rukawa

I think the derivative issue has two components: 1) OTC's vs central clearing 2) opaque derivatives vs transparent ones. To me you don't really have any problems with derivatives as long as 1) they are centrally cleared and 2) they are relatively transparent. Think Chicago Board of Trade like commodity futures. These derivative markets have been in operation for decades with basically no problems. The reason is that prices are readily available, there are markets and central clearing. Counterparty risk is basically mostly eliminated with central clearing. Where you start getting problems is when you have OTC derivatives because then you have linkages between institutions that are non-transparent. And second when you have non-transparent derivatives where the underlying is not really understood which was the case with products like CDO squareds where nobody knew which mortgages were part of the underlying. The government did push banks away from OTC derivatives and towards central clearing but I can't really say how much because I don't really know much about these regulations. https://en.wikipedia.org/wiki/Central_counterparty_clearing

I edited out that part later from my post. You mean nominal derivative exposure. MM funds don't hold derivatives. So it never came up in stress tests for MMs. The nominal derivative thing though is very deceptive. I can't really speak to derivatives clearing but I know that traders often will not cancel trades...they just layer them on top of each other. So for instance this may happen: Trader X has 20 million invested in Austrailia in equities and he wants to do a full currency hedge. He sell AUD short in the futures market with nominal 20 million. The next day his AUD equities decrease by 5 million. In response the trader goes long AUD futures by 5 million the next day his equities go up by X aud dollars...trader buy/sells futures in opposite direction to cancel out exposure. As the trader is doing this the nominal value of his futures keep increasing because he never cancels his original derivative trades....he just keeps adding new ones. After 3 months the forward contracts expire and his nominal value of AUD futures goes to zero. I used to run a risk system. Our risk system would keep slowing down as the month dragged on. Immediately after the rollover of the forward contracts our risk system would speed up again. We realized that the reason for this is that the number of positions in our system would increase from 10000 positions to something like 30000 positions because of all these FX forward contracts. In many case I don't even think the trader would book contracts based on net difference I think they used book a trade that would completely cancel the effect of original forward and then another in the opposite direction.... e.g. if my original fx forward trade is for 30 million and my exposure decreases by 5 million I would book a 30 million fx forward trade in opposite direction to cancel the original and then another long 25 to provide the exposure I want. Thus the nominal value is hugely hugely misleading..especially since we typically would only be booking these through a small number of brokers and so the same broker would register the 30, then -30 and the long 25 and so he would know then net exposure is really only 25 and not the absolute nominal value of 25+30+30=85. Also in addition to all this hedging by individual traders on their portfolios....there was top of the house hedging. A trader might want zero fx exposure but top of the house they might decide they wanted to negate that and have the exposure. And this is all happening in a SINGLE institution...in my case a large pension fund. So you could see huge nominal derivative exposures because of all this layering. To get an idea of magnitude lets say each institution book two trades each day equivalent to their main exposure which I would get is equal to their AUM. One trade to cancel yesterdays trade and another to create the exposure they want. So for a 100 billion dollar fund, each day they would book two derivative trades with absolute nominal value of 100 billion and they would do this 250 days a year. Then consider a 18 trillion dollar economy like the US and you get 18 trillion * 250 days * 2 trades a day = 9 quadrillion in nominal derivative exposure. I might divide this by 4 since the trades rollover every quarter....and I get 2.25 quadrillion in exposure. But ultimately all this is really just an issue of derivative backoffice settlements and booking. Its more of an accounting issue than a financial issue.

Yes it was not a run on normal retail banks. Basically the commercial paper is issued by investment banks to fund their operations but the commercial paper is held by retail banks, money market funds, etc. Essentially all the derivative transactions, a large amount of credit, financing for corporations etc are done by investment banks like Goldman Sachs, Morgan Stanley etc. So the basic scenario we were looking at is: 1) First Bear Stearns and Lehman fail, 2) then interest rates increase on commercial paper and people start doubting that banks like Merrill Lynch can make it 3) Then a Money Market Fund breaks the buck because most MM funds basically hold commercial paper from the investment banks. Nearly every MM fund out there has huge exposure to a very small number of issuers: Deutch, GS, JPMorgan, Merrill, Citigroup. 4) In response to this there is a run on the MM fund that broke the buck. Then of course MM funds avoid commercial paper from issuers 5) Then Merrill fails. In response, most MM funds break the buck. There are a number of large prominent MM funds that would be down by over 20% if just Merrill failed. In fact I doubt there is a single MM fund in existence that would not be down over 20% if their largest issuer failed...and in 2008 a lot of their largest issuers were investment banks. At this point the market for commercial paper is dead, people are scared shitless, every single person out there is trying to take their money out of Money Market funds as quickly as possible, the derivative market is dead, derivative consumers like pension funds, corporations etc are in a state of panic. Now of course this will also hit retail banking because old fashioned banks hold commercial paper and invest in MM funds. Your right we haven't solved the problem and this will re-occur as soon as we become complacent which we definitely will. You are wrong about the FEDs job...as I stated in my post, the Fed now has a triple mandate which I would say its succeeding spectacularly at fulfilling. Inflation is low, unemployment is low, interest rates are low. You can disagree with what the FED job should be but the basic fact is the FED has done exactly and precisely what Congress told it to do.

2) is confusing to me. Individual issuers can have either a solvency or a liquidity problem. But the system as a whole typically will have a liquidity problem unless they all owe money to foreign countries. So I would argue that solvency problems with key individual issuers like Lehman and Bear Stearns led to liquidity problems for the system as a whole which obviously feeds back and leads to liquidity problems for other individual issuers. There is a kind of contagion typically. What happens is that a key player has a solvency problem. When this happens because the players are opaque and they each hold debt from the other players as assets on their books, there are fears that other players may also end up having solvency problems. And this lead to runs on individual players where people reclaim the IOU each of the players has issued. But this leads to liquidity drying up. The way this is resolved is that you have a lender of last resort which should lend to institutions with liquidity problems but not solvency problems...and that is the FED. The 1907 crisis is why the FED exists. To me this is the only thing the FED should ever be doing. But at some point economists thought they understood Macroeconomics which I don't think they did. So various idiotic mandates have been added to the FED such as 1) maximum employment; 2) stable prices; and 3) moderate long-term interest rates. The FED is no longer just a lender of last resort. It is also supposed to in some sense manage the economy. Anyways I basically agree with Cigarbutt that macro is useless for investing but I think it useful to discuss because as time goes on your understanding will improve. At least that is what I'm hoping.

I don't remember any technical analysis in level 1

First, nothing I said is misleading. It is simply a fact. If you are doing large enough trades, the quoted $7 commission at the retail brokerages is meaningless. This just means that the industry has done a great job getting price down so that the commissions are not material, except for small trades. Second, I was using YOUR numbers. You said that the difference was $100 on a $100,000 trade. Assuming this was a typo... then yes, $100 on a $1M is not meaningful. But then I wonder why you picked $1M as your trade size. I don't think any investor on here is going to do too many $1M trades entered as a single order. And if you are doing $1M trade on a $5 stock, I suspect you would have some market impact. Sorry that was my mistake. It should have read 1,000,000. The calc is 0.05 cents per 100 shares according to this site: https://www.interactivebrokers.com/en/index.php?f=1340 (see Execution Price Improvement Comparison) So if your stock is at $5 then you are buying 200,000 shares for a total value is $1,000,000. So the price improvement is (200,000) / (5 cents /100 shares) = 100. On $100,000 trade it would be $10 and on $10,000 it would be $1. Basically a basis point. I bought Microsoft with market orders. Bought SP500 ETFs that way too. And with IB I will end up using market orders for sure to do currency exchange. But you are right...I'm don't consider myself an investor, value or otherwise.

Yes, this shouldn't be material if you are holding for a few years. But, if you are choosing a broker because they charge $6.95 per trade but the real transaction cost is $106.95, then you should at least be aware of the execution cost. Same if you are using Robinhood, which offer "free" trade. Your statement is pretty misleading. IB's execution advantages for market orders are totally unimportant for all of us and for 99.999% of investors. $100 on a million dollar trade is a basis point...essentially its nothing unless you are an arbitrageur, HFT, or market maker. To even get to 1% drag per year your turnover would have to be 10000% a year...you would have to turn over your whole portfolio twice a week. Turning over your whole portfolio once a month would only result in a 0.12% drag. So this idea that you will save on execution costs more than you will save in fees is completely absurd. . Of course IB has other advantages...their fees are low and they have greater international reach. But investors should not fools themselves. If you buy $10000 worth of stock at IB and the fee is $15 but another brokerage it is $5....do not think its fine because IB will somehow save you lots of money on "execution"....IT WON"T!! On a $10000 trade (assuming stock is $5), IB will save you $1 on execution. I'm stressing this point because I have repeatedly heard on this forum that IB was better because the amount you would save on execution was a lot larger than you would pay in fees. That is a myth. OTOH, Execution for limit order fills is a different story and here IB may have advantages.

So my takeaways: For market orders best execution on IB translates to $0.05 per 100 shares according to fairly reliable data sources. If I'm buying $100000 worth of shares for $5/share this would amount to $100 which isn't that much. So basically this is completely useless unless your are an active trader. So I'm not sure it matters if someone sells order flow for buy and hold investors. On the other hand for limit orders it appears that IB fills are better but this is only anecdotal. And nobody really knows the reasons why. I have observed this too. One difference with IB limit orders is I believe they do smart routing. IB is continually scanning exchanges and limit orders that result in partial fills may be cancelled and rebooked on another exchange

Every time there is a discussion of the relative merits of Interactive Brokers the subject of best execution comes up. And sometimes people will talk about the fact that most discount brokers sell order flow to HFT's. And that IB is worth it because you will save more on execution costs than you will pay in fees. My question is what does all this mean? What is the NBBO? What is order flow? What is best execution? Can anyone give an example of best execution on IB vs a discount broker for a limit order? And similarly for a market order? What order of magnitude would the difference be on a trade of lets say $10000

So wait let me get this straight. Exchanges reduced minimum lot size to 100 so companies did reverse splits to effectively increase the minimum investment. Seems like Japanese companies want to avoid having marketable shares with a large share holder base. The survey indicates that a big concern of Japanese companies in the transition was how many shareholders they would have after the transition.

I feel like managing property is much more nerve-racking than blindly putting your money in an index fund. And far less liquid. If I were old I would never want to be a landlord....actually I wouldn't even want to be a landlord now. My parents are over 70 and 100% invested. I know other 70 year olds in a similar position. Its not such a strange thing if your house is paid off, healthcare is govt/union provided and you are still saving money in retirement because you have a good pension. I suspect my parents will never end up touching their savings. If you do get a stroke...look into meth as a treatment :)

I noticed that a large number of net-net stocks in Japan have recently reverse split their stocks. Wondering if anyone has any idea of what is going on: https://ca.investing.com/stock-split-calendar/ See the septempber 27th stock splits.

I was recently asked to give advice to a relative who wanted to know whether they should take their money out of the stock market as they feared a crash. My advice was: You don't know what you are doing and neither does anyone else. I can't tell you whether a crash will come. I have no clue. My advice is to keep your money in the stock market and stop worrying. You have better things to do with your life. Over the long term you should be ok. Maybe it goes up. Maybe it goes down. Most investors have no ability whatsoever to determine what will happen. But honestly I really didn't want to give him advice and if I could I would have avoided it. This is because I'm fairly confident my advice is worthless. The only reason I did is because I felt obligated since my relative has given me a lot of advice in the past...most of it was worthless too :).

Not so I sure how you know ground is well-tilled. Faraday start publicly talking about field concepts when he was 58 after most of his most celebrated experiments were already complete and when he had already suffered a nervous breakdown and was degrading mentally. And yet the field concept revolutionized physics completely. Quantum field theory, the Standard model...its all based on the ideas of Faraday. The whole story is interesting. You start with Faraday and nobody listening to him. Then Maxwell revives Faraday and comes up with his equations and people don't really pay much attention to this either. And then finally the Maxwellians: Heaviside, FitzGerald, Lodge and Hertz coming in and basically relentlessly advocating for Maxwell's theory after Maxwell has died. I can't really imagine a group of scientists spending their whole career advocating for someone else's theory. Heaviside for instance completely reformulated Maxwell's equations and yet he has received little to zero credit for anything at all. And all this work of the Maxwellian's point in nearly a straight line at Einstein's theory of Special Relativity. These people were driven by something other than money, status or resources. The motivations of scientists today are far different.

Averages of what?

This should be moved to politics section.

To be honest stockrow.com was never exactly what I wanted. The usability, look and feel is worse than this site(too many frames, too many pages, and often weird spacing between numbers, unncessary decimal places..why the fuck are numbers to the nearest cent etc). Additionally there is just a lot of data on these other sites I just don't want to see...I don't need momentum indicators, analyst price targets, a plethora of ratios. I really want something pretty much like a ValueLine one pagers but on a website. Beyond that (in my dream world) for a deeper dive, I might want to know things like subsidaires, related party transactions, all the MD&A going back for 10 years etc and have some search function that could search across financial statements. For instance for Valeant you might be want a search function that could search across 10 years of financial statements in order to determine how they dealt with a particular acquisition. That is really really powerful. The ValueLine website is a good example of what I consider a horribly designed page: https://research.valueline.com/research#list=recent&sec=company&sym=msft In sharp contrast their one pagers are wonderful: https://research.valueline.com/api/report?documentID=2185-VL_20170811_VLIS_MSFT_3305_01-1V9ELFLPIE99LVKNTEPJRFLP1A&symbol=MSFT Even in the case of Valueline one-pagers though, I find the quarterly data on the bottom left to be largely useless and their analyst commentary takes up way too much space and not very helpful. But they make up for it with their historical fundamental data which extends over more than 10 years. Really good design for this involves as much what is left out as what is kept in. A solidly designed page should enable to digest a lot of useful information about a company very quickly and without clicking on a lot of links.

My vague perception is that the Indian market is quite expensive. I rarely see Indian companies come up on net-net screens for instance and my recollection was that a 25 pe was considered reasonable for Indian stocks. The other vague idea I have is that branded consumer product type companies would tend to do very well in India. Think Johnsons and Johnsons, Unilever etc. The https://www.screener.in/ is simply excellent. Its been my objective to eventually create something similar for all stocks worldwide but starting with the US and using XBRL. I really wonder how they got the data. I've been grabbing stuff from the SEC and so for I can get the quarterlies going back to 2009 using xbrl...further actually to 2007 since 2009 financial include results from 2007. But to go back before that I would need a service or I would need to directly go into the financials and grab the data. I suppose since the information is public I could grab all the data from a service and insert it into my database and then cancel the service. We need to get together a create a site for value investor by value investors, along with a nice set of tools for extracting data from financials. There is a wealth of powerful stuff out there that everyday grows more powerful and we could be taking advantage of.

One thing that comes up regularly when trolling for net-nets is Chinese domiciled companies listed in foreign countries that are net-nets. Typically these are scams. I wonder what things people have come up with for identifying scam companies. I have a few: 1) A large number of subsidiaries with names like Super Lucky Investments, or Huge Top Aeronautics investing in everything from movie studies to fertilizer production. 2) The company never issues a dividend and their explanation says something about challenging market conditions and the need for liquidity despite that fact that they have tonnes of cash. I am not particularly interested in dividends but I know that no scammer will give away cash. 3) The company is Chinese with a fully Chinese board of directors. 4) A ridiculously low price. Typical net-nets are in the 0.3-0.66 NCAV range. Scam companies are around 0.1 NCAV. Gannon's blog post on this issue is also excellent: http://www.gannononinvesting.com/blog/why-i-dont-invest-in-chinese-stocks.html

Could you elaborate? Yeah, so usually the idea is saying, well OK I think the value of this company is $100 (EV = 100), but I can buy it at P=75 and sell somewhere around $100. In this case the ceiling is 100, and you buy below that. But take the same example. What's the worst case scenario, tail risk, etc.? Your $100 EV is just the average of a bunch of probabilities. How does that distribution look? In other words, the EV = 100 but P1=0 and P2=200 is much different investment than EV=100, P1=95, P2=105. For the second, your floor is essentially 95. For the first, your floor is bankruptcy. But same EV. The argument here depends critically on diversification. If you can get a large number of diversified opportunities that look like the first case than the first distribution will start narrowing and converge to the second at the portfolio level.

Graham divided investors into two groups: aggressive and defensive. For both group a substantial underlying assumption was that any investment with a substantial chance of loss was completely excluded from consideration. So the MOS never even enters into the picture because of the high probability of complete loss. Graham would not call this an investment...he would call it a speculation. Now after you met this first criterion then things are simple, you take your expected value and multiply by 2/3rds. You always expect to pay about one third less than the investment is worth as your MOS. HOWEVER, right at the end of the Intelligent Investor Graham writes the following: I would argue that you can consider your definition of margin of safety as meaning 1). However appropriate portfolio sizing or equivalently diversification is important. You would never want to invest 100% of your lifetime opportunities into the opportunity that was described. But 1-2% might be quite ok provided the price is sufficiently low. Cornwall capital made a lot of money on bets exactly like this.

I don't think history is a good way of judging this. Capitalism goes through phases. The first phase was very capital intensive and capital was expensive. So a measure like book value may have made sense. The next phase saw the rise of advertising and brands. I think this was the reason Buffett departed from Graham. He was seeing companies trading at 5 time books value and yet on an earnings basis they were cheap. Graham had already departed from asset values but he still clung to the idea that there should be at least some asset value support for any company. Buffett and Munger absolutely broke from this idea and were willing to buy companies that were ridiculously expensive if judged on an asset value basis. I believe the current phase is another transitional one and that it doesn't make sense to judge digital companies on traditional value metrics. Capitalism is a revolutionary force that is incessantly altering the modes of production. Investors have to adapt.

Then it would make sense to look at something like enterprise value which adds the debt to the market cap and subtracts out the cash or failing that at least subtract cash from the total debt. I am as suspicious as TwoCitiesCapital of selectively removing individual companies. I could probably get this off of Bloomberg or failing that we could use this: https://github.com/JeffFerguson/secqdb I am going to try and see what I can grab off of secqdb...even though that is the harder route...because I've basically been itching to see how far the structured datasets can go. But if I can do it by the end of the week...Bloomberg it is. As a result I am working on adding a net cash sheet to the document, I have updated the doc with historical NASDAQ returns, results are pretty interesting, I'm going to add as many exchanges with as much data I can get my hands on If anyone has any other suggestions I'm game. I'm trying to see if there is anyway I can get full book value and market caps for every stock in an exchange to pin point cheap exchanges relative to each other as well. Where are you getting your data from? The companies websites. I'm sure there is probably an easier way but I don't have any programming experience thats why I chose the Dow first to see if this was feasible. Huh? You are going to go through the statements of 500 companies? Dude...I'll pull this from Bloomberg.

Then it would make sense to look at something like enterprise value which adds the debt to the market cap and subtracts out the cash or failing that at least subtract cash from the total debt. I am as suspicious as TwoCitiesCapital of selectively removing individual companies. I could probably get this off of Bloomberg or failing that we could use this: https://github.com/JeffFerguson/secqdb I am going to try and see what I can grab off of secqdb...even though that is the harder route...because I've basically been itching to see how far the structured datasets can go. But if I can do it by the end of the week...Bloomberg it is. As a result I am working on adding a net cash sheet to the document, I have updated the doc with historical NASDAQ returns, results are pretty interesting, I'm going to add as many exchanges with as much data I can get my hands on If anyone has any other suggestions I'm game. I'm trying to see if there is anyway I can get full book value and market caps for every stock in an exchange to pin point cheap exchanges relative to each other as well. Where are you getting your data from?

Then it would make sense to look at something like enterprise value which adds the debt to the market cap and subtracts out the cash or failing that at least subtract cash from the total debt. I am as suspicious as TwoCitiesCapital of selectively removing individual companies. I could probably get this off of Bloomberg or failing that we could use this: https://github.com/JeffFerguson/secqdb I am going to try and see what I can grab off of secqdb...even though that is the harder route...because I've basically been itching to see how far the structured datasets can go. But if I can do it by the end of the week...Bloomberg it is.