randomep

I didn't notice but now that you mention it yes I am surprised, but then again, you have to take any hedge fund statistics with a grain of salt........

Just saw an article on my phone's bloomberg app. The top 20 hedge funds have earned 1/2 of the $385b in total hedge profits. Since inception: BridgeWater: 45b (1975) Quantum: 42.8b (73) Appaloosa: 22.8 (93) Baupost: 22.6 (83) Viking: 22.5 (99) Lone Pine 22.4 (96) Paulson &co: 21.4 (94) SAC: 19.7 (92) Elliot Assoc.: 18.5 (77) Moore Capital: 18.1 (90) ....... Pershing Square was kicked off the list last year......... yup the majority of funds lose, as I believe the majority of companies

CI

120% of book is around $125 for Brk.B?

As you increase your bets over kelly, the growth rate of your capital declines and will eventually become negative. see table 3 in the attached paper. In blackjack, the expected growth rate of your capital is 0 if you bet 2x the kelly criterion, and above that it's negative. Section 4.3 they discuss what the kelly bets for lottery's are (note that these lotteries have much higher win probabilities that Powerball) thanks this is the material I am looking for and ya I see your point in the paper.... but I'll reserve judgement till I read the whole paper.....

But the expected winnings of a $2 ticket is now greater than $2 right? It is therefore a rationale thing to play it tonight No. Using the Kelly criterion, the optimal bet would have been 1.2 x 10^-8 % of your bankroll on the lottery ticket (without considering splitting). That would have been one $2 ticket if you're worth $17.5 Billion. I actually read it as....if the pot is worth $17.5 billion then it makes sense to invest the $2. I will wait until the price is right... :) Well, that would be the wrong interpretation. If the pot is $17.5 Billion, then it would make sense to buy a $2 ticket if your net worth was $616 Million. aah I think your interpretation of kelly's theorem is wrong. Kelly theorem tells you how much to bet on a random binary event where the payout is in your favour. So that answers my question, which is I should play right because the the expected payout is greater than my odds of the payout. I put the odds of winning at 1:300M and the payout as 1:400M (assuming you share a 1.6B prize with one other person). Kelly's theorem says how much you should play. So given your assumptions whatever they are it is $2 to $17B. And you are saying since I don't have $17B I shouldn't play. But let's suppose for argument sake say I have a more realistic $1.7M then I should play 0.02cents according to kelly's theorem. But common sense says I can either play $2 or zero. You are arguing I should play zero? why? because 0.02cents is closer to zero than it is to $2? Or as the earlier poster implied, you should only play if kelly's theorem gives $2 or greater. But why can't you argue that you play the kelly amount rounded up? In which case it should be $2? Also, Kelly's theorem is based on the log utility function which is an guideline for rational better, but I can argue against log utility function. .... and finally..... you have assumed that the lotto is either the jackpot or nothing, I am pretty sure the other prizes have a non-negligible effect on the odds..... btw I didn't play ostensiablly because the cost of my time to buy it is too great compared to the expected winnings..... Yeah, you don't round up to $2. That would be over betting your edge by a lot, more than 100x, and (formally) the expectation of such a strategy is going broke. The idea is that if you made repeated (i.e. sequential) $2 bets with a $1.7M dollar bankroll with these odds and payouts, you will likely run out of money before you win. That's driven by the variance of the stochastic process, and is true irrespective of the positive expected value of each bet. My math is different than yours as I used different assumptions (35% tax rate, no split pot, no other winners). Those assumptions will definitely change the minimum bankroll size for a $2 ticket to make sense (and the number can vary substantially), but regardless, the minimum bankroll size is in the Billions. I beg to differ: you said the expectation is that I would go broke before I win if I bet $2? how do you know that? can you point me to a proof? I think ya I gotta look into the original paper by kelly, but I didn't think that's what maximum utility function means the reason I say that is suppose i have a bankroll of $1.7 M, and I have a 9/10 chance of going broke....... but 1/10 chance of winning $1B....... do I play or not? expectation is not necessarily the same as odds of winning or going broke......

But the expected winnings of a $2 ticket is now greater than $2 right? It is therefore a rationale thing to play it tonight No. Using the Kelly criterion, the optimal bet would have been 1.2 x 10^-8 % of your bankroll on the lottery ticket (without considering splitting). That would have been one $2 ticket if you're worth $17.5 Billion. I actually read it as....if the pot is worth $17.5 billion then it makes sense to invest the $2. I will wait until the price is right... :) Well, that would be the wrong interpretation. If the pot is $17.5 Billion, then it would make sense to buy a $2 ticket if your net worth was $616 Million. aah I think your interpretation of kelly's theorem is wrong. Kelly theorem tells you how much to bet on a random binary event where the payout is in your favour. So that answers my question, which is I should play right because the the expected payout is greater than my odds of the payout. I put the odds of winning at 1:300M and the payout as 1:400M (assuming you share a 1.6B prize with one other person). Kelly's theorem says how much you should play. So given your assumptions whatever they are it is $2 to $17B. And you are saying since I don't have $17B I shouldn't play. But let's suppose for argument sake say I have a more realistic $1.7M then I should play 0.02cents according to kelly's theorem. But common sense says I can either play $2 or zero. You are arguing I should play zero? why? because 0.02cents is closer to zero than it is to $2? Or as the earlier poster implied, you should only play if kelly's theorem gives $2 or greater. But why can't you argue that you play the kelly amount rounded up? In which case it should be $2? Also, Kelly's theorem is based on the log utility function which is an guideline for rational better, but I can argue against log utility function. .... and finally..... you have assumed that the lotto is either the jackpot or nothing, I am pretty sure the other prizes have a non-negligible effect on the odds..... btw I didn't play ostensiablly because the cost of my time to buy it is too great compared to the expected winnings.....

No I wasn't wondering, cos I know the odds are like mission impossible :)

But the expected winnings of a $2 ticket is now greater than $2 right? It is therefore a rationale thing to play it tonight

problem is you have to consider the chances that there will be other winners and you'd have to split the winnings...article below goes into it a bit more http://www.theatlantic.com/business/archive/2016/01/powerball-ticket-all-combinations/423930/ But I said that is what you would've won if you played last sat! Nobody won it and if you had played every combo, the $1.3B which is today unclaimed would have been yours (presumeably). Yes I am looking at hindsight, but my one sample says it is very unlikely to have a few winners ( by a few I mean say 2 or 3 winners), so tonight is another shot, wanna bet $2 that nobody wins it?

Has any money manager entity thought about trying to buy every single possible ticket. I believe there are around 200 M combinations, so for $400M you could've won $1.3B at the last drawing cos $1.3B is how much was unclaimed.... and this time you can win even more than $1.3B.

Me too - $38 is roughly 55% of book value, seems like it is over sold after maybe some did not get cashed out at $52.50. Not super cheap on earnings basis, but I think it is a safe, stable investment as company has been around over 100 years, insiders own almost 70%. I suspect insiders know they could sell whole company for close to book value if they wanted too. Company itself was buying stock back around $45 level in past couple of years before going private at $52.50. I like it for a couple month trade until I hope it returns to mid 40s. KCLI is a very conservative regulated company so it is kinda easy to put a band around the value. It has been trading between $38-50 for 3 yrs. Now that they did the tender, it goes below $38, why? It's still the same company. Ok it may be a bit less liquid because it now trades on OTC but if you look at the volume it is as high as when it was on Nasdaq. It doesn't have to file with the sec but it is an insurance company so they have to file tons of stuff with insurance regulators. After the tender, its book value per share is about $1 higher. And ok they said they'll earn about $0.15 more now that they won't have to file with the sec. Basically the same company as before.....

Berkshire doesn't sit on money as a market timing tool. They always have tons of cash looking to deploy. Also they are going to use $20B+ for the precision castparts merger.... In my opinion Berkshire does use cash as a market timing tool. Sure they might not take a top down macro approach, but they are constantly looking to do deals. If they can't find enough attractive deals to put the cash to work, it builds up on the balance sheet. Same net result. If the market dropped 50% tomorrow you would expect Buffett to put most of the cash into the market. Likewise, if the general market doubled tomorrow he might sell some stock positions and would be unlikely to find many deals so cash would increase. To me, that is market timing. Oh sure if you put it that way yes I definitely agree. It is just a matter of degrees and outlook. For example Buffett says he doesn't care what the Fed does or the macro. But buffett has a huge heads up on the economy from his operating companies and he uses it to devastating effect.

This implies he isn't going to get criminal charges? OMG

Berkshire doesn't sit on money as a market timing tool. They always have tons of cash looking to deploy. Also they are going to use $20B+ for the precision castparts merger....

KCLI

That reading too much watching TV surfing too much doesn't cause myopia.

Using IRR is not necessarily the correct way to calculate performance. You can also make a good case for calculating a time-weighted rate of return, but that is usually pretty hard to calculate if your broker isn't doing that for you. I use an IRR calculation because that is the only practical option when you have to combine results from multiple brokers. Hielko, what do you mean time-weighted return? irr is just the fixed rate of return for all contributions until now, which will give you the current account balance that is marked to market. That's how mutual funds post their trailed 1yr, 5yr, 10yr and from-inception returns...... No: mutual funds calculate time-weighted returns, not internal rates of return. When you calculate a time-weighted return you eliminate the impact of deposits and withdrawals which might be appropriate since you might have no or a limited influence on when you make them (for mutual funds it's determined by their investors while for you personally it might be determined by when you receive your salary). If you try to time the market by deciding when to add cash you should use an IRR. Use google to check the difference... Ok I can't google any place that gives the formula for mutual fund returns but I'll pose some scenarios. Folks please feel free to chime in. Suppose Brk is at $1000 in 2011, by 2016 it is $2000. So its IRR or whatever you want to call it is about 15% right? They pay no dividends. Suppose you have a mutual fund that owns nothing but brk, then its advertized rate of return over those five years is also 15%? Now suppose you have a fund that pays dividends and capital gain distributions annually. Then isn't the return the irr calculated from the initial NAV, the annual distributions and the final NAV? So for example for one fund I would enter on the spreadsheet -365 (initial NAV) 10 (distribution 1) 10 (distribution 2) 10 (distribution 3) 10 (distribution 4) 495 (final price + distribution 5) so the advertised 5yr return is the irr of the above 6 cells?

Well that's what I didn't like about the movie, they changed the name of all the folks in the movie. The only person with their real name is Michael Burry. Eisman was renamed Baum Lipperman was renamed Vennett (played by Gossling) Jamie Mai was renamed Jamie Shipley and ya the guy who was Greenblatt didnt' use the name Greenblatt, but he had the memorable line in the scene: "give me my money back you fucking sob!"... testy testy

Using IRR is not necessarily the correct way to calculate performance. You can also make a good case for calculating a time-weighted rate of return, but that is usually pretty hard to calculate if your broker isn't doing that for you. I use an IRR calculation because that is the only practical option when you have to combine results from multiple brokers. Hielko, what do you mean time-weighted return? irr is just the fixed rate of return for all contributions until now, which will give you the current account balance that is marked to market. That's how mutual funds post their trailed 1yr, 5yr, 10yr and from-inception returns......

+1 I was just about to say the same thing, I think few people managing their own finances know abuot it. My life changed completely when someone on CoBF brought it to my attention. okok maybe a slight exaggeration.....

Thanks. I totally agree and of course feel bad for folks that are starving or struggling greatly. Regardless of whether it was due to bad decisions or something they couldn't control (lost job, health situation etc.). Except for my last sarcastic comment, which I can see the other side of, I was thinking of the retiring generation in general - which is usually the context I hear people discuss this issue. Yes, at the risk of digressing too much. This is a constant battle for all society. We always struggle with the tradeoff. Do we let everyone go free for all within the confines of some law framework. In that case the rich will prey on the poor. Examples are, payday loans, borderline fraudulant investments, pyradmid schemes. If you let less knowledgable, less capabile people control their financial destiny then you have the stripper-with-5-houses problem from the big short. If we regulate and restrict these mechanisms then there is less feedback and its like rewarding bad behaviour. The bad consequence shows up everywhere also, the biggest example now is Greece. That's one reason I believe there is always money to be made in the market, especially for small players, because we can provide feedback to less sophisticated investors.

I overall really enjoyed the movie because it stayed true to the book. I feel everything we observe shape our opinions and educate us to some extent. If this movie can teach us anything I think it is that high power people with inflated salaries are clueless, starting with Eddie Greenspan. My favourate quote in the movie was when Ryan Gossling was grilled about how the CDS market wasn't working out the way they expected: "you have no idea how stupid these people are, do you?". One might think oh that is obvious. No it is not obvious. It is not obvious when you hear CoBF members argue that Theranos cannot be a fraud because people in the know have invested $400M. My counter-argument the same as what Ryan Gossling said. Jon Stewart of the daily show didn't realize this either when he brought Jim Cramer on his show and said, you guys knew the housing market was going tits up...... smh..... I wouldn't give Jim Cramer credit knowning anything before it happens. Anyway, I think it is a great educational movie for the public just on that point.

How many did you bag in 2015? LOL

DTEJD: why can't a small investor invest in junk bond funds?