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frommi

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Posts posted by frommi

    Bank investors: what do you look for in an investment?

    in General Discussion

    Posted

    No discount factor and no terminal value, that makes it easier. But just 4 years, because that way the difference to fair value still has a big enough impact and that is my intended holding period.

    Something at fair value growing at 19% has for me the same forward return than something that has 100% upside but no growth/dividend. The logic for me is that after 4 years both have returned 100% when it plays out, no matter how that result was achieved. In my list the stocks that have good growth and a distance to fair value >50% rank highest.

    Bank investors: what do you look for in an investment?

    in General Discussion

    Posted

    I really don`t know if my approach works in the long term ( and i am a fighter for spreadsheet investing ;D ), but i look at P/B and what could be a "fair" P/B giving the history of the bank and their current RoA. Then i look where book value can be in 4 years given their past growth (always thinking about if history can repeat here) and add the dividend yield. Out of the three components (diff to fair P/B+dividend yield+book value growth) i get my forward rate of return, which i compare to all other possible investments.

    I value most non-moat smallcap investments the same way.

    "Macro" Musings

    in General Discussion

    Posted

    I need some help here on how to explain away Q2 GDP if it comes in at 4%. 

     

    Shall we just say it's due to the weather?  This year is warmer than average.

     

    We probably have to wait 3 month for the real numbers, given what happened to Q1 GDP. :D

    Technical Analysis for the value investor

    in General Discussion

    Posted

    Interesting Ill look into EWP.

     

    How do you use support levels? I could never figure out whether it was good to buy just above a support, or bad, because if it drops below you get the 'breakout'.

     

    Breakouts are in my experience often false breaks, so i ignore them. And when you are a value investor breaks to the bottom are not really important because the value will "protect" your downside. But they are often turning points because a lot of big limit orders are waiting at these points and soak up the sell orders.

    Technical Analysis for the value investor

    in General Discussion

    Posted

    I use Elliottwave analysis and resistance/support levels for entries and exits. EW is very good to find turnaround spots, you just have to remind yourself from time to time that it works on probabilities. It won`t work every time, but from my experience you can roughly time the market in 60-70% of all cases. But don`t believe me, everybody will tell you the opposite. :)

    My single best pattern in that regard is an ABC-correction (Zigzag) where the length of wave C is roughly the length of wave A. When there is a support near the end of wave C you have the perfect entry point where it is very likely to get a reaction upwards.

     

    Shorting seriously out of favor

    in General Discussion

    Posted

    The guy who sold you the puts could very well be sitting on a large concentrated position that he wants to hold onto for tax purposes only, but would otherwise like to diversify his downside risk.

     

    So he purchases at-the-money puts to diversify his downside risk, and he write puts on a diversified group of names that he does not otherwise have a position in.  The premiums collected from the naked puts he writes are used to fund the puts he purchases as insurance.

     

    So he he moves his previously concentrated risk into a basket of other names.

     

    Don't assume he is running on a very thin line.  It may be completely the opposite -- he was on a thin line before with his concentration, and now he is being very conservative.

     

    Haha, didn`t know it was you! :)

    Seriously, take a look whats going on in the sell-options-for-income forums. There are lots of sheep to get shaved in the next downmove.

    Shorting seriously out of favor

    in General Discussion

    Posted

    There is a difference between shorting and protecting your portfolio against market moves.

     

    Shorting is something where you need a trading style, you can`t let something like CYNK run against you and not cut your losses. That won`t work and can ruin you in days. I would nobody advise to do that without a lot of trading experience.

     

    Protection via puts is on a totally different side, you have limited losses and huge possible wins just like buying stocks. That is more like buying insurance. And the good thing about that is that it is cheapest when nobody wants it, but that is most often the time when you need it. Think about the other side of that trade. The one who sold me the puts is running on a very thin line, i would never do that with such low premiums and that huge amount of risk. And when the puts are worthless in the end, i won`t regret buying it because i was protected when i felt i needed it. (You won`t regret buying fire insurance for your house even when it didn`t burn down, do you?)

    Shorting seriously out of favor

    in General Discussion

    Posted

    yeah i just sold my house to my neighbor for the summer, just in case.  ::) it makes a lot of sense to own something you consider worth owning and then speculate on the price.

     

    Don't you insure your house against heavy damage?

     

    And now imagine that 80% of all storms happen in the summer and the insurance for that time is a lot cheaper than for the whole year wouldn't you do that kind of deal?

    Shorting seriously out of favor

    in General Discussion

    Posted

    And who says that cheap things can`t get a lot cheaper?

    I was burned in the past over summer, so my natural instinct tells me to protect myself during that time. It may be irrational or not, but we are living in times where QE is the only reason that markets go up or down. And QE ends this october (cool timing!) and its power is probably already fading.

     

    Perhaps i am wrong, but who cares as long as i don`t damage my account? When i miss a big upmove that is ok, as long as i don`t lose money. Think about rule #1.

    What are you buying today?

    in General Discussion

    Posted

    frommi - can you elucidate what you believe is the MoS in Posco exactly? Thx!

     

    Tangible bookvalue (look at 10y history) and that Buffet and Third Avenue have positions there. There is a PKX thread in the investment sections with further arguments.

    And from a technical viewpoint there is a solid support at 60-65$, thats unlikely to break.

    What are you buying today?

    in General Discussion

    Posted

    Switched ALS.TO+cash to PKX. Looks really good, PKX is now my biggest bet after BP.

     

    Anything specific made you sell ALS?

     

    Margin of safety is a lot higher in PKX and i didn`t really like the news gamble. But i wish everyone good luck with ALS.

    What's your due diligence process?

    in General Discussion

    Posted

    If i come up with an idea i first look at the 10y overview of the business numbers. If i like what i see, it mostly depends on where the idea comes from. When its a clone from Buffet or Prem i rarely read a business report or SEC filing, because i doubt that i find something that they have not. Only with my own ideas i start reading annual reports, news headlines and search for articles to get a feeling what is going on with the company.

     

    When i am comfortable with the idea i put it on my watchlist where i track the company and the projected annual forward rate of return, that gets automatically updated when the price changes. I always sort them by my fror and then look at the charts of the ideas with greater than 20% return and compare them with what is in my portfolio.

    When there is an idea on my watchlist with double the return of the worst stock in my portfolio i search for an entry point and make a switch. (The last point is theory, in praxis i switch more often and use technical analysis to find good switching points.)

     

    I still make a lot of mistakes, but i write them down to avoid making the same mistakes a second time. (That was the last addition to my process.)

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