frommi
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["I would love to find a lot of overvalued stocks with implied volatilites below 20 but i have not found any."
I own soma CAT and RIO long term puts as insurance. I think these are very overvalued and have very low volatilities, one had less than 20 implied volatility when I bought it so premiums are very cheap.
Its hard to buy puts on these stocks when you expect inflation to come. :D
But the idea is not that bad, perhaps i should look at overvalued quality stocks like CL, CPB or HSY. But i doubt that the puts are cheaper than the SPY puts. (Just checked, no they are not cheaper.)
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It's a good point Kraven.
I am going to use that as an opportunity to put in a pre-emptive sell order on the SPY ETF. I am 100% short the index when the transaction occurs.
NOTE: As this is a pre-emptive order, the transaction is subject to certain conditions being met. Specifically the SPY must decrease in value by more than 1% by tomorrow's close. Failing that condition I revoke my pre-emptive order.
:P
Looks like today is your day! I am a shameless cloner, copied you and shorted the day highs :D.
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Long puts when insurance is cheap. Shorting the index is emotionally a problem, i would rather sell all my holdings and go to 100% cash than to do it again :). In those two weeks i tried it more than half the time my longs and my shorts ran against me. So that gave me more volatility instead of less. And with a basket of shorts on overvalued stocks you have the same problem and a lot higher borrowing costs. Short calls can get you into the same emotional traps when you don`t hold the underlying and when implied volatility is low, the premiums are not worth it.
With puts your "problem" gets smaller in case you didn`t need the insurance, its a lot easier to hold onto the insurance. But its possible that this is only a personal thing. I would love to find a lot of overvalued stocks with implied volatilites below 20 but i have not found any. In the end i hedge with small positions in LEAP puts on BBH and SPY.
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The article kinda reminds me of market peak articles of 2000 and 08, Where normal people making good returns at the same time a rising market with little or no research
I don`t think that its possible to outperform the market without research. Its just not the same research a value investor would do.
Read this to understand: http://www.aqrindex.com/resources/docs/pdf/news/news_case_for_momentum.pdf
Its just that a long only momentum investor will get hit hard in a bearmarket. The momentum premium in a bull market is stronger than the value premium, so its possible to outperform more with a momentum strategy than with a pure value strategy during that time.
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After feeling a lot of pain with a long/short portfolio in the last week i give it up, its just not for me. I covered all shorts, i just hold onto bbh and mdax put options as protection. I put this into lesson learned category which has cost me my outperformance of the first 5 months. So if i will ever short again i will only do it with small put positions.
Nevertheless i raised my cash level a bit, sold CHL, DLR, WSTG,BACHY and OHI and bought ALS.TO and VZ. I am really trading too much, but i am constantly in fear of losing my gains. Really weird, i need a psychologist. ::)
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Looks like a momentum investor. In bull markets its probably pretty easy to outperform, but if he hadn`t this godsent idea to stay out of the market in 2008 he probably would have lost most of his outperformance/networth in that year. I am still thinking that its not a bad idea to combine momentum and value investing.
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My biggest mistake was only reading book 1) and then nothing for 5 years. Without 2) i would have never read 3).
Yes, I can see how that would be a very big mistake! ;D Cheers!
But its worth reading when you know nothing about timing and want to expand your horizon :). Its just useless without the others.
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1. "Mastering Elliott Wave: Presenting the Neely Method: The First Scientific, Objective Approach to Market Forecasting with the Elliott Wave Theory", G.Neely
2. "Snowball", A. Schroeder
3. "The Intelligent Investor", B. Graham
4. "Quantitative value investing", Gray & Carlisle
5. "Antifragility", N. Taleb
My biggest mistake was only reading book 1) and then nothing for 5 years. Without 2) i would have never read 3). After 3) i`ve read nearly every value investing book out there, so don`t know if they have really added something to 3) except 4).
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Make 70% per year .... and lose everything and a bit more in the next. Shorting levered VIX ETFs might make sense when the VIX is at 40-50 but not at 12. And even then its probably safer to choose something like going long XIV. The article is trash, but the idea behind it is not bad at the right time.
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Q1 US GDP revised to -1%.
http://hotair.com/archives/2014/05/29/boom-q1-gdp-revised-downward-to-1-0/
Oh, don´t worry it was just the weather ???.
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rkbabang,
Nice little cottage you have there.
Thanks that's just the vacation home in Germany. I spend a week there every few years. I almost forgot I owned it. I'm so unorganized I had to dig around the house to find the hope diamond to take a picture of it. It was under the couch cushion.
Man, the next time you are in my neighbourhood give me a call.
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The seasonal patterns exist for a very long time and are recorded for nearly all stock markets around the world. (Bouman and Jacobsen 2002, 36/37 markets)
http://seekingalpha.com/article/1183461-seasonal-patterns-in-stock-markets-319-years-of-evidence
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1697861
If we only consider the full sample (306 years) we find four monthly anomalies robust across different estimation methods (significantly positive returns for January and December and significantly below average returns for July and October) and also a positive Halloween or Sell in May effect.There are lots of possible explanations like tax effects, holidays, hurricane season or that people look at the forward-pe after Halloween.
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14 pages and nobody mentioned WFC. Why? :)
It has one of the highest growth rates in bookvalue of all mature companies i have seen (and when you factor in dividends it crashes everything), and is still not overly expensive. And the environment can get a lot better than the last decade for them. There is a reason Buffett and Munger love this bank.
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Thanks for your feedback tng!
I know a lot of professionals scoff at saisonal statistics, but have you considered hedging only in the month from may to september, where the market has statistically a negative return? I would really like to see or hear from a backtest that does this.
You are probably right, in a high interest environment cash might have a better return than going long-short.
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Oh, i thought it was just 100%/100% in the paper, as i said i wouldn`t invest in their fund and wouldn`t lever it up that much.
You can reduce the borrowing cost if you use the Russel 2000 future, it costs around 1.5-2% per year and has enough junk in it. (at the moment)
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Maybe I missed it, but why can't the ECB buy bonds?
The Basel restriction is interesting, but I think a new targeted LTRO program will get around this as long as the collateral haircut is low enough to mitigate whatever risk weighting on the retained portion.
Perhaps you can translate this with Google: http://www.faz.net/aktuell/wirtschaft/eurokrise/omt-schaeuble-kassiert-die-wunderwaffe-der-ezb-12955803.html
In essence, because germany will not allow the OMT program and can veto against it.
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Mr. Asness has set up a hedge fund in 2013 using this approach that is 200% levered on each side and has delivered around 13.5% in the last 11 months, thats is nearly exactly what the paper suggests. Personally i would use this only when the broad market is running hot like currently and not levered up so just 100% long and beta adjusted 100% short. Imagine you could dodge most of the crashes by using this approach and even make money when you are not right on the timing. And then when the market has tanked you slowly get rid of the hedges.
Sounds like a perfect plan. :D
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I found this last week and think this is interesting.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2312432
Happy reading!
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As I am repeating for some time now, Europe is still a mess... ::)
Gio
The whole world is a mess with the right glasses :). Since i am now fully hedged i am a lot more pessimistic and believe that Mr. Watsa is right in doing what he does. Chinas growth slowing, europe near deflation, the us is in trouble because the dollar will rise and cause deflation there. The FED and ECB are nearly out of bullets and debt levels are still growing and not shrinking. I doubt that the FED is really aware of what is coming, they are still in their tapering plan. When they act it will be too late and then they have to press the pedal to the metal and cause hyperinflation. And the ECB can do nothing, does it really make a difference if interest rates are 0.25 or 0? As long as the banks don`t lend money because of the Basel rules nothing will change, and now the ECB can`t even buy bonds anymore. (Look at what Mr. Schäuble said last week.)
I am really afraid at the moment, and i don`t see a lot of people that share my view. Colleges talk about the stock market like there is no easier place to make money, we have a record year for IPOs, margins are at the upper limit and now even the VIX made new 5 or 6 year lows. It smells like 1999/2000 even if it looks a bit different.
But who knows, it rarely pays to be pessimistic but since i have put my rosy glasses off i am full of fear and can`t put them on again.
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Shorted a basket of stocks (DDD,CRM,P,LNKD,ULTI) and the Russel 2k. I am now fully hedged and plan to surf the time as a long-short fund until the next big downmove.
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Its because there are 250 million migrant workers that come into the cities every year for some month and then move back to their farms to support their families. When they stay someday they can fill a lot of these ghost cities. If that ever happens is on a different paper, but i am pretty sure that the government can make some moves to get more families from the hinterland into the cities. Its not set in stone that china has to crash. But its probably wise to be prepared in case it does.
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Certain segments will suffer, I wouldn't want to be shareholders of Chinese commercial banks, property developers, or construction material manufacturers. Tempting as they are, there are reasons that these stocks sell for single digit P/E while companies with consumer exposures go for double digits in the Chinese domestic stock market. The source of aforementioned article is from India Times and its target audience has certain inherent bias. I wouldn't take it as seriously as something from the IMF or the Economist.
I am a happy shareholder of a chinese bank, because i think these risks are already discounted in the stock prices. But i am pretty sure that the US stocks or german stocks have these risks not in their stock prices and will suffer the most when the crisis hits. So i hedge the cheap chinese banks with expensive german and us stocks. Thats a risk on its own, but i think its worth it in the end.
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That book value multiples are lower these days can also be a factor of the current non-inflation environment. In higher inflation the float should be more valuable, because you pay no interest on it. When interest rates are 0%, the float is worth nothing, because you can lever with borrowed money for zero. But when interest rates are 10%, a 0% float gets you easy money.
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Divide ROE by P/B = starting expected return. I want this number to be above 8-9%, and as time goes on, investor returns approach ROE....
Thats a bit misleading, after a good year like 2013 ROE will always be high if the book is invested in equities. Perhaps you can take the average ROE of the last 10 years, but that should equal the book value growth over the last 10 years. Thats only the growth component of the return you can achieve when the manager gets the same returns like the last 10 years. It tells you nothing about the fair book value multiple.
I Could Use a Mentor
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