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Drake

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Everything posted by Drake

  1. To me, this is a simple decision: I have bought BAC.WS.A a couple of years ago to invest cheaply in BAC's business. The business has developed better than I hoped for, and thus I will exercise them and then stay invested the common for the long run. When to exercise: From a theoretical view, late exercise is always optimal for a call if dividend effects are not a concern (which is true for BAC.WS.A due to the anti-dilution features). As the A warrants are in the money, they most certainly will stay in the money until expiry. But you get some protection from the very unlikely case that BAC drops below the exercise price if you exercise late. I will exercise late, but that's more a liquidity question than a P&L question. Regarding profits, I don't think it really matters when one exercises because I cannot see any plausible scenario in which the share price might drop below the strike.
  2. A large part of this value is that the local banks know the local economy and the companies of their region and thus have competitive advantages in judging the creditworthiness of debtors and prospects of local projects in need of financing. However, at least here in Germany, these advantages are fading away. Reasons is new EU regulation and German legal requirements: there is more and more pressure to leave out all subjective estimation and reduce the loan approval process to certain objective metrics. This makes it harder to obtain financing for debtors, reduces the competitive advantages of local banks, and increases their costs for complying with regulation over-proportionally to the sizes of their balance sheets. In turn, this increases the competitive advantages of large banks. I am convinced that here in Germany, a lot of small banks will disappear - partly caused by regulation, partly caused by Fintech, partly caused by the low interest rate environment.
  3. I am not certain what investment banking comprises, today - so, I would like to ask: In my understanding, due to Volcker rule in the US and similar rules here in the EU, large banks are unable to do any prop trading, anymore. Wouldn't that mean that investment banking today is basically services and consulting, e.g. in mergers and acquisitions? If this is the case, does it still make sense to take ROI as a meaningful metric for investment banking? (I simply don't see how there is potential for capital intense activities in investment banking as of today).
  4. Yes, and not to mention the massive government intervention in all the data all of these models are calibrated to and likely will be in the future. Yes, mathematical models have been blamed a lot - so it's disturbing that a central remedy for the crisis by regulators has been to introduce a vast amount of new mathematical model and even more regulatory intervention in their calibration. However, I think that it's not fair to put all the blame to the mathematical models: One does not need VaR to understand that NINJA loans are a stupid idea.
  5. Are there companies in the USA that offer to search for a loan with the cheapest coupon? I am asking because in my experience, even getting a first indication for the interest rate of a loan involves some hours of work, when talking directly to individual banks. There are some loan brokers here in Germany, and imho they offer great value. We received an offer via such a loan broker that was 30bp lower than the best offer by the 5 banks that we asked. We applied for the loan in the last week and are still waiting for acceptance and confirmation of the interest rate. The loan is in EUR, hence the interest rates are considerably lower than in the USA, nonetheless I am giving the figures so that you can get an idea of how valuable the service of a loan broker is: The current indication for annual interest is 1,27%, fixed for 10 years, for a 10 year annuity with a total coupon of 5% (i.e. redemption of 3,73% in the first year), with a 20% down payment and additional 5% prepayment rights per year at no additional cost. Charges and fees of the loan broker are included in the interest rate. The best offer by a bank was 1,6%. Before the Brexit, the interest indications that we received were around 30bp to 40bp higher than today, for the same loan. Maybe it would be worthwhile to search for such loan brokers - or if you don't find any, to think about starting such a business - in Germany these businesses are very successful, just look at the stock chart of Hypoport AG which offer this kind of service. I think that it's a good business model, with a network effect and thus a business moat once you've managed to start, because the more customers the brokers serve, the better their market insight.
  6. First: I am no accounting expert, but I would like to add some questions for my own understanding... On the question whether principal shown or whether interest is included: Wouldn't that depends less on whether a company is a corporate or a bank, but on the form of the debt? To my understanding, loans taken by a company would be accounted for at amortized cost and hence be shown as principal, only. Debt issued via marketable securities (bonds) would be accounted for at fair value. Fair value is the value of all future payments, discounted by expected interest rates plus credit spreads of the issuer. Thus, debt accounted at fair value would be discounted for by the market's estimate of the issuer's creditworthiness: if the issuer's creditworthiness degrades, liabilities are reduced and a gain is shown. I don't like this effect either, but if you want fair value to reflect market price, then there is no easy way out of this - after all, the market will indeed pay less for your bonds if your creditworthiness degrades. If I remember correctly (and again, I am no expert on this, so I might remember wrongly), this discount is treated differently in U.S? IFRS and European IFRS: IIRC in Europe, the best approximation of market price, including discounts for creditworthiness, will be used for fair valued liabilities while in the U.S. the market price has to be corrected by changes from own creditworthiness so that deteriorating creditworthiness will not reduce the liabilities (which I think to be more intelligent than the European treatment because a company always will have to repay its debt fully) Can anyone confirm this? I am really not certain about this difference, but I think that the upcoming IFRS 9 will have rules that forbid to show gains on the balance sheet caused by deteriorating creditworthiness...
  7. Link to conference call transcript: http://www.fairholmefundsinc.com/Documents/Call2016.pdf
  8. Massive employee turnover is an essential part of the business models of top consultancy firms. They need the best, they need them 24/7, and hence they need to offer a fast career track and high income raises. About the career track offered: I don't know how McK calls its career levels, but the general principle in the consulting industry is this: you start as a consultant. After a brief period of time, e.g. after one or two years, you are promoted to senior consultant. After a brief period of time, e.g. two to three years, you are promoted to manager, and after another fixed period of time, say 3 to 5 years, you can become partner. Every year that you stay onboard, your wage is raised by a considerable amount (the consulting industry's standard for annual wage increases is 15%). However, unless business grows at the same speed as promotions and wages, on each career level only a fraction of employees than on the next lower career level is required. As McK is a mature business in a saturated market, they cannot grow exponentially. Hence, the only way for McK to offer this kind of career track is to have high employee turnover (the industry term for this is "grow or go"). This shows why a high employee turnover is essential to their business model: McK cannot get the kind of employees that they need for their business model to work without the kind of career track described above, but they cannot offer that kind of career track without high employee turnover. Apart from this, a positive side-effect of the high employee turnover is that it builds an alumni network in the management of a lot of industries which helps them grow their business...
  9. It might be worthwhile to take a look at Quantopian. I discovered Quantopian only recently and haven't used it, yet. But from what one can read on their page, it seems suited for the kind of backtesting you are intending to do.
  10. A side question: how is it possible to use inflation linkers as inflation hedge? Even if the hedge is effective in protecting the notional, tax is calculated on the nominal gain, not on the real gain - so after tax, an inflation hedge cannot work, can it?
  11. I wonder whether contango might hurt you when rolling? Would it be sensible to use Forex CFDs for hedging? They seem to be ideally suited for hedging spot risk.
  12. Yes, that's probably the reason why data quality can be an issue for European stocks - we don't have anything comparable to EDGAR, over here :-(
  13. Thank you, that's great to hear. Sounds like a bargain, I will give them a try.
  14. Maybe not. But several times when I used GuruFocus' screeners to look for cheap stocks, the results for European stocks were partly invalid due to the bad data-quality - e.g., because they did not account for stock splits or other corporate actions. For a few stocks that I know well, I have found data errors that resulted in strange value metrics. But you are right - these issues will not damage my portfolio performance, because I will not blindly buy or sell based on metrics alone. But I like to use valuation metrics as a starting point, and finding and understanding these data errors costs time - and I fear that I am seeing only the tip of the iceberg... I know that attaining good data quality is difficult and that banks - or especially funds managers - invest a lot of money into fixing data quality issues. Thus, I appreciate data quality and am willing to pay reasonable amounts for it (however, I am not willing to pay more than 1% of my portfolio capital, hence Bloomberg or - even more desirable - Capital IQ are way out of reach, at the moment).
  15. I agree, and I think that willingness to pay for data at all and to pay even more for data quality depends on experience and portfolio size... May I ask: What service do you refer to by the $100 tool - MorningStar? If you have used it before switching to Bloomberg, then their service must be well worth its price. May I ask how you would rate their data quality, especially regarding non US stocks? (as explanation: I am currently subscribing to ValueLine and GuruFocus. I like their services for US stocks, but ValueLine covers hardly any stock outside the US, and I am not satisfied with data quality of Gurufocus' premium service for European stocks - hence I am looking for alternative data services)
  16. You might also take a look at ADVN's page. They offer more than 20 years of annual and quarterly data for free for a lot of companies. The information is mostly in English, but some text required for navigation in the web page is German. To get to the financial data for a company, click on "Finanzwerte". For example: http://de.advfn.com/borse/NASDAQ/AAPL/finanzwerte
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