frommi
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Posts posted by frommi
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Its possible that you are right and after reading these stories i am scared, too. But in the end thats always the reason why something becomes cheap, because the majority is scared that the world goes to hell. Nobody knows how this all will play out, perhaps the property market in china crashes and it doesn`t influence the stock market? Or the government/central bank does something surprising?
Shorting means to bet against the humans that are working for success in all these companies/countries, so you have a lot of headwinds. And as soon as you are in your position you are actively searching for reasons why the world has to go to hell. And you get angry when the market doesn`t react like it should.
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Gio would you invest in bonds at the current rates?
I can`t really imagine how anyone can really hold bonds at the current point for the longer term. Heck i am even thinking about shorting them for a lower overall portfolio risk. (I have some REIT`s)
And i bet that FFH is already back to zero when it comes to gains this year, because the Russel has broken the top and interest rates have risen since the letter.
For me Prem`s actions look like someone who has made a macro bet, has proven to be wrong and he doesn`t correct himself. For a trader this is a no go, an investor might be getting away with subpar returns. (look at the performance of the last 4 years) FFH looks like a giant levered long/short hedgefund which for me seems to be overvalued at current prices. What if the market repeats 2013 for the next 2-3 years like in 1997-2000?
When i read the letter correct book value has declined in 2013 from 378$ to 339$ thats -10.3%. When that repeats for 2-3 years its very hard to recover that loss and this is totally possible when the market rallies further and interest rates go back up to 4 or 5%.
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When you withdraw not more than 4% per year you should be safe as long as you can generate market like returns.
Perhaps you find these links helpful:
In the end it all comes down to your expenses.
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And one observation of our own: Since 2009, the easing by the Federal Reserve combined with the explosive growth in China, backed by higher interest rates, has resulted in huge inflows (‘‘hot money’’) into China. The near unanimous view that the renminbi would strengthen has resulted in a massive carry trade where speculators have borrowed at low rates across the world and invested in China, almost always backed by real estate. The shadow banking system in China – i.e., assets not on the books of the major Chinese banks – is estimated by Bank of America Merrill Lynch to be approximately $4.7 trillion or 51% of Chinese GDP. Oddly enough, prior to the credit crisis, the U.S. had $4.5 trillion in asset-backed securities outstanding or approximately 31% of U.S. GDP. You know what happened then. When the flows reverse in China, watch out!
This is really scary for the entire world... :o
If this is true, than where has that money gone? The chinese stock market has gone sideways for more than 3 years now. Bank of America has sold its stake in china last year. It looks like they are now talking china down. http://ftalphaville.ft.com/2014/02/03/1759962/in-defence-of-chinas-shadow-banks/
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For me russias move looks like a friendly takeover. The ukraine marine has just turned over to follow the russian friendly crimea government.
What can the EU and the USA do, if the crimea population just votes to be russian?
All the screaming from Kerry is worth nothing to solve the problem. Crimea belonged historically more to russia than to the ukraine.
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The country is split, half of it is more russian oriented, the other half inclusive kiew is more oriented to the western world. Russia has an important military base on the Krim and i think that is the reason they are sending their troops. I don`t think that the situation will end in war, but its possible that the Ukraine will split itself into two pieces.
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I think a lot of the problems that can arise in china are already priced into the stocks. I see a lot of negativity about investing in chinese companies, but when you look at the numbers some are so cheap that you have a problem believing the numbers. How can stocks crash that are already so cheap? This is the total opposite of Japan in the 1990.
When they get some of the problems like the city polution or the shadow banking system under control, china has the potential to be the worlds (consumer-) power house for the next decades.
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Hi, i just came across a funny 8-k and i am wondering if this is legal.
http://biz.yahoo.com/e/140224/mrna8-k.html
The investor buys 6 million stock for 0.75$ and gets 6 million warrants for free. The stock is at 1.6$ after the press release and they can simply sell the shares, make a quick buck and still have the warrants left. That is an investment without risk. I want that, too! (and at that point i was really wondering if this is legal.)
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And the reason, I believe, was that combination of historically very high debts and very high asset prices I have just referred to. The moment that combination is gone, they most probably will be back to business as usual!
When you look at the history of us debt levels you would see that current levels are not that high. Around 1945 we had a similar situation when you only look at the numbers and the next 20-25 years were very good for stocks. So its possible that you have to wait a long time until that situation is gone. And the crux is that as the debt levels hit a low of 20% of GDP the stock market crashed in 1973. http://www.multpl.com/u-s-federal-debt-percent/
Thats probably because fresh money is not flowing into bonds when interest rates are low, its going to stocks.
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Because i invest internationally i use VT as a benchmark. Using an US based smallcap index would not be fair to my portfolio. I have a problem with an absolute return as a benchmark because i like to have a smooth ride instead of volatile up- and downswings you would see with pure smallcap indices. And its probably stupid to compare a 2x levered portfolio to a normal index because the risk of losing everything is endlessly higher. So i would vote for a risk adjusted measurement like sharpe ratio or something else, because risk control is the reason i have become a value investor. But thats just me, Eric has surely a different opinion on that topic. :)
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Klarman, Graham, even Buffett have tended to adjust their exposure depending on the level of the market haven't they?
It's true he and his clients would have probably done a lot better if he had stayed fully invested, and as long as stock earning yields are higher than bond yields then theoretically you are better off with them. But my question is how little are you willing to accept? I mean if bond yields are at 1% and stock earning yields are 2%, should you be fully invested because of the 1% advantage?
I am 100% sure that even in that scenario you can find stocks with higher earning yields or alternative assets like junk bonds, corporate bonds or REITs that give you a better return. And yes as long as cash as an asset class is not beating inflation i don`t even think of going to cash. In the current environment you are losing purchasing power every month you are in cash, its like a ticking clock that works against you.
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Hey gio, don`t be upset :). Your time will come and being a lonely rider is not the worst position to be in the investment world. The problem is only that you are not so lonely as you think when you look outside this board. At the moment i feel that being a bull is a lot harder after the last year. Anyway, FFH is probably the only reasonable portfolio hedge one can think of and it was you that convinced me of that.
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Packer,
Technical analysis does not have a fundamental basis that holds up, otherwise the quants would always win. Technical analysis works until is does not work, and then your screwed.
The point of posting the graph is to highlight that the trading pattern then and now are similar. It is an observation, not a conclusion.
I do not have an opinion, but it is an interesting observation. Will it be a self-fulfilling prophesy? Will it be another Internet joke? Nobody knows.
There is no point in either supporting or rejecting the graph. Just enjoy it!!!
Sorry but this has nothing to do with technical analysis. This is just painting. When you look at the DOW now it has already broken the graph. And there was never ever a crash in the history of the stock market that was anounced in the news paper. When you look at how crashes work psychologically you would clearly see that a crash can only come as a surprise.
When its in the news act the other way round is historically the better approach to make money.
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And btw. when looking for the next country to default you should probably look closer at europe. Ukraine, italy and greece are in my opinion close to one, the EZB has lost most of its weapons and politicians here are more and more thinking about not bailing out anyone anymore.
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I am not an expert, but isn`t it obvious that Japan is trying to inflate its debt away?
Inflation is picking up in Japan, so this seems to work. We can argue now if that will lead to hyperinflation in the end, but at the moment this is pure speculation without facts.
Wages rise -> tax incomes rises -> debt can be reduced, but this takes decades to play out. I don`t see a reason why they should default.
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With all the security, etc, I just can't see people using wifi. I don't use wifi, it's slow and takes forever to login , etc... Time is valuable, and I don't have it! It really comes down to wireless broadband...
I was talking about the very long term, perhaps >10 years away. I don`t know if we call it wifi than, but i am sure that we someday have a technology that just spans a network of small connected units like a peer to peer network with small independend stations for every home. When this time has come, telcos will play a minor role and internet access/mobile/phone is free for those who can run a station. Perhaps i am a bit utopic here, but the future always is.
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The best way to play this is probably to buy the content providers. If they weren`t that expensive at the moment i would bet on GOOG,DIS and NFLX.
Telcos are in the long run not necessary for in-city communication when you have a lot of connected wifis. But that would mean the market is partially right with the current valuations ... ;D
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Buying OTM options with only 1-2 month DTE is like buying heavily overvalued stock. They simply have no value, when you buy them you have to prey a world collapse happens, because otherwise you won`t make money. You can be right with your directional call and still lose money. An experienced option trader calls these types of options junk and sells them, >75% of these options are worthless on expiration. They are only good for one kind of trade and that is when you go long volatility. But you don`t go long vol when the 1 year IV-Rank is >50% (as it is since 1 week in SPY), you are doomed to lose statistically on these kind of trades.
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That sounds like a part of the product that got outsourced, but what if the main company simply insources it again or changes the process that this part is not necessary anymore? I have seen this a lot with car parts suppliers. That can only be a moat when its patent protected. And patents are more like temporary moats.
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Perhaps we should talk about what kind of moats really exist. Right of my head i see only two kind of moats
1) Size (KO/PEP control nearly every bottler in the world, if one new pops up they simply buy it)
2) Monopolies (MSFT with Windows for a long time or any other type of monopoly)
For a small cap these are hard to reach, because big contracts go normally to big companies, so that leaves local monopolies for small caps.
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Bought some more BP today, oil&gas companies are now at the target of 25% of my portfolio. Next funds go to something else.
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It sure feels good when you timed it right... the thing is how often you timed it right. If one has the ability on timing (some do), there is much better way to make money than doing "hedges"
The problem is being right twice. The next bounce up can easily kill the profits and because of the late buys the chance is good that the hedge result is a loss. I can`t foresee the future but the VIX has spiked to a 1 year high yesterday.
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More Lukoil
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But in this portfolio, your upside and downside exposure is spread between BAC, JPM, C, and SHLD. In Eric's scenario, his upside exposure is pure BAC but downside exposure still diversified. The downside risk doesn't seem any worse than any other 4 stock portfolio's downside risk, with the exception of a small exposure to levered BAC downside. I hope I'm understanding this correctly.
When you sell a put option you still have an upside exposure to the stock. When you sell a put option with a delta of 0.5 (which is exactly an ATM put) you have an upside exposure of 50%. Of course the delta gets smaller the more out of the money the option gets, so its not exactly as i posted but roughly the same in both directions. The closer this construction gets to expiry the more it gets like you described.
Fairfax Letter March 2014
in Fairfax Financial
Posted
This overvaluation can go away when the market just goes sideways. But you are far more successful than i am in investing, perhaps i should listen to you :).