thepupil

3% is very difficult, if not impossible, without sacrificing something (accessibility/penalty free liquidity, or taking on some risk). If you think the stock market is efficient, try the bond market. It is very difficult to earn above market returns on large amounts of capital w/o taking more risk. Even the Vanguard Intermediate Term Investment Grade Fund yields a meager 2.7% and that's with a duration of 5 and average maturity of 6 years. So you have to take a moderate amount of duration (more than I would be comfy with my "quasi cash" pile, which this is) and some tail credit risk.

I see you are in the US. What are your goals for investing in bonds? I would encourage you to consider the following alternatives: 1. Inflation linked Savings bonds (i-bonds): $10K/year, locked up for 1 year, redemption penalty in years 1-5, pays you inflation rate tax deffered 2. GE capital 5 yr CD's (or CD's of another FDIC insured entity) 2.25%. Early redemption penalty of 1.7%. No bonds will beat these on a risk adjusted (very limited duration and 0 credit risk, unless FDIC collapses in which case you'll have worse problems) basis. The yields on spread product are still quite low in an absolute sense and you aren't really getting paid much to go further out on the curve and take on duration. If you are investing in bonds to make a higher return than that offered by these, I would recommend not investing in bonds, or looking at BDC's and mREIT's where you'll take loads of credit/duration risk, but at least get paid a hefty yield for the high risks., but then you'd probably be better off in equity land.

maybe it's just me and that I've only been really investing since mid 2011 and am pretty US focused and not a spectacular investor, but I have never been able to put together a portfolio of things I consider to be safe and at a 50% discount to fair value (ie a portfolio of 2X's) I think I own a portfolio of growing 60-80 cent dollars (even some 100 cent dollars in there) and a few high risk multibagger payoffs with 100% downside, but If I could build a relatively diversified (say at least 6-10 names) portfolio of 50 cent dollars, I wouldn't be working for a living. Maybe I'm just mediocre or set my expectations too low. Can someone walk me thru a portfolio of 10 names (just 2 bullet points) that they own and all of which are low-risk 2x's over the next 3-5 years?

http://www.etf.com/WYDE only way i know of for retail to short credit is the WYDE etf, doesn't seem to have taken off though. you can't trade OTC CDS as a retail investor because that would require you to set up with an investment bank go through KYC process and go through all kinds of counterparty agreements. the bank's trading desk has zero incentive to do it with you unless you are going to be a source of significant business. Since I'm assuming you're not running a $500MM credit book from home, you will not be a source of significant business. you can always attempt to short bonds...not sure if you can short sovereigns but you're far more likely to be able to do that than pay on CDS.

Caretrust REIT, googled "healthcare" "reit" "spin-off" CareTrust REIT, Inc. Announces Completion of Spin-Off From The Ensign Group, I http://investor.caretrustreit.com/releasedetail.cfm?ReleaseID=852011 http://investor.caretrustreit.com/releasedetail.cfm?ReleaseID=876716 he special dividend of approximately $132.0 million, or approximately $5.88 per share, will be paid on December 10, 2014, to stockholders of record on October 31, 2014 in a combination of cash and shares of CareTrust common stock. The amount of cash distributed will be approximately $33.0 million, with the remainder distributed in shares.

Maybe look at midstream? Was at an event where an energy insider spoke, discussed industry dynamics. Said most midstream players have take or pay contracts for up to 20 years out. Seemed like buying into one of these guys sold down with oil might be good. some of these companies are really great, high quality assets. problem is they aren't cheap and because they are high multiple, not super high growth assets, they have lots of duration/rate risk in my view. Check out MMP: 3.5% yield and up 20% YTD despite all the noise. I love the company, but it's tough to love here; the selloff just made it get slightly less expensive. To me, buying the best of breed midstream guys is kind of like buying the trophy REIT's at sub 4% (or even sub 3%!!!) yields. Great assets, but the steamy valuations have to make you a little queasy in that a lot of growth/capital markets being compliant is already baked in.

This is a question that should be directed to your friend, who I am presuming is an LP in the fund. Some managers are wierd about this stuff whereas others see it as free marketing; you will only know by asking the manager yourself or through your friend.. If you post it and it sours the relationship between the manager and your friend you would feel badly.

if it is a small company with finite borrow, I would caution you against sharing. You never know who you may impress and there's no reason in potentially crowding out yourself or increasing your costs to short. If it's big and borrowable, share away. it's a free market formed by the dollar weighted average opinions of participants. price discovery requires more than just bulls. also if it's an equity issuer, it's good to get out the bear thesis in a public forum. any declines in the stock price or just the negative attention will potentially fend off unwary equity offering participants. you don't want people buying into that expensive stock and hurting your position (or hurting themselves). don't underestimate the ability to be your own catalyst or at least get your thoughts seen by big important people. I've seen hedge funds and long onlies shaken by the humblest of seeking alpha articles / message board threads.

The majority of their clients don't pay taxes. GMO is a global investment management firm committed to providing sophisticated clients with superior asset management solutions and services. We offer a broad range of investment products, including equity and fixed income strategies across global developed and emerging markets, as well as absolute return strategies. Our client base includes endowments, pension funds, public funds, foundations and cultural institutions.

we agree that shorting puts and buywritecall is the same thing. i'm just comparing the return profiles of an index owner (no options) and a putwriter/buywriter. You asked why they prefer the downside of the hideously expensive index versus that of the high quality co's. I offer the explanation that 1) liquidity in the single stock options market is not large enough to sell puts on a massive scale in daily liquidity commingled funds 2) the payoff profile of selling downside protection systematically is different than owning index and even if the index is overvalued, selling vol at the right price may make sense I'm not advocating for doing what GMO is doing and in fact think it's a sign of the times that they are venturing into short vol positive carry yieldpig pennys in front of steamroller strategies like merger arb (which is selling an event put) and index put selling. But I understand why they are. And I think you do to.

it isn't irrelevant. the owner of index in a given year receives the total return of the index. whereas the seller of short term downside volatility protection receives (premiums received - negative returns of index). there are lots of scenarios where selling downside vol will outperform owning the index. they are two different payoff profiles and GMO states they like one rather than the other. just to be absurd let's say in 2015 the S&P goes down 0.5% every month after divvies and GMO gets paid 0.5% every month to insure downside. GMO ends up flat, the index holder ends up down 5.6%. GMO wins. Of course, one may wish to point out that they both have the same downside risks and GMO has very limited upside (and i'd agree), but they don't see a lot of upside in the index so they don't care. they just want to get paid regularly and quickly (shorten their duration) and accept the "jump risk". I know you know this and understand it better than i ever could.

selling equity vol, over time, has a different return profile than owning stocks, be they of the "high quality" sort or index sort; it's more akin to being long credit or long merger arbs (which they advocate). Also, there probably isn't too much liquidity to sell puts on individual quality stocks in a big way (writing covered calls on the high quality would be equivalent to selling puts on them). They prefer, for better or worse, to be opportunistic sellers of downside vol, rather than business owners, in order to shorten their duration. there just aren't that many months where the S&P just jumps down 20% ( October 1987/2008, the type of month that hurts this strategy, even though that allows for some juicy vol selling thereafter) so they are making a bet that the probability of that type of scenario is lower than the probability of a scenario where equities grind lower or are flat.

unfortunately, there is no free lunch.

spicy dry rubs are really good when done right.

Why not use 3 mo. T-bills or money market rates?

9 month's expenses in I-Bond's 1 month's expenses in the bank For fun/ to satisfy my paranoia streak 1 month in bitcoin 1 month in gold I try to keep my cash completely separate from investments, and use put protected leverage to reduce the opportunity cost of owning a good amount of i-bonds.

are the MTM gains (losses initially) on the big put sales included in operating earnings?

So if he sold he'd have $3.2B of cash. Instead he has $1.7B of cash + $414MM of EBITDA and ~$270MM estimated FCF from Duracell. So that $1.5B of cash foregone by not doing a straight equity sale is yielding quite a lot. <---ya i know that was a bit bass ackwards of a way to put it.

http://www.bloomberg.com/news/2014-11-13/buffett-seen-saving-more-than-1-billion-on-taxes-in-swap.html

Biglari may be a poor candidate for this mental exercise in that value has been distributed to shareholders in the form of deep in the money rights, which have benefited those who have exercised at the expense of those who have not. Per share value gets diluted by the rights offerings, but for those who exercise they are value neutral (if everyone exercises) and value creating (if some shareholders abstain). For the record, I don't own BH, but the share price doesn't tell the whole story.

Your home is down 25% since 2002? If you don't mind answering, where do you live? Detroit or Rust Belt?

I've read the breakdowns of softbank's NAV and find the case compelling but I think yahoo is simpler and activists can have actual influence at yahoo (SoftBank is and always will be the Son show). There are only 4 assets 3/4 are publicly traded or cash. If yahoo core is worth $5 / share then only 9% or so of the pretax NAV is not cash, japan, or BABA. Marissa Mayer has to destroy a $15+ billion valuation gap through tax inefficiency or dumb acquisitions for this to not work out over the long term. I just don't think that's likely. I also just have a bias toward owning US listed stocks, not that that is logical.

And then the Yahoo / BABA / Yahoo Japan Stub that i've been shouting about in the Yahoo thread. However you want to slice and dice it or execute the trade (straight long Yahoo and wear the BABA risk is the simplest, or you can go full arb and short out the BABA and Japan, or you can play with options), Yahoo minus BABA is cheap and it is a very interesting situation.

Nothing too exciting about this trade but it's a special situation with little beta to the market. Long SWY + disaster hedge puts. SWY is trading for $34.36 add in some $28.00 Jan 15 puts for ten or fifteen cents to carry you to the expected deal close in the 4Q or January for all in costs of, call it, $34.50. SWY merger consideration is $32.50 in cash + CVR to receive proceeds of a sale of certain real estate assets and either the proceeds of the sale of SWY's JV interest in a mexican grocer or (if no sale is completed in the next few years) fair value of those assets. SWY management estimates the contingent value right to be worth $3.65. So for $34.50 you can buy $36.15 in estimated value. The CVR will not be liquid or transferable. I choose to buy the puts to quantify my downside in case the merger breaks (although i think the chance of that is very slim). If management's estimate is correct, this is only a 6% upside / 18% downside trade, but with 94% of capital returned to you in cash in less than 3 months, I think creating the CVR at a nice discount to management's value is worth it. Obviously gets more interesting if SWY drifts closer to the cash consideration. Value to Safeway Shareholders Under the merger agreement, Safeway shareholders will receive $32.50 per share in cash. Additionally, shareholders will have the right to receive pro-rata distributions of net proceeds from primarily non-core assets with an estimated value of $3.65 per share. The proceeds are from: (1) The sale of the assets of real-estate development subsidiary Property Development Centers, LLC (“PDC”) comprised of its shopping center portfolio including certain related Safeway stores, and (2) The monetization of its 49% equity interest in Mexico-based food and general merchandise retailer Casa Ley, S.A. de C.V. (“Casa Ley”). If the sales of PDC and/or Casa Ley are completed prior to the closing of the Merger, the net proceeds from these sales will be paid to shareholders at or before the closing of the Merger in a special dividend. If the PDC sale and/or Casa Ley sales are not completed by the closing of the Merger, Safeway shareholders will receive a non-transferable contingent value right (a "CVR"), which will provide shareholders with their pro-rata share of the net proceeds from the PDC and/or Casa Ley sales, as applicable, subject to the terms and conditions of the CVRs. The PDC CVR will have a two-year term. The Casa Ley CVR will have a four-year term. If Safeway is unable to sell Casa Ley before the four-year expiration of the CVR, shareholders would receive a cash distribution equal to the after-tax fair market value of Safeway’s interest in Casa Ley at such time. There can be no assurances that Safeway will be able to sell either or both of PDC or Casa Ley. http://investor.safeway.com/phoenix.zhtml?c=64607&p=irol-newsArticle&ID=1939975&highlight= http://www.cerberuscapital.com/news/safeway_and_albertsons_announce_definitive_merger_agreement

2017 Yahoo Synthetic Call (Long stock, long 35.00 put) 2017 BABA Bear Call Spread (Short 87.5 Call, long 135.00 call) where notional on ATM call is 80% of the Yahoo long position This creates the Non-BABA Yahoo stub with fixed downside on the bearish BABA position. Love me a big steaming pile of basis risk and negatively skewed holdco arbitrage ;D