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frommi

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    What are your goals?

    in General Discussion

    Posted

    My goal in investing is to compound at >20% (pretax) with max drawdowns of 10%. Over the past 5 years i did 15% with max 10%, so i still have some way to go. My goal has nothing to do with the money, its just that i believe that it is possible and that i want to show to myself that i can do it. Its like playing a game i enjoy most of the time and i will probably always do it, regardless if retired or not.

    Since i know i can do at least 10% per year ony my investments money is not the limiting factor in my lifestyle anymore, but i think that 3 homes are something that i will never own, regardless of how much money i have. Why not just use AirBnB and stop working right away if you don`t enjoy it?

     

     

    What are you buying today?

    in General Discussion

    Posted

    JUN 2020 TSLA PUTS 10$ for 0.25$ and 50$ for 2.37$. I think the bankruptcy risk for Tesla is massivly underpriced in these options. But maybe i am just to stupid to understand this.

     

    That seems quite "ballsy." How large of position did you take if I might ask?

     

    0.5%  :o

    But i am also short TSLA call spreads and long a 200$ put since some months, so my whole TSLA short exposure is larger. I think my max loss from the current point is somewhere around ~10%, my max gain ~25%.

    Best Ideas To Profit From Big Increase In Downside Volatility

    in General Discussion

    Posted

    I use a simple short system over the summer months to protect against drawdowns. On 30. April i go long a december DAX put 20% out of the money and short a put 25% out of the money with 4-5% of my portfolio. When the DAX goes down by 20% this put spread goes up >7x in value where my profit stop sits. Over the past 50 years there was a 20% correction ~20-25% of the time so every fourth to fifth year. 5% going up 7x is around 35%, so it is enough to cover a 35% drawdown in any one year.

    This comes down to an expected value of 5% per year over time and is one of the best and easiest short systems i know. The DAX is full of cyclical and debt laden stocks and according to https://papers.ssrn.com/sol3/papers.cfm?abstract_id=76248 one of the best indices to do "Sell in may".

     

    I do this since 2014 and had one successfull hit in 2015, but i used normal put options back than and have improved the system a lot by using put spreads. (Normal put options only go up 5x in value in a 20% drawdown, except when you can sell into a huge vola spike, but thats hard to time and backtest.)

    Can someone convince me we aren't in for a decade or two of no return?

    in General Discussion

    Posted

    If productivity grows 2%, population + increased share of capital grows 2%, and inflation is at 2%, that's 6% growth per annum which is 140% growth over 10 years.  Even if the market is only worth half what it is trading for right now, in 15 years it still should on average have grown by 20% (on our original current 100%).  This is why I never try to market time.  It's simply not worth it to assume my outside information is enough to outweigh the massive effect of compounding. 

     

    Your math is wrong. 6% growth leads to +80% after 10 years. -50% of that and you are at a negative return (1.8*0.5=0.9) and that is after inflation. You can think about valuation a little different, historically the S&P500 dividend has grown by about 2-3% real per year (after inflation). It currently yields 1.8%, so without valuation change your real return is 4-5%. Compounded over 10 years this leads to your stash being 55% in real terms. Crash by 50% and you are negative again. Cash currently yields more than inflation, so you are better of just holding cash and wait. When you are lucky and the next recession and bear market is just 24 months away (which the yield curve inversion points to) you will be a lot better off.

    Personally i just hedge, because 5% alpha > 2% cash yields and i am really happy that i do it this way. Buts thats just my approach to the current situation.

    Getting started as an investor

    in General Discussion

    Posted

    CAPE? You'd have been sitting on cash for many many of the past years I'd you relied on that. It doesn't take into account changes in the composition of the index over time.

     

    Hindsight bias is real. In 2011, people were expecting a second gfc and predicting low returns.

     

    Maybe "people" like Hussman did, but in 2011 the market valuation was not that extreme. Now it is, look for yourself: https://www.gurufocus.com/shiller-PE.php.

    Getting started as an investor

    in General Discussion

    Posted

    But are they? People have been saying "new normal of low returns" since about 2011...

     

    If it was that easy to predict market returns, everybody would be a successful macro trader. The market goes up about 2/3rd of the time, not always when it seems to make sense that it does and vice versa. Owning a slice of the economy while you learn isn't a bad idea. This isn't market timing either way, just a general idea.

     

    As a general saving tool over a very long period of time i think that index investing is great, because you will buy more if the index is cheap and less if it is expensive. But when you want to invest a lump sum you should think about the "index" as an investment and have realistic expectations of its return. Right now based on CAPE, market cap/GDP or https://fred.stlouisfed.org/graph/?g=qis there were only 3 times the market was in a similar position to now. 1929, 1968 and 1999/2000. On all three occasions the market return over the next 10 years was awful. Is this time different? Maybe, but i doubt it. In 2011 the market was in line with historical averages.

    Getting started as an investor

    in General Discussion

    Posted

    Appreciate all the input! Lot’s to add to my reading list :) Most advice corroborates the direction I was starting to go - use indexing for now (a large chunk was already invested in indexes) and start dipping my toe in the water with companies I understand. Start small so mistakes are limited. I like the idea to buy some BRK.B at 200.

     

    Looks like you are falling prey to confirmation bias here. Why do index investing if forward returns for the S&P500 (i assume you mean that one) are very likely to be lower than cash yields?

    Getting started as an investor

    in General Discussion

    Posted

    I would recommend to create an investment process (when to buy, when to sell, how many positions, where new money goes, how to value a business if you want to value-invest, which broker is the cheapest for your style etc.) and start immediately. And then improve this process over and over again (based on hard facts and your experience) until it fits your personality and your emotional temperament. It is not a single investment or stock that will make you rich over time, but this process of continuous improvement.

    Of the 350 businesses i have on my watchlists i would argue that at least 15-20 are buyable right now, so its not a question of markets being expensive, but by your watchlist not being large enough. Especially at the start it is a lot of hard work to fill these lists, but by keeping track of what you have looked at you keep compounding knowledge that helps you later.

    Since you already have some money to invest i would try to buy the 30-40 stocks with the highest expected return because that way your mistakes will be tolerable and you will probably make plenty of mistakes. ( Even if your expected return is just 10%, thats probably still better than the <2% return you can expect from a 5-8 year investment into index funds at this point in time )

     

    I started my journey with dividend growth and netnet stocks because they are relatively easy to value (Gordon growth model or NCAV). I then learned about how to value financials by using avg RoE and book value. After 5 years of doing this for 2-3 hours a day i finally feel like what i do is working, but i still reject nearly all ideas that are outside these valuation frameworks. When i do i typically get my head handed to me. (like in BIIB this month)

    What are you buying today?

    in General Discussion

    Posted

    Even if you take out all cash and slash R&D to 0$ you just get a yield of 7-8% for a no growth company. Doesn`t look very compelling right now to me and i doubt that it is a good aquisition target at an EV/EBITDA of 16. I mean FB or GOOGL grow at >15% per year and trade at similar multiples and are probably less risky. But thanks for posting the idea, it might be interesting below 4$.

    What are their competitors?

    I have given up value investing

    in General Discussion

    Posted

    Theoretically, if you bought a stock cheaply, it should not matter if the market agrees with you or not. A good stock should work even without rerating.

     

    But that's in theory. In practice, I've experienced countless times when I bought a low P/E stock, and stock kept declining, and a few months later the company reports shit earning and suddenly, my P/E is much higher. Company blames it for some one timer events, so I held on, and then another quarter later, the earning is even worse--- It was negative now! So there isn't event a P/E that I could value on, and now management continues to blame some one timer events. Now I am down 50%, with no margin of safety with me.  ::)

     

    Maybe you fished in the wrong pond of companies? For me to be an investment the value of the business has to be stable. I wouldn`t buy a NCAV stock were the NCAV is shrinking fast (i can live with 10% deterioration), or a dividend growth stock were earnings are not stable (or were not stable through the last recessions). That leaves me with maybe 300 possible investments out of 100.000 stocks, but thats the pond where i know that value investing works really well. With cyclical businesses i`ve also come to realize that technical analysis is often better, because you can never be sure if the current earnings are not the peak earnings for the next decade.

    What i found interesting was that analysts often are not that bad at figuring out next years earnings (at least if the sentiment on a stock is not totally rotten) so its worth looking at. The market is sometimes even ignoring consensus earnings and just runs on emotions.

    Investment Thesis Presentations

    in General Discussion

    Posted

    The primary difference between STOR and SRC is the STOR portfolio has about 75% investment grade credits while SRC has about 42% & SRC does not report rent increases.  They have about the same payout ratio & if you assume SRC has 0% rent increase you net get about the same yield (4.3% yield + 1.8% growth = 6.1%) vs. (6.5% yield plus TBD growth).  At this point in the credit cycle I am more comfortable with 75% IG vs. 42% and getting 40bp less in return.  A portion of SRCs asset base was put together by the STOR management over 10 years & has changed under new management which led to the issues with Shopko & the heavy retail exposure.

     

    Packer

     

    SRC has reported rent increases in the latest earnings call. It was 1.7% which is in line with STOR. (Earnings call slide page 17). The investment grade percentage you reference for STOR is from their own credit rating, i don`t think that is comparable. (Look at the footnotes in their presentation, the "real" investment grade tenants just make up 25%). Realty income has ~50% from "real" investment grade tenants, i don`t think there is a material disconnect between all of them because all 3 have a pretty wide diversification now.

     

    The current management of SRC is fresh and spun off the Shopko assets right before bankruptcy with lots of debt and bought back stock at very cheap prices. (10%, which i have never seen on a REIT before). STOR can currently grow faster because its stock price is higher and therefore its cost of capital is lower. But i think that is a bad argument to argue that SRC`s value should be lower.

    Investment Thesis Presentations

    in General Discussion

    Posted

    How can they make 12% unlevered returns. Their cap rate, based on invested capital looks to be around 6.66% (~$400M NOI / $6000M invested capital ) and lease escalation are < 2% annual. That’s gets at most an 8.5% total return, neglecting certain costs (renovations etc.)

     

    Yes, i think he probably meant 12% levered returns. While i still hold a small position in STOR, i think it is currently fair valued and forward returns are probably around 10-12%. SRC is a much better buy at current prices in the NNN space. The asset base was set up by the management team of STOR and i expect that O or STOR will buy them sooner or later. SRC`s asset base and leverage is similar to O but is 40% cheaper post spinoff that happened in the summer of 2018.

    Thanks for posting the presentation.

    What are you buying today?

    in General Discussion

    Posted

    Why MO over the other tobacco companies if you don't mind?

     

    I own them all (MO,PM,BTI,IMBBY) and MO was the smallest position, now they are all equal weighted. Can`t really decide which one is better, they are all cheap and have different problems and opportunities.

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