frommi
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Posts posted by frommi
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Still working on this in general. Here's a good paper on this topic:
Probably a month or so before I'll finish it.
Interesting paper, but they probably should have compared the earnings yield with the t-bill or 10 year treasury yield instead of a fixed yield. It should be obvious that the switching points depend on current inflation.
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This summary of letters is really great and highlights one point which is critically in my eyes. You have to be able to put an expected rate of return number on every investment you can possibly make and choose the ones which offer the best returns. It looks so simple but i have only seen a handful of people doing this and i think this is the key factor to ignore macro and every other noise.
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When you search for the next 10 bagger just go to pennystocks. But the problem is for every tenbagger you find, there are 8-9 bankruptcy stocks and in the end you would have been better of concentrating on the 2-3 baggers in 3-5 years.
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valueinvestors always love to say that you can only make money with the value aproach in the markets. But i do think there are a few people who are killing it with other methods over longer periods of time. It just is harder. Even Munger agrees with me here. I think that is one of the few things buffet and munger actually disagree over.
I mean the 95% figure doesn't say anything. I used to play poker, and there almost everyone breaks even or loses money. But it is a skill game, and it is very much possible to win money with it over the long run. All it says is that alot of people are just idiots or cant be bothered to put in the work.
Jack Schwager has written a really good book about successful traders (Market wizards). There are plenty of ways to make money in the market and i would never say theres only value investing. But value investing is the simplest one, its the one that nearly everybody can manage to do. And if you are bad you are probably not beating the market, but there is a good chance you are still making money. The most other methods have a high entry hurdle because its very hard to break even. One mistake and you are often back to zero. I read about successful option sellers (>30% per year even in 2008), successful penny stock daytraders (from 1500$->1.7million$ in 3 years.) and successful technical traders. But for all these methods you are the factor that determines if you are successful or not. And that only works when you have lots of discipline and are in full control of your emotions. You have to permanently work on yourself. And everyone was able to admit that he/she is sometimes wrong and correct themselfs in some way.
And value investing has another "advantage", because nearly every other successful method requires you to sit in front of the computer as long as the market/your position is open. I tried this for some time but working 8 hours a day and than 8 hours as a trader was not working. Perhaps i try that again when i am retired.
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There's no performance benefit from ideological purity, i.e. "Market timing is bad and never works".
Lots of investing strategies work sometimes and fail sometimes. Market timing is no exception.
There is a difference between not working ie not beating the market and not making money at all or losing money. Market timing is nothing that sometimes work and sometimes not, it depends on you if it works AND you make money of it. And when you do it, you are not an investor anymore but a trader. And a trader has to admit that he is sometimes wrong and correct his path. When he doesn`t do it, he usually ruins his account. 95% of all traders lose money in the market, but everybody thinks he belongs to the 5%. I was no different :). Read "Reminiscences of a Stock Operator", than you get a really cool look at how market timing can work. But be aware that even the genius Livermore was more than one time broke.
Holding cash because you can`t find investments anymore can in my eyes only happen for a money manager that is bound to restrictions like only us stocks and/or managing huge amounts of money. For everybody else its probably not enough time spend searching or the circle of competence is too small. (But even then you can coattail other investors.)
But i respect when somebody holds cash to reduce volatility, because in the end thats what it does.
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I don`t know if it was prudent, but i had to buy Bank of China (BACHY) today. Reduced my KMI holding back to where it should be.
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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer! There are still many pockets of value but Financials should not be overlooked...
Tks,
S
What are you looking at? I think SUSQ looks cheap.
I looked at the numbers quickly, it seems they permanently issue shares, is that normal for a smaller bank?
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From my understanding when you look at foreign numbers in $ over a longer timeframe you already have the same inflation "base". So you only have to account for inflation when you look at the numbers in the foreign currency, because normally the inflation should reduce the currencies value. But there are exceptions like china, and its possible that my theory is flawed. :)
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I use 3 accounts and use margin debt in one of them up to around 30% of its value. Thats comes out to an overall leverage of 10%. I can see nothing wrong with that, when it cost me 1.6% to buy equities yielding a lot more. Options are a good alternative, but you have to understand the cost involved. (Bid-ask spreads, volatility going down when the stock goes up, raising dividends that are not priced into the option, forced timeframe, etc.). When you are not disciplined you can overleverage yourself a lot faster with options. (That is especially true for people buying far OTM calls or warrants)
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Mispricings happen everywhere where people sell because of emotions or the current news and not because of the companies numbers. This can lead into a stampede.
When i started as a value investor and researched a company everytime i looked at great numbers and after that looked at the headlines, i thought oh no i don`t want to invest here. But thats exactly the reason it is cheap, so i started to view the headlines as a contrary thing. The more negative headlines, the better.
With small caps its often better to find the ones nobody has ever discovered before you. But this is much harder at the moment, because everybody wants to be a value investor and its enough when 2 people buy a stock to drive it to fair value. Look at how many netnets currently exist in the US, i have seen my screener getting fewer results every month. And with netnets in nondeveloped countries there are a lot more risks, so you have to diversify more to reach the same result. But that is a butload of work where you don`t know if it pays off.
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Sold TEVA and DE, bought more KMI and Lukoy.
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Yes because he plays it safe with stocks that have 10-15% forward rate of returns. It was only the process of calculating a rate of return that i was interest in. How do you decide which investment is better for your portfolio, gut feeling? :)
There was a poll some weeks ago where >80% of this forum polled that they make position sizing dependend on value. How is that possible without being able to compare the investments?
Sorry for derailing this threat.
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@stahleyp First i am surely one of the worst investors here. I made so much mistakes in my investing career that i can fill a book with it. But i am able to learn.
Your problem of the cycles etc. is only understandable for me when you buy something, hold onto it for 5 years and then come to the conclusion that the bull market is 5 years old and you sit on large gains. I avoid this situation completly because i always look for better values and i have found a way to compare all my investments with one simple number (my forward rate of return, i can even calculate that for my netnets and compare them with good compounders). Thats probably sometimes to easy but it makes my investment process easier and helps me to decide when i have to sell and buy something else (my current rule is when i find something with double the rate under some other conditions like max position size.).
I don`t know if these forward rate of return numbers get real but i know that Yachtman and some other value investors use something similar. When they get real in 75-80% of the cases after 5 years i should reach my goal of >15% returns easily.
@thepupil +1
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@stahlehyp Thats the thing i probably don`t get. For me its a no brainer to sell things that have only a forward return of 10-15% and switch to things that have a 25-30% forward return. That belongs to my investment process. I would only switch to cash when there is no other asset class in the world where i get the returns i search for, or cash yields so much that an risky investment somewhere else is out of question. (I doubt that will ever happen but i can understand that its another story when you handle billions or are bound to invest in equities.)
And since i won`t use more than 10% leverage for me there is no more or less agressivity. Perhaps its a matter of each investment style if timing has to be a factor. But why should i make something really unreliable a part of my investment process? Even some of the brightest minds and best stock market timers of the past like Livermore have gone broke through leverage and were not able to time the market every time they tried.
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Its simple. When you are able to call market tops do it!
I know that i can`t because i have tried this in 2006 and 2007 and lost a lot of money shorting. And guess what, i missed shorting the downmove in 2008 completly. And the perverse thing with shorting is that you hope that something bad happens on the weekend to be up on monday. I couldn`t count the weekends where i thought about nuclear attacks and all these shit, that makes your life really miserable.
I bought some stocks in the end of 2008 but much too early and sold near the low of the downmove in 2011. Missed the complete upmove in 2012 because of my german angst. I would have been better off if i just had stayed long since 2005 and that with the worst downmove we had in 30 years in between. But i am able to learn. My lesson was to stay invested no matter what happens, i just try to find the best opportunities available und move my funds there. And stay optimistic about the future, thats good for your mood. :)
And btw. I hear that debt argument ever since 1998, debt was always to high in the eyes of the observer. But thats not a reason that the market crashes tomorrow. (And 10-20% corrections are not crashes in my eyes, just opportunities to buy more.). Just look at Japan how long high debt rates can be carried into the future. And btw. value investing even worked there in one of the worst bear market we have ever seen. (source:http://greenbackd.com/2013/07/23/has-value-investing-worked-in-japans-long-bear-market-1990-to-2011/)
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These puts are not good for you. ;D
That occurred to me.
Sort of like real-time self-experimentation on investor psychology.
But please don`t sell them because of my stupid comments, i don`t want to be guilty when the market really crashes and you lose money. :)
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How do you determine that the market is more efficient now? Is there a study somewhere that proves this?
I have thought sometimes that maybe it is. The net nets have mostly dried up in the u.s. at least, except during major market crashes. But aren't stock prices as volatile as they ever were?
It is much less work necessary now compared to the old times. The internet has driven the margins for netnet investing down. But that doesn`t mean that it doesn`t work anymore, i put together a little basket of 6 netnets last year in june and the basket has returned 137% till now. But stupid as i am, i put no money in it. ::)
Since then i look for opportunities in netnets but haven`t found a lot.
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Packer, even Eric has put on hedges! ;)
In all seriousness, though, I really respect you opinions and wanted to get your thoughts on this. What do you think about this?
http://blogs.ft.com/andrew-smithers/2014/03/a-world-awash-with-debt/
"Claims are often made that today’s low investment is due to “deleveraging”. This is nonsense. The figures published on March 6 by the US Federal Reserve show that corporate debt has risen by 9 per cent over the past year."
Isn`t this what the FED was trying to do with low rates? And now we should cry because it has worked?
Isn`t it natural that margin debt usage goes up when the market rallies and interest rates are low?
Should value investing now stop working only because the overall market is slightly overvalued? (Has it in the past?)
Shorting has an expected negative real forward return, the only reason to do it is to lower volatility. But that always comes with a cost. (Except when you are lucky.)
The best hedges are uncorrelated assets with a positive expected real return, i did this by accident in december/january through my investment in REITs. But i think that was only a by-product of searching for good returns and mispricings everywhere.
ERIC found a very good way of hedging with a two sided bet on IWM, but he had to be a bit lucky to set this up with low cost. Had the market surged after he bought the puts he would have not been able to do this.
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These puts are not good for you. ;D
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Couldn`t stop myself from being greedy. Sold JPM, dipped a bit into margin and bought more KMI @ 31.6$. Its now my second largest holding at 9%.
So you're the one pushing the stock up....
Sorry. ;D
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Couldn`t stop myself from being greedy. Sold JPM, dipped a bit into margin and bought more KMI @ 31.6$. Its now my second largest holding at 9%.
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Yes they can but they devalue their currency with that action. I would say its happening right now.
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KMI @ 31.02, 5% Position.
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So you lagged into a straddle on IWM? Thats absolut brilliant! What expiration date did you use?
Why Hold Cash?
in General Discussion
Posted
Thats a classical example of curve fitting. You won`t get the same results doing this going forward. The best example is where they do it with the dividend yield. When you switched out when the dividend yield goes below 1.5% you make more than the buy and hold investor. But hey, there was just one point in history where they would have switched out and that was 2000. So does anybody think that will repeat exactly? Surely not :).