muscleman

I hope this thread can help a lot of people as well as myself. The preferred format is that we post as much detail as possible that answers the following questions: What was your thesis at that time? What was bull/bear saying? What went wrong later? In hindsight, what indications would have steered you away from that investment? What did you learn from that mistake? Of course, you can post anything as you want. You are not restricted to the above format. :) I made various mistakes in the past. Not being patient. Not sticking to value investing and MoS etc. I think the topic maybe too board, and you can talk about anything you want, but I recommend that we put a preference on value investing mistakes. :) Let me start first: 1. CCME. I lost a lot of money buying that sucker and thought that would be the next FFH type of short squeeze. I thought that in the past, Chinese stocks seem fine in the market. Only a handful has delisted, and there was a big hedge fund backing it up, so it will probably not be a fraud. I also went on to check the buses, and even my friend who traveled in a small rural area in China saw that the bus has the CCME operations. Also auditor was Deloitte, so probably not fraud. It turned out fraud is way more rampant than in developed countries. The assets may not legally belong to shareholders, and SEC numbers cannot be trusted. :'( The auditor said they couldn't even verify the cash in this company's bank account! So how come Deloitte signed off the previous statements before? ::) 2. ATPG. Also a lot of money lost there. The lesson that I learned is that capital intensive industries are tricky. It is not much difference between a capital intensive industry and a high leveraged financial institution. A small error in estimated revenue can result into a big loss instead of a big profit. I bought because I saw those insiders all bought a lot, so I thought they could be trusted. But maybe they have been so promotional that they even fooled themselves into believing the bloated reserves and estimated production numbers. 3. MBI. I sold it one week before the BAC settlement. I was scared, and let emotion run over me. Just a few days before I got scared and sold, I wrote in our MBI thread that I thought there wasn't much downside, and a lot of potential upside. What a shame! :'( I think this is more of a psychological mistake. I intended to fix it by having a checklist, and read it during my panic time. Really, when I get scared, my vision would be narrowly focused on one little thing, instead of the broader view. Other smaller mistakes: 1. I bought XCO. This is probably still arguable. I even made a small profit from it. But I got attracted by the sexy story that XCO is a nice distressed nat gas acquisition platform, and that a lot of big boys like Prem Wasta and Wilbur Ross are into it at a higher cost basis. But later after I bought, I realized that I didn't even do a valuation analysis on it! What a fool I am! Then I started to check the numbers. At that time, CHK was $22 and XCO was $7.8. CHK's price/sales ratio is 1 and XCO is 2.8. I told myself, well, CHK has 60% revenue from oil. Suppose we remove its oil revenue, then its price/sales would be 2.8, which means CHK has the same upside in nat gas as XCO, but CHK has a big growing oil operation that I can get for free! So why did I buy XCO in the first place? That seems a big mistake. I sold around 7.9, so that mistake is not too bad. Today, I decided that I really need a checklist in front of my computer to control my emotions and get each investment more disciplined.

Thank you! You are our tax expert here! Do you feel like the reviews here would be some concern? http://www.yelp.com/biz/interactive-brokers-llc-greenwich

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock. Are you using portfolio margin? Aren't you worried about their instant liquidation policy? I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore. Thank you Eric. could u please tell me a bit more about portfolio margin? I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate Scneario: 1) $100,000 cash balance initially. 2) I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan. $200,000 total invested 3) The puts are at-the-money Okay, under Reg-T margin the account could be liquidated in a flash crash. Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me. So I'm safe in a flash crash. From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan). But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts. It's non-recourse leverage at this point -- they know that and I know that. In my example I'm assuming puts and calls are at the money, and there is pricing parity. Hi Eric, Just a quick question. How far out do u usually buy the puts for (i.e 6 mths or 1 year)? I am holding 2015s presently. I will roll them to 2016s within a few months of their issue. What is the advantage of leveraged buy plus put options, vs direct purchase of call options? One thing I could thing of is that you could lend the shares out to collect some interest. Then your true cost of leverage is the put options value minus lending interest, which could be cheaper than direct purchase of calls. Is that the only reason to do this? I am still a bit worried if their real time margin algo for the portfolio margin would be bug free. If they make a mistake, I will get liquidated at the wrong time. ::)

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock. Are you using portfolio margin? Aren't you worried about their instant liquidation policy? I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore. Thank you Eric. could u please tell me a bit more about portfolio margin? I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate Scneario: 1) $100,000 cash balance initially. 2) I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan. $200,000 total invested 3) The puts are at-the-money Okay, under Reg-T margin the account could be liquidated in a flash crash. Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me. So I'm safe in a flash crash. From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan). But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts. It's non-recourse leverage at this point -- they know that and I know that. In my example I'm assuming puts and calls are at the money, and there is pricing parity. Thank you. This looks great if their real time margin algorithm is bug free. My primary concern was that their system seems a bit buggy. From the reviews here, I am a bit terrified. http://www.yelp.com/biz/interactive-brokers-llc-greenwich I guess I will call IB again tomorrow to see if cash accounts are allow to sell a stock and immediately buy. If not, I will probably just stay with Fidelity and collect a much lower stock lending interest. ::)

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock. Are you using portfolio margin? Aren't you worried about their instant liquidation policy? I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore. Thank you Eric. could u please tell me a bit more about portfolio margin? I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock. Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

Great. Is your cash account in IB? Could you please confirm if you could buy a stock immediately after selling one, using the unsettle cash? Their website said once you enroll in their yield enhancement program, you will see all loan rates. https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?file=SecuritiesLendingDisclosure.html Is this the answer you're looking for? Thank you, but no. My question is can I use unsettled cash proceeds to buy another stock in a cash account in IB. It doesn't have anything to do with whether the stock is loaned or not. I can do that with Fido and Scottrade, but IB's website said I am not allowed to do this.

Could you tell me a bit more about NBG? I checked its price/common tangible equity ratio, and it seems pretty expensive. Alpha bank and Piraeus bank seems cheaper on that ratio, but still not very cheap.

Great. Is your cash account in IB? Could you please confirm if you could buy a stock immediately after selling one, using the unsettle cash? Their website said once you enroll in their yield enhancement program, you will see all loan rates.

You're right. I think I was scared off by the free riding message that shows before using unsettled funds, so I never bothered trying. In that case, I don't know why IB's cash account has a restriction. IB has a separate Reg T margin account. Yeah. I am looking into that Reg T margin account. I can also just choose a portfolio margin account. But I am not sure if I get any benefit from this. After all, all I need is a cash account that can buy immediately after sell, which is doable in most brokers. I did some research online and heard some horror stories in IB for margin accounts, that their real time liquidation program went wrong and randomly sold people's holdings. So I definitely don't want that to happen to me.

This is actually why I am still holding SHLD after the recent jump. Short interest is still very high, and they have to pay 45% interest. I think as long as there is no bad news to bash the stock down quickly, shorts have to cover. But if they cover, they don't have enough shares available in the market to buy, so stock price will jump up a lot. Longs are paid to wait but shorts are not. :) Or let's think about it this way: If SHLD stays flat, we collect the 22% interest, and we will do better than WEB. If SHLD jumps up, we will certainly do better than WEB. Only if SHLD goes down more than 22% a year will we lose money.

1. Yes, I have experienced this. Tax rate was indeed 15%. 2. I have no idea what turbo tax is. I am European :) Are you using a cash account? Are you allowed to buy a stock immediately after selling a stock, or do you have to wait until the cash settlement?

Correct. But for IB's cash account, if they don't even allow clients to buy a stock immediately after selling a stock, then a good faith violation would never occur. My point is, why does SEC Reg T rule exists? That is because most brokers allow clients to buy a stock immediately after selling a stock! But IB does not! When I tried to register for IB's account, the default was Reg T margin, instead of cash. Perhaps IB doesn't want their clients to use cash accounts at all. ::) I tested their web trader demo, and it was buggy. https://cwt1.interactivebrokers.com/webtrader2/servlet/login?DEMOMODE=true&redirect=off After I clicked login, a few seconds later, it says: "Your session has expired. Return to IB WebTraderSM" I hope the real client terminal isn't like this. :)

I use Scottrade cash account. I need to wait 3 days for it to settle. Margin accounts have cash available on the same day. Are you sure? I remember that for Scottrade, even if I make a deposit from my bank, I could immediately use it to buy stocks that are $5 or more, and that is also before the money transfer actually settles. For stocks, I clearly remember that I don't need to wait. Only for options, if I sell a stock to buy options, I have to wait for a few days because options have shorter settlement period than stock. Let's think about it this way, if selling a stock and immediately buying a stock in a cash account is generally not allowed, what is the point of SEC Regulation T? That good faith violation would never happen.

http://ibkb.interactivebrokers.com/article/674 I just came across this. This is a bit weird. I used Scottrade and Fido, and for both cash accounts, I could sell a stock and immediately buy another stock. Could anyone please confirm that this info in the article is still up to date? It would be awkward to sell a stock and not able to buy another one for 3 days.

Yes, you give them permission to lend out all your stocks (I investigated this in detail before I started using it). However: 1) You will receive cash collateral in your account to protect against non-delivery, this collateral will be updated every night based on the market rates. So the collateral can be off one day of trading max. It is highly unlikely for non-delivery ever to occur though. 2) They try not to lend out dividend stocks on a ex-dividend day. However, if they do lend it out, you will receive payment "in lieu of dividend" and this amount is taxed the same amount as the dividend tax rate (15% for US stocks). I have had this happen to me and the information was accurate. If you have more questions, please ask. "you will receive payment "in lieu of dividend" and this amount is taxed the same amount as the dividend tax rate (15% for US stocks)." Is this true? If this is true, then I would be fine to lend out all of my shares. My only concern was that their website said this is treated as ordinary income instead of dividend, so the tax rate is higher than 15%. Do they have integration with turbo tax? Again, one of their reps said yes and the other said no. ::)

I am above to give up now..... Spent a few hours using the internet in my office, but IB's site for registration seems to be buggy. It kept redirecting me to wrong places and kept saying my session has expired just 10 seconds after I log in. I doubt if their platform is this buggy. Perhaps I should just stay with Fido and collect that 5% share lending rate on my SHLD. ::)

I asked IB about the yield enhancement program, but two different reps gave different answers. One of them said it is possible to select which stocks to be lent out and which not to, but the other said once I enroll, all stocks would be allowed to lent out, which doesn't seem to make sense to me. Does anyone know? I just called another guy, and he said that with the cash account and yield enhancement program, I would not be able to select which stocks to lend and which not to. So potentially they could get my dividend stocks lent out. ::)

You can also use options to "collect" the full borrow fee, assuming that there is a liquid options for that particular stock. (Obviously SHLD has lots of liquid options.) The order execution with IB also tends to be very good. Many retail brokers play games with your order to generate additional profits. Etrade is awful; I don't know where Fido stands. 1- The interface has a learning curve. I've made some misclicks before... 2- If securities are sold in a margin call, they may sell the most illiquid securities first. 2b- Their margin rules can change, so you only have a few days to avoid a margin call. I only stay with a cash account, so I don't need to worry about margins. I heard IB's instant liquidation policy, which sounds scary, but indeed protects itself. I don't want to use options to collect the borrow fee, because that means I have to setup a margin account and sell some options. I would like to be simple and hold for the longer term.

I currently use fido. I like the nice integration with turbo tax, and I like the flat commission. What makes me not so happy are: 1. international trading is quite expensive. Commission is high, plus Forex fee is 1%. 2. They give very low rates for lending out securities. For example, if I allow them to lend my SHLD shares, they get paid 40% a year, and I get paid 5%. In IB, it will be 50/50 split. Do you know any specific risks with IB? They seem to be pretty aggressive in terms of technological improvement. If their systems get a mistake, something like what happened with Knight Capital, then will we get affected? Or will they get bailed out by the SIPC, and clients will be fine? For lending securities, they will give cash collateral. But if a VW or FFH type of squeeze happens, will the cash collateral be sufficient? Last question, how do you file tax if you trade with IB? Also I saw this: https://www.interactivebrokers.com/en/index.php?f=shortableStocks&p=stockyield&ib_entity=llc When you lend stocks, you receive the full equivalent of all dividends. However, because you have loaned the stock, the cash you receive "in lieu of" dividends may be taxed as ordinary income instead of at the qualified dividend rate of 15%.2 IB will try to return shares to you prior to a dividend to reduce or avoid any potential negative tax consequences. Does this always work, or will there be any problem in getting back the shares on time? Another question: Do you use its yield enhancement program, or use the Self-Directed Fully-Paid Securities Lending Program?

Thanks a lot! Which university are you in? Is that an MBA program?

I also have accounts at Schwab, so I have no need for any of the IB add-ons. I have also noticed the fills at IB are better than the fills at Schwab. So for the same trade I get paid to make the trade at IB versus charged to make the trade at Schwab. Note I do like Schwab and if you have a large enough account, or trade often, you can negotiate commissions. Schwab charges me $4.95 per trade. I am thinking about moving from fido to IB as well. The only concern is that IB doesn't have integration with turbo tax, which makes filing tax each year to be painful.

Sure, but keep in mind that I just invest as a hobby. Basically it is a story stock. You have a CEO who is very aggressive and yet very disciplined from a capital allocation perspective. When he first came in he got rid of all businesses where he did not see a competitive advantage or room to build scale. He started acquiring companies and lopping operational expenses down aggressively. He merged with biovail (while maintaining his role as CEO) and as a result now has a 5% tax rate. With the Bausch & Lomb transaction he bought a company with $700M EBITDA and has plans to "bump" that up to $1.5B with cost-cutting over the next year and a half. There is also decentralized operations, a focus on avoiding competitive areas, geographical diversity, focus on businesses not subject to government regulations (e.g. the bausch purchase), non-traditional accounting (you need to focus on cash EPS), willingness to walk from deals (they walked from a huge one earlier this year), his compensation agreement, more that I just can't think of right now. If you read the outsiders and then start to study this company, it's like you're reading another chapter in the book. The CEO is not that old either, there could be quite a future ahead. As for the pesky details of what you are paying, I go out on a limb and trust the cash eps forecasts that management puts out. You guys are probably trying to figure it out from the traditional statements and I commend you, but I didn't do that. With their cash EPS they add back amortizations, stock-expenses and one-time costs. It is a similar concept to owner earnings but probably a bit more aggressive than buffet would like. Anyways, they are forecasting ~$2.05 for Q4 of this year. However, the cost-cutting for bausch and lomb, plus other acquisitions will not be done by q4 of this year. I crudely estimated that with their total announced cost-cuts they will probably be looking at $2.3-$2.4 per quarter by Q4 of next year, that will be their rough run-rate. So around $9.5 per share cash earnings run rate in 15 months. So you are getting them for around 11x cash earnings once the cost-cuts are in effect. That is assuming that they stand still for 2014 and just cost-cut/pay down debt. I doubt they will do that. There will be more acquisitions / stock repurchases / a merger but something else will happen. IV is a tough one. I think it's more than you are paying now but probably not that much. Some of the other major pharma companies are around 13-14 times earnings. I think valeant deserves a bit more, maybe 14x. I actually think my 14 multiplier is probably too low, should be more like 16-18 given what he has done and the businesses he is in but you also have to consider how lean they run R&D and that their are concerns about organic growth. For that reason I pull it back to 14 as they will always need acquisitions. So if they get to $9.5 that is only $133 and that's not for 15 months or so. So I am buying a dollar a year from now for $.75. Not a great bargain but not overly expensive either. My view is that in a year they will be talking about 2015 earnings at $11-12 and the stock could be at $150. You really need to get comfortable with the CEO to buy into it. It's not a huge bargain unless you believe he can continue to work his magic. Thanks a lot! I will have to look into it more to get comfortable. I wish I had bought at the $70's. :)

16. If you were to go back to when you started, what would be the things you advice to read? And if you don't look at the macro so much, how did you come up with these international investments. Each person is different. But he found "Manual of Ideas" and "Corner of Berkshire and Fairfax" very helpful. There are other good resources out there, and it's better to copy others' ideas. Japanese net-net was his original idea, and we all know how it ended up [laughter]. :D Wow! Parsad, you should be proud! ;D

"says the stock market is going to fall by at least 40 percent in one great market “purge.” Until then, he is paying for the option to short the market at just that point, losing money each time he does." This reminds me of some article that says zerohedge has successfully predicted 30 of the past 2 crisis. :)