dpetrescu

I followed Buffett into local newspapers a while back. I invested in MEG and LEE. The concept was that local newspapers and tv stations have a competitive advantage, unlike large newspapers that have a more unpredictable future with changing technology. I can read world news in 100 blogs all over the world but if you're looking for high school basketball scores, you really need one central local source. They were trading at prices predicting bankruptcy. Take a look at a chart of MEG and LEE....not quite just yet a 10 bagger but very very close to it. I still remember a few months after investing, they were down 25% to 30%....I should have taken advantage. I still hold them.

My problem with margin is that your line of credit is variable. The ideal time when leverage is needed is during a crash. With margin, available credit will shrink during a crash. It seems that a HELOC or bond investment started during the good times become more beneficial because interest rates will decrease during a crash.

This has been mentioned before in a previous post....How about using a home equity line of credit. Except, use a very stringent limit of use: 1. Set it up 2. Do NOT use it, forget you have it 3. Wait for a recession and keep researching while waiting 4 when a recession is officially announced (usually a few months after it starts) use it in increments This seems interesting because a HELOC will have a variable rate so if used midway into a recession, the interest rate will be low at the time it is used

This is a great discussion but I would love to hear answers to the original question....what is everyone doing about it? And how can protection be structured so it works out regardless of wether an event in China happens Monday at 1am, in a couple years, or spring 2019. We might have different opinions about the issue but I think we can all agree that it is a known risk. I already mentioned I bought long term puts on iron ore miners. I expect to lose the premium and buy more in a couple years.

That cannot be right, it would mean an implied volatility (aka call price) of 15%. I would be interested in seeing a write up to see if it's worth investigating in detail. -------------------------------------------------------------------------------------------------------- The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks.

China, construction industry specifically, has been troubling me. A little while ago I bought 2 year OTM puts on CAT and RIO for protection on falling iron ore prices. Both of these companies have recently doubled down and have increased cap ex greatly above current depreciation. I find it amazing, the puts were available for 19% and low 20% implied volatility so the puts were and still are very very cheap. I was hoping to pick up Fortescue but it is only short term with very high volatility. I really hope I lose 100% of this position. I just got it so I can sleep at night for the next two years. I'm covered on this known unknown, I wish there was a way to buy puts against what really matters: unknown unknowns. Otherwise related to China, I also sold SORL even though it's unreal how cheap it is but still holding on to IMOS which is almost 10% of my portfolio.

Autos are still undervalued. I now own GM, Toyota, and Fiat.

Looks like they share Liberty and Verisign.

I recommend: 1. Go to DSRIEusa.org click on your state and look for applicable incentives. 2. Before installing solar pv and before investing in any stocks, install solar water heating panels. This system will have a payback period of just a few years with much much higher return and overall efficiency than pv. I don't know why people don't install these in their house, they are extremely efficient, especially in sunny climates. 3. Next install pv if your utility company allows net metering (you don't use the power that you generate, you sell it to your electric company, but overall you contribute green energy to the system) For Florida, depending on available incentives the payback period should be much quicker than the 20-30 year life of the pv panels. So it's in a sense a guaranteed small return. Adding batteries really increases the system cost. In addition to all of above, you also get to add intangible value of not contributing to the planet's demise to your personal balance sheet.

Randomep, good question. I bought my townhouse about 1.5 years ago (I'm in the US) and got a 30 year fixed for just 3.5%. I almost felt guilty except I remembered the unfair advantage that banks have. In 15 years when rates could be 8% someone on the other side will have lost money. I had the same question. Best answer I got was that banks think of it similar as a bond investor. As mortgage rates rise they will gradually bring their income higher with new loans. Plus they are borrowing short term from the fed at near zero o make that long term loan so they have a spread. Also banks did not do too much lending the last Few years. They will also make more loans as rates rise and the lower rate loans will wash out in the average. I think the one sided rate adjustment is more for the benefit of the banks. Otherwise the default rate would skyrocket coming down from peak inflation. In 1988, the holder of a fixed rate mortgage purchased in 1980 at peak inflation would likely default.

Too easy. Just pick your favorite 3d printer stock -the one with highest volatility and low market cap. You will win, but not gracefully.

I agree that Amazon does not have much competition. But I wouldn't say they a under or even reasonably valued. Also, they have market share dominance but they don't really have pricing power. Maybe they will once they're done driving every other online retailer out of business? Didn't Bezos say that his outlook is 100 years not one year.

Someone recently posted a John Hempton interview in a different topic. Great insights on fraud -scumbags as he calls them. https://soundcloud.com/the-odd-lot/john-hempton-audio-interview At 50:30 point he mentions that gold miners that keep finding high grade ore are most likely frauds. If additional ore is announced price will increase 4-fold or so. He mentioned an unnamed gold miner that kept serially announcing new findings, he at one point considered investing with him because, although a fraud, he kept increasing the market value of every company he touched. I know exactly the person he is talking about. In my pre-value investing days not too long ago I noticed this same pattern. This gold miner's name is Joseph Gutnick, he would buy worthless penny stock shells (often in unrelated industries like clothing retailers) and add on land to the company's books and claim the land had more and higher grade ore than the same land had years ago. He also set up a very complex ownership structure between his many ventures. There were articles in which he claimed divine intervention in his findings (he is also a rabbi and had very prominent connections -was a friend of the Israeli prime minister at the time) It was quite amazing, he had a record of doing this with a handful of companies that went up 6fold or so from the time he became involved. George Soros even invested in three of his companies. Interesting to know that the analyst was eventually fired. I still keep GORV (-99.7%) in my portfolio as a reminder.

I have a large cash position but realized I can't buy any new stocks until I set up a long term hedge against a credit event or further downturn in china. I'm researching a few ideas, individual companies with significant exposure to china construction and raw materials, with very low volatility, and not yet depressed value. That way I can buy some slightly OTM puts lasting until 2016. PS....if anyone has ideas I would appreciate it. I think individual company might be better instead of currency approach, say short Australian dollar, because I have no experience with currencies. And also better than overall market, say China or Australia short ETF, because my fear is in one particular sector in china - lending and construction in china. I expect and hope to lose 100% of this position.

"Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope." The author is not making sense to me. If the local bank gave me a 30 year mortgage rate for 1% less than everyone else, you bet I would be willing to pay more than everyone else for the same house to win a bid. I would be able to afford to pay more. It is the same effect if I get a raise, I would be able to afford and pay more. In aggregate a lot of people getting this lower rate financing, all else being equal, will increase home prices. Otherwise, why would the Fed be concerned with adjusting rates to control asset prices. Why did quantitive easing increase stock prices? If the fed lowered interest rates for only Oregon State, it would still increase all asset prices, just not as much as if he would for the whole country. If you were considering a company to invest in, wouldn't you pay a little more if their cost of financing is a little lower if their ROIC stayed the same? I would say lower rate --> higher demand. But to make it more accurate: If rates are lower today than they are expected to be in the future --> more demand today. I could see a scenario in which rates move higher causing increased demand because of realization that they will rise in the near future and all time low rates will no longer be available.

Morningstar has a wide moat index. The take companies with highest ROIC less cost of investment, from that take the lowest valued 20 (by their own means - not sure how), and reweigh once every year. Its fared a bit better than the market since early 2000. Although I don't see how Amazon and St Joe should be there. http://lcchong.files.wordpress.com/2013/09/economic-moats-sources-and-outcomes.pdf

Im a bit frustrated, I've been selling ATM puts on SORL Feb 2014 for 25% of strike price. I managed to get a decent position but I placed a mid-spread ask price and price is up for no reason. My plan was to keep doing this until the end of the year or until a position is exercised. Either way I'm happy.

I think it is game over for Einhorn, at least for this position. The GMCR short was sounding very convincing for a while.

Here are some other ideas....not all of these are exactly small caps, some are small large caps or large small caps. I need to invest in companies with growing moats, I own mostly undervalued commodity-like or differentiated companies. 1. Autodesk - I've mentioned this before. They control more than 50% of architecture and engineering industries and this has been true since 1980s. There is no close #2 spot, The rest 50% is shared by 3 or 4 other companies 2. FICO - try applying for a loan at a bank using Bob's credit company instead. Last time I looked about two years ago their market cap was about 1 Billion. Their name is like google, it is synonymous with credit score. 3. Intel - large company but an obvious one. I think they hold about 80% market share and have dominated for decades. Bruce Greenwald talked about this in his value investing class, video available on YouTube (speaking of moats) 4. Luxxotica - I didn't believe it when I first read about them but apparently every single eyeglass in existence is made by them regardless of brand (Oakley, target glasses, dkny, etc). OK so I exaggerate, they only make 80% of all the world's eye and sunglasses.

For anyone willing to take a risk of a Chinese company, SORL looks too good to be true and getting cheaper. A PE of 6, EV/EBITDA of 3, growing earnings, growing revenue, generating cash. Makes brakes/safety components for buses/trucks. Didn't buy it but am considering a small portion. Still need to read a lot more into it. Downturn in China is my biggest fear in general.

ASCMA looks interesting. Lunch, do you know what they're investing in? Are they acquiring a lot of companies or just stakes? They invested the equivalent of their market cap in 2012.

True small cap cutoff is at less than 2B so not a small cap (I had to look it up - although at today's rate it might just get there). It recently won the renewal contract for the 100% market with the ICANN, a private US non-profit that oversees the internet infrastructure on behalf of the US government (i've always thought it was interesting it is the US not an international organization). The term for this renewal is 6 years starting end of 2012. The ICANN does have increased competition as one of its goals. So in 2003, VRSN agreed to give up .ORG and the iCANN has now established the generic top level domain names. Roger, do you follow Neustar? Do you think they pose a threat? My understanding is VRSN has been able to keep its contract since 2000 because of support from large companies like Microsoft.

With options, I think the standard means to calculate weight of holdings is with net position delta. Of course the delta is volatile and will vary depending on price movement relative to strike price and other factors. But even if you sold a way out of the money put, you're still long some small position delta. It won't be zero. Technically you could have a net delta of zero and only exposed to volatility but you'd have to spend a fortune on transaction costs and be in front of a screen daily.

VRSN....they are a legal monopoly and owns 100% of the market share for .COM and .NET website registration. A small cut but hen there are quite a handful of websites. They have great pricing power for .NET and limited pricing power for .COM although practically they can also raise rates for .COM. There is the threat of unknown impact of generic top level domains about to appear (.CAR, .DENTIST, etc)

Currently electronic display is compartmentalized...to phone, tablet, or computer screens. Corning is working on allowing display to be seamless and transferred from phones to touch glass panels used as walls, countertops, windows, card dashboards, sheets of paper thin flexible glass, etc