

I think you can add as many slots as you want - just click on Add option. Would be interesting to split the 250K-1M and 1-10M categories. Just my 2 cents... well shit. I should have paid more attention. At this point, I'm not sure if it is worth remaking since so many have already responded.

Oh absolutely, perhaps I've been misunderstanding him, but I thought he was also talking about individual's ports, from the context of the other thread. I would not have done what I did with OPM, though it would be reproducible up to large sums.

Yeah, there weren't enough slots to do it well, so I went for individual sizes and then lumped the pros together.

Speaking for myself, the smallest company I invested in was mid cap, now at a 2.8 B market cap, so I think mine was scalable to multiple millions. I presume Eric could (and maybe did) scale to multiple millions as well (maybe not with his fancy options though). Isn't Berkowitz > 30% ytd now? I absolutely agree with you once you get to sizes where purchases cannot be bought in a single day or it becomes hard to accumulate positions (e.g., can't buy small caps), but wouldn't that limit be up near the 5+ million range in general? Said another way, once individuals hit a level where the money matters (I'll go with 50k), and until they reach a significant amount of capital (I'll go with 5 million), how different is it?

I am always surprised that such a large pool of intellectuals have such a difficult time grasping the difference between managing $50k or $50mm.. I have elaborated enough on this topic. For those that believe that you can replicate those returns I suggest you start your own funds maybe you will be in the next copy of Jack Schwagers market wizards! Ok, well I guess I missed the part where you explained it earlier, so I'll take it as a loss. In any event, I didn't say 50m, I said the difference between 50k and 500k. Certainly there is a huge difference between amounts of money that move a stock price or compete with volume and what not (e.g., professional managers such as yourself), but individual investors aren't at that level. For individuals, I think Eric's comment makes the most sense and is how I view my own tiers of situations. Regardless, in the other thread, you indicated 300k was a "decent amount of capital", so perhaps I'm just not understanding what you mean?

I'm definitely getting it. Like the integrated touch display.

I think Eric's post in the other thread makes the most sense in terms of risk profiles.

In the other thread you said I'm not sure I understand the above, as I doubt many people on this board are dealing with < 50k (although I'm not sure what your threshold is). It seems like most people here are not just playing with small amounts. Hopefully you know realize the logic behind my comments, as your poll confirms that the majority of the posters are managing $100k or less... I have been around the game long enough to know that nobody generates 50-100% returns consistently with significant aum. I'd like to see how it turns out with more sample size, but even so, I personally don't see how my returns would be different at any size (until professional). Perhaps other people treat lower sums differently than I do though. Are you just indicating that people are willing to risk more at lower sums? If that's not it, how does 50k versus 500k make a difference?

yeah, I couldn't figure out the best way to do the spreads--I wish a had two more slots.

Based on a reply to Moore's post in the YTD thread, I thought I'd get an idea of the board's port sizes--particularly individuals.

I'm not sure I understand the above, as I doubt many people on this board are dealing with < 50k (although I'm not sure what your threshold is). It seems like most people here are not just playing with small amounts. In any event I'm at around 350k at this point.

saw this one coming!

Unbelievable! Completely out of my league! I bow to you, racemize. Keep on doing your wonderful job! giofranchi I'm fairly certain it will never happen again (assuming it even holds!). I'm hoping to modestly outperform the S&P going forward.

I may miss Marks more than Buffett when they are both gone. Love every one of his memos.