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.

69% so far this year. combination of concentration, leverage(option and margin) and luck.

Well done, Packer! That's a fantastic track record. Looking forward to learning more from you!

Check out the link fareastwarriors posted. He also mentioned briefly on the Korean preferreds in his San Francisco State University talk in April: Part1: Part2: Part3:

I did some digging after watching Li Lu's video pitching Korean preferred stocks. You can purchase London-based GDRs for Hyundai and Samsung preferred shares via Interactive Brokers. The conversion ratios are 2:1. You can divide the closing price in Korea by 2 and convert it from Korean Won to USD. HYUD (HYUD.IL under Yahoo Finance) is the shares for Hyundai Preferred class 1 share (005385.KS). 4X P/E currently. SMSD (SMSD.IL under Yahoo Finance) is the shares for Samsung Preferred share (005935.KS). 5X P/E currently. Both were trading at larger discount to commons (005380.KS for Hyundai common and 005930.KS for Samsung common) around May/June, but the discount has been narrowing since. They are under the exchange symbol LSEIOB1 for IB accounts. I used to own SMSD, but now own only HYUD. I purchased HYUD at around 3.2 P/E.

Two Brazilian Brothers to Pay Nearly $5 Million in Insider Trading Case http://dealbook.nytimes.com/2013/10/10/two-brazilian-brothers-to-pay-nearly-5-million-in-insider-trading-case/?nl=business&emc=edit_dlbkam_20131011&_r=0 Greed is good? yeah?

If by economic rights, you meant equal share of earnings per share, I believe it's 'yes'. However, preferred share holders cannot vote. The ability to vote is not much of a big deal though since the founder family have most of the voting rights anyways. Preferred shares are equity, but most companies mask it as debt by calculating EPS only for the commons below the line. Earnings for preferred are treated as preferred interest expenses above the line. So, there is some confusion whether it's debt or equity. I know they do calculate EPS for preferred shares for Samsung, but not Hyundai in the annual reports. Moving to IFRS from Korean GAAP may help a bit as well. In addition, preferred shares are much less liquid than common and treated as more inferior by trader-minded Koreans. Also, companies rarely buy back stocks to enhance shareholder values. Unless, corporate governance and sensible accounting guidelines strengthen, the large discount may persist indefinitely.

I did some studies on the Korean preference stock after listening to Li Lu's lecture. You can buy Samsung Preference shares (GDR:SMSD.IL or 005935.KS) at less than 5X PE or Hyundai Motors Preference shares (GDR:HYUD.IL or 005385.KS) at less than 3X PE. Like Li Lu said, they are franchises/compounders with large margin of safety, provided that the discount narrows (to a more reasonable 15-20%) sometime in the future of course.

Yes. Definitely... like what Nate Silver mentioned in the book the Signal and the Noise, computers can do weather forecast relatively well within 2 or 3 days. It's a coin-toss around 7 days due to the Chaos theory. An example of the theory is that a butterfly flapping its wing in Brazil can cause a tornado in Texas that sort of thing. Various airflows can interact with each other in unpredictable ways. It's a great book, by the way!

Not to quibble... But what does it mean 120% probabilistically speaking in real life sense? :)

Simply add a "+0" in the end. It will convert string of numbers to decimal format.