Picasso

FXCM Inc., which handled a record $1.4 trillion of trades by individuals last quarter, said clients owe $225 million on their accounts after the Swiss National Bank’s decision to abandon the franc’s cap against the euro roiled global markets. Global Brokers NZ Ltd. said the impact on its business is forcing it to shut down. Ouch. And that folks is how people get taken out of the investing game.

I guarantee you some hedge funds and speculators completely blew up on this. That type of move is absolutely unheard of.

What do you like about RSG? I noticed some big recent buys by Michael Larson and couldn't figure out the appeal.

Took me four years. It was a sucky four years and it cost me a lot more tuition than I would have liked. I think my key takeaways were the following: 1) There are a lot of ways to generate great returns in a consistent, low risk manner. You need to find a good process that fits into your temperament and personality. 2) The market timing aspect of it is more of an art than science. It's knowing in your gut when something is a deal versus topically cheap. 3) Patience is huge. Waiting for no-brainer opportunities and knowing how to hold onto great investments. This was a huge part of my mistakes early on. If you only have a few good ideas every year you can absolutely kill it. Of course there are other things I learned but those really stuck with me. Having gone through the pain I truly believe it isn't worth it for 95% of investors. But that makes sense since we're all just competing for a fixed amount of market inefficiencies. Everyone is different but usually within a few minutes of talking to someone I can feel if the person has what it takes to beat the market. I don't run into too many of those people. It's probably a good thing you don't feel confident about your investing prospects. You'll probably invest more cautiously while you pay the market tuition. But you can't let it get in the way of betting big when you have one of those good investments stare you in the face.

I think it is a mistake to take estimates of cars sold in the future and putting some static margin on it. There are three really interesting aspects to the Tesla story. 1) The brand. I don't think enough can be said about this. 2) The massive infrastructure investments in the charging network and battery factory 3) Every single car coming off the production line has pre-installed autopilot capabilities and wireless internet GM announces their latest golf cart, the Bolt, which has no capability to drive across the country. It's going to be a joke in terms of how long it takes to actually hit the market. I think Tesla will be the only company willing to make massive investments of cash flow into expanding their moat. It's the only way to force change at the large automakers and push them away from compliance and fuel cell type products. Similar in my mind to what Amazon has done to retailers. If there was ever a company to speculate on, I think it's Tesla. Too bad the price doesn't allow for a margin of safety or Elon Musk getting hit by a bus.

I am curious if there are any non-typical "value" stocks in the sense of future returns dwarfing the current share price despite high P/E multiples or some other stretched surface metric. I know some on this board are big fans of the returns AMZN can provide. I guess the post should be "stocks you own but are too ashamed to share with your peers." Tesla and GoPro are my guilty stock pleasures.

Is that a goddess level hot personal trainer? :o (I guess I never paid much if anything for fitness ::) ) Indeed. I actually don't think my expenses are too bad. The fitness aspect will trail down in the future but the benefits are very important in my mind. I know a lot of investors that lose health and never really get to enjoy their wealth. My vehicle expenses are less than half depreciation so my true "steady state" expenses might be under $60k.

Rent - 18,000 Utilities - 6,000 Fitness - 26,000 Vehicles - 18,000 Dining out - 15,000 I'm sure there's more but I ballparked around $60k and I'm already looking over $83k. I'm sure it's somewhere over $100k when you add in everything.

Very fun to read. I think there is an underlying fault to just blindly ignoring the macro. You end up focusing on the relative (buying the cheapest against other options, aka the market) and you always assume the position of managing risk. I think there are times to get out of managing risk and simply sit on your hands. I look at it like being a value investor in Greece pre-2010. It didn't really matter what you invested in, you got freaking killed in every asset class. On a relative basis you might have the best performance or more wealth in comparison to other Greeks, but does that really matter at the end of the day? In my view we are all investing in assets or our businesses/lives at different points in massive economic swings. In one universe Mr. Avery looks like a fool and in the other a genius. Which is why having a process that works versus single defining events is what separates a Warren Buffett versus someone like John Paulson.

+1. I had the same thing happen to me. He went on and on about how USO was going to be a big money maker for him. I threw some curveballs in the thesis at him and he says, "I don't care to hold this for the long-term, even if that means six months." This was when USO was at $26. Investors look at declines in commodities and think they behave like stocks and mean revert. The best commodity traders I know would actually keep shorting into a falling market or buying into a rising market. You can't really apply the typical value investing philosophy to these kinds of things. It will be interesting to see how this plays out.

https://www.youtube.com/watch?v=8V7aA0RHK-Q&spfreload=10 I think of that video when the topic of diversification pops up. I also run a non-diversified strategy and it showed this year being up 57%. But I spent some time looking at all positions I held with over 10% of my capital in (roughly 40 positions since 2006) and only one of them lost over 95% of its value. The stock was ANV. There were several that lost half their value and the rest either recovered or did quite well. Looking back at what went wrong with ANV kept me out of some oil drillers that got hammered earlier in the year, and the only thing that saved my in ANV was picking a price where I forced myself to get out. Running a concentrated book means selling your high conviction position when the market moves against you because you can always find another good investment. It's no longer about being right or making the most on that single position. It brings you back to rules number one which is survival. You can't really apply the same rules as a diversified strategy with a "the market will eventually come to its senses" mentality. Like that poor guys face in the poker match, you sometimes never see it coming and you're suddenly wiped out.

Thanks for providing your local color commentary. Are you a member of other country clubs? How would you compare Crystallaire with others that you know? Are the members primarily local gentry, or does it get millionaire-retiree types for weekend getaways from LA and Bakersfield? Yes I am recently a member of Valencia CC as well. I frequent different ones depending on clients and if time permits. There are mostly locals at Crystalaire. Pretty wealthy people in Juniper Hills or Anaverde Hills go there. Not really a lot of weekend getaway types. To be honest membership is weak right now which is true of most country clubs. I have had some offers to purchase memberships at 20% of face value at some of the better country clubs in LA county. I like going to Crystalaire because I can just be myself and enjoy a less strict dress code. The course isn't very well kept these days. Plus I am under 30 so these clubs have pretty good deals for juniors.

Funny, I am a member of that country club. I have family close to there and will take my dad to go golfing when I visit. One of my best friends in high school used to live in Llano and we would always joke because it was literally the middle of nowhere. That is saying a lot since my town had a population less than 1500 residents. It is also very common for dumping to take place north of highway 138. Among other shady things.... I looked at the returns for residential properties in that area over the past few decades and it has been terrible. About 4-5% a year after expenses or something like that even if you were able to rent it out 90% of the time. It reminded me of some research done by BCA where it listed long-term real estate returns around 2% and land as flat to negative. Stretching for value out there has been a graveyard for investors capital. I guess the real estate mantra of location, location, location (as vague as it is) is pretty accurate.

Actually if you go on that guys homepage, he gives you a nice highlight of the pitch. He even starts it off by saying he's going to be total frank and not give you a sales talk. So we can be absolutely sure it isn't a sale pitch now, which is great. There must ba a sarcasm tag around here somewhere.... This has all the elements of an emotionally driven sales pitch into a bad investment. Guy says he isn't going to sell you, uses vagueries such as selling in a few years or including reputable names like Wal-Mart, words like getting rich, and clips of other developments which are not happening but bound to happen! I don't know how these people sleep at night. A lot of people fall for that stuff.

Thanks Picasso, this is great info, and that's what I was afraid of. In general, how does one approach land investment? or is it just a too hard pile (i.e., not in my circle of competence)? Investing in land is like starting a thread to identify the next Wal-Mart or MMM. It's a lot easier to identify the investment once some critical parts of the investment are visible and give up some of the upside than sacrifice sitting on investments with multi-decade yield curves. Investors who make a lot on land are lucky or don't tell you about their other losers. I met with this guy in 2010 who runs an "investment firm" that takes inventory of land and hire salesmen to unload it. This is his site and properties: http://www.california-land.com/land.shtml He has been trying to sell that one by Avenue H since 2010 at the same price. Imagine just putting that money in a decent money managers hand instead? You'd have more than doubled by now. The land is a freaking zero coupon bond with no definite maturity value that erodes as you to hold it in taxes and opportunity cost. If that guy can't sell it with his sales force, how are you supposed to realize the value on it unless you hit every part of the "thesis?" The definition of the too hard bucket if you ask me.

Wouldn't surprise me if I knew the person on the other side of this transaction. I was pitched a similar location in which the seller has been holding for something like 20-30 years. The husband had the bright idea of buying the property but recently passed and the wife was sick of holding onto it. I know the area well. I used to walk up and down those streets from a local community college in my high school days to get to In-N-Out. It was a long walk but worth it. My dad used to drive 100+ on the 14 freeway and get off on Ave H or I to get away from the cops and hide in the fields or under bridges. On Avenue I a couple miles down I had a couple of my dear dogs put to sleep at the shelter. The area is now predominantly black whereas it used to be mostly aerospace hard working blue collar types. Not to sound racist or anything, but that area has turned into a sh*thole. I always get pitched different parcels of land around those parts, or better yet on the I-15 near Barstow, as if the north end of Lancaster wasn't enough of a long shot. I swear, northern LA county land has the most annoying bag holders with the best stories. Future bullet trains, freeways, international airports, new aerospace, etc etc. They even started up with the whole, buy this land because some rich guy or gal in China can buy it from you to create jobs under some section of the law to get citizenship. Glenn Gary has nothing on what I've heard from those bagholders.

There is a special light bulb that goes off in the mind of an above-average investor when something seems fuzzy about an investment. I know it sounds funny but it is true. That light bulb develops from investing in value traps and learning from your mistakes about what you overlooked or some flawed method of valuation, whether from the expected cash flow or the multiples you assigned to it. If you want to avoid those bad situations you are going to need to look at your mistakes and figure out what went wrong with each. With IBM I would say it is the focus on the EPS and PE multiple making the stock look artificially cheap. CONN is a tough one to figure out. PBR is at the intersection of everything the market hates right now and also tough to figure out. Maybe keep more dry powder and focus on easier targets until you start to understand what went wrong with your previous mistakes. I personally feel investors get stuck in value traps when markets are overvalued because they have to start digging into questionable businesses at below average valuations to reach for returns.

I missed that part so I stand corrected. Something seems funky since he closed and reopened as KASE a couple years back.

If I hear this clown Tilson say he made 8x his money on NFLX one more time I am going to lose my *bleep*. I randomly forwarded in the video and sure enough "by the way I made 9x my money on Netflix." No dude, on a net basis you barely turned a profit and you kept selling it when it went up so your net return is much less than 9x. The guy is such a joke. And he had the nerve to tell Google his fund outperformed the market by a considerable margin since inception. Just not true. Thanks for the link though.

Has Pabrai really compounded his original investors at 25% a year for 20 years? Is there proof of this somewhere?

30-year Treasury bonds are well under 3%. You just don't get much in the way of returns when long-term rates are under 3%. I don't know why people keep debating where multiples should be when rates are that low. Multiples should be below average. Something to think about if you are a US investor: Not only were stocks up over 10%, but the dollar was up over 10%, interest rates are down and the price of oil has plummeted. The purchasing power increase of stock owners has been incredible this year. Trying to time the market is hard but I can't see why anyone would buy SPY up here. You'd be better off in high grade corporate bonds.

I don't think anyone is saying he isn't a nice guy or does not have success with his stock picks. There is just a lack of consistency here with his commentary versus reality. On one hand he can't discuss his picks, but then he wants to give stock tips to random people such as GM warrants or some other stock. How is that helping anyone? People on this board should know as well as anyone that telling someone to buy a stock doesn't work for many reasons. Is Pabrai going to call them to sell when it's overvalued? Or write them a letter to sell when he realizes his thesis was wrong? Is he really 100% certain that it is going to produce a lot of profit for his followers? I think there is another reason for Buffett not giving out stock tips. It just doesn't turn out well for either party and there's no upside to it for the tip giver. This is the equivalent of loving a small band for years and seeing them sellout to some large music label and watering down what made the band so great. I think some of us on this board would like to see Pabrai continue doing what made his story so interesting. But the story is changing and it isn't necessarily a bad thing to have some people call him out on it.

I dunno guys there was some good food for thought in the interview. I was glad he clarified that Zimbabwe has no respect for capital and should never be invested in. I'm going to go ahead and scrap plans for my Zimbabwe Opportunities IX fund.

It appears obvious to me what is going on with Pabrai. He has spent some time on the PR for his image and fund holdings. Whether that involves putting the stock symbol for his biggest holding on his license plate or having Barron's put a cover story on some obscure resource company ZINC, it seems like he is making the transition to monetizing his reputation. Odd for someone who says he doesn't care what a stock does in a few months or even a year. I would be curious to see how much profit he has generated for investors versus just percentage returns. The more time I spend in the professional investing world the more I realize how much of it is an AUM/sales game, results be damed sometimes. As far as not discussing his holdings, give me a break. The guy bikes around with every stock symbol of his holdings on his body. So I see him biking down the street am I not supposed to ask, what do you think of GM or FCAU? I suppose his response would be, sorry I can't discuss my holdings? Then why tattoo them onto your license or biking gear?

RCAP Edit: Nevermind, I made a mistake in looking at part of their earnings. Sold what I had purchased.