yitech

St. Joe Company Settles With S.E.C. on Overvaluing Land Holdings http://www.nytimes.com/2015/10/28/business/dealbook/st-joe-company-settles-with-sec-on-overvaluing-land-holdings.html

great post! +1

This sounds like pretty much full equity exposure (or 80-110%) with 40% OTM put protection or protective puts strategy... Not sure this means you are on the fence here... Cash is not really cash in regular speak when you have a portfolio of cash and derivatives (I assume you meant LEAP calls here). It more resembles synthetic equity position, but with 40% OTM put protection.

What Would You Do if You Were Prem Watsa? by Cove Street Capital http://covestreetcapital.com/Blog/wp-content/uploads/2014/03/Cove-Street-Capital-Strategy-Letter-16-March-14.pdf

There may also be movements toward MSR-backed debt like Ocwen did to properly hedge the prepayment risks. They were able to sell those at higher multiples overall than they bought.

+1 :D

It is only cheaper if you ignore the two-way option spreads and commissions you are implicitly paying when you establish the synthetic position using calls and puts.

I agree. I believe Buffett mentioned that he would be always fully invested if he has only $1M or $10M since he can always find opportunities. It's due to higher opportunity cost of holding cash for smaller asset base versus where he is now. If one cannot find enough opportunities to deploy cash (i.e. tens of billion dollar funds like Baupost), it makes more sense to return the "extra" cash to the investors rather to ask them to pay negative carry (management fees) on the cash. In my opinion, 70%+ cash is a bit outrageous. It's okay to be risk-averse, but having 70%+ cash for 2 or 3 years makes me wonder whether the fund manager worries too much about the-end-of-the-world scenario.

Why The Dow In 2014 Isn't 1929 In Charts http://education.investors.com/investors-corner/689822-1929-crash-not-in-the-offing-in-2014.htm What the graph would look like if you lengthen the time and normalize the scale. It sounds smart when the doomsayers like Marc Faber are constantly predicting 40% corrections every 3 months, but no one seems to care about their prediction track records. I guess CNBC prefers entertainments that help ratings.

Well said. When you remove the beta, you may have effectively removed a large portion of the return, which otherwise would compound, so the mathematics can work against you. Over the long haul, it can destroy a lot value. Putting on a complete hedge is effectively market timing, especially when it's over more than a couple years and ignores the fact businesses generally compound their value.

You can be very limited if you only invest in common stock (not using options). 100% investment in a single common stock can lead to the total loss you mention. Instead, using options, you can get at-the-money calls which represent a 100% notional upside position. But then you pay for those calls by writing puts on 99 other companies. You now have a portfolio of 100% concentrated upside in one name, but only 1% downside exposure in each of 100 different names. These Kelly formula discussions never deal with these real world strategies. It's all Ivory Tower stuff that leads to unrealistic fears about concentrated positioning. I think this strategy looks quite appealing, but during market corrections, correlations among the 100 stocks tend to become close to 1, so the downside may not be truly diversified. The point of diversification isn't to prevent the portfolio from declining in market corrections, it's to prevent you from single-company risk. So you don't wind up being 100% concentrated in JPM when the next London Whale comes along on a scale of 20x the size of the last one. Yeah. That makes sense. I guess you can diversify away the sort of Black swan fraud risk that brought down Barings Bank. Maybe simpler to just write put on S&P index. More diversified than 100 names.

You can be very limited if you only invest in common stock (not using options). 100% investment in a single common stock can lead to the total loss you mention. Instead, using options, you can get at-the-money calls which represent a 100% notional upside position. But then you pay for those calls by writing puts on 99 other companies. You now have a portfolio of 100% concentrated upside in one name, but only 1% downside exposure in each of 100 different names. These Kelly formula discussions never deal with these real world strategies. It's all Ivory Tower stuff that leads to unrealistic fears about concentrated positioning. I think this strategy looks quite appealing, but during market corrections, correlations among the 100 stocks tend to become close to 1, so the downside may not be truly diversified.

Computer engineering then financial engineering in MS. Worked in risk management, derivative valuation and securitization for 6 years. Now just investing my own smallish capital.

IB has portfolio analysis report for monthly, daily, quarterly..etc. I believe it's default to chain-linked time-weighted as the standard where it splits the periods during which you have withdrawal/deposits and multiply these time-weighted returns. It's the recommended CFA practice.

Short VXX and/or Long XIV (for a small portion of the portfolio though) has been a consistent winner the past few years. I don't think it is entirely luck, the construction of these products has something to do with it. As long as you can stomach the volatility of these volatility products, I think the shape of the VIX curve kind of guarantees some of this return. I hope they don't pull these products from the market soon.... I am short VXX/UVXY as well. The near-term of the VIX curve in contango virtually guarantees the decay. I like to spice it up with levered UVXY to let the compounding effect of volatility due to leverage to work in my favor.