jawn619

I am going to take an interesting stance, especially given everyone's interest in oil and gas sector. I think there are two components to making money investing as per Howard Marks. One is to be right in your thinking, and the other is to know what the crowd thinks and to be divergent from it. One thing that has hurt me and probably others on this board is that I often forget the being right part and just focus on being "contrarian". I forget that most of the time, the crowd is roughly right and the future looks like the past. I get great satisfaction from being right when everyone else is wrong. The trouble is, it just doesn't happen very often. Like Marks says, the consensus is not a moron. I believe It's the difference between your opinion and the market's opinion that determines the magnitude of the money you make and the rightness of your opinion that determines if you make it at all. I'm attracted to cases where magnitude is large, but I often pay no attention to the probability. I'd like to give a couple of examples, a few related to investing and one related to sports betting/basketball. 1. BRK.B has high returns on equity, but a lot of people everyone think so too, so it trades at a premium, if you buy at a premium, you will make money only if berkshire outperforms that built in hurdle. 2. Oil and Gas companies trade at low valuations, because expectations are that declining oil prices will hurt profits. if you buy them you are betting that the decrease in earnings will be less than the built in hurdle. Now the question is how good is your insight into whether or not the earnings will be higher than expected? I see a lot of people, myself included, see the drop in oil and gas companies, buy them, and then convince themselves that they understand how the prices of commodities work. Supply and Demand, Irrationally pessimistic, Demand of oil is going to increase. How many people truly understand how the markets for commodities work? Or understood them before taking a position in a lot of these O&G companies. Let me take an example from basketball. 3. Russell Westbrook plays for the Oklahoma city thunder and is one of the MVP candidates this season. During the season, he had a stretch where he recorded 4 triple doubles in a row. A triple double is where a player records 10 points, rebounds, and assists in one game, a rare feat and Russell Westbrook had 14 triple doubles in his career up until that point(out of maybe 450 games). My co-worker and I bet on the chances of him getting a triple double the next game. I said that he would not get it and my co-worker bet on him getting it. I thought of my bet as contrarian and right. The way I was thinking was that out of all his games in his career, on any given night, his probability of getting a triple double was 14/450 or 3%. I recognized that there is some uncertainty in that he is playing extraordinarily well in the past few games and that kevin durant was out so his stats would likely to be higher. Even with those built in hurdles, I thought i had a big enough margin of safety. I bring up the example is because I don't think a lot of us have thought about all the risks in the oil and gas sector and I think a lot of them don't have a big enough margin of safety especially given that it is inevitable that the earnings of a lot of the oil and gas companies are going to decrease, and there isn't a big enough magnitude difference for me to want to bet the house on it. Would love to hear everyone's thoughts

+1

The exportation of Natural gas from the U.S. to Asia and overall of U.S. energy independence. Natural gas is around $3/mmbtu in the U.S. and $10/mmbtu in asia. It costs around 2 dollars all in to ship the natural gas from the u.s. to asia. In the next 5-10 years, I wouldn't be surprised if more and more natural gas is exported out of the U.S. ,balancing the prices. Companies like LNG stand to benefit from the first mover advantage but natural gas companies masquerading as crude oil companies also stand to benefit.

I work at a trading firm(though not the high frequency kind and recently had someone from IEX come and try to pitch us the exchange). That, and some of our own testing, I think I can explain how some "HFT"s make money. Lets say a stock has a spread of .25. Bid at 10.00 and Offer at 10.25. You want to buy the stock so you bid for 500 shares on Nasdaq at 10.01. To your surprise, the second you put in a bid for 500 shares at 10.01, a bid on bats, arca, and edgex also show up at your price, sometimes they even go higher than your price at 10.02. Situation A. A few seconds after, A sell order comes in for 2000 shares market. The order at 10.02 gets filled, then you get your fill at 1.01, and the price goes even lower because not all of the 2000 shares were to get filled. That large sell order moves the market. In this case the HFT comes out ahead because he bought at 10.02, sold to you at 10.01 but knows that the true market price is lower because of the large order. Situation B. A few seconds later, A sell order comes in for 200 shares. The limit to buy at 10.02 gets filled and you at 10.01 don't get filled. The limit order at 10.02 also gets some rebates from the exchange for "providing liquidity". The HFT is coming out ahead because he is getting a rebate for adding liquidity, and doesn't fear being on the wrong side of the trade because there are no more sell orders. The HFT's say that by being there, they are tightening spreads and providing liquidity, but forget to mention that they have an edge and provide liquidity when it's convenient. I was told that an old strategy was when a large bid would come into the market, to bid .01 above that and sell to it if prices start to move in the wrong direction. HFT's do this, but because of their speed, they do it to every buyer and seller. Related strategy. a stock is trading 119.99 by 120.00. There are 25 lots on each exchange of bats, arca, edgex, and nyse. You are a willing buyer of 100 lots and put in a market order to buy 100 lots. There are no other buyers at that exact moment so you should be able to get all of your liquidity. but you only get 25 of your 100 lots and the rest of the 75 are gone. Basically after you buy your 25 lots, every HFT can see that you need to buy 75 more and go to it and take it away. They then go ahead and sell it back to you, for a penny or more. Basically imagine you need to buy 100 apples and there are 4 markets each selling 25 apples. You buy 25 at the first market, but there is an HFT on a helicopter watching you and when you head to the other markets, he has already gotten there and bought all the apples and willing to sell to you for a penny or two more. The speed which this all happens is imperceptible to the human eye. All of this happens under 1/3 of a second.

The url has changed. What happened? Did some politician hire some hacker to shut down his site and then he has to reboot it with a new URL? LOL

I agree that this is the right way to do it. The difficulty usually is in #3. calculating the probability of phase 1, 2, and 3 trials accurately is something very few people can do accurately. Almost all of them would have to have some technical knowledge and credentials. For the layperson to say I think it has 40% chance to pass phase 2 is near impossible. After it get's approval, the drug has to do well and predicting that accurate is difficult in it's own right.

who's Scott and why should we care?

http://www.amazon.com/Education-Value-Investor-Transformative-Enlightenment/dp/1137278811/ref=sr_1_1?ie=UTF8&qid=1425261809&sr=8-1&keywords=education+of+a+value+investor wrote a great book on his experiences on wall street. Was very honest and vulnerable in his writings. Also bid 650k with Monish Pabrai for a lunch with warren buffet . As for his performance, probably not out of this world.

+1

it actually does because berkshire's annual report is out. live long and prosper!

I'm sure you understand this but some may not. You have intentionally oversimplified and I agree with your points. But just to be clear. Rate of book value growth is a bit more than return on equity. It is return on equity less dividends, less share repurchases, plus share issuances, +/- changes in comprehensive income, etc. So it is important to calculate book value on a per share basis. The goal of a firm is not to increase book value. You want to increase intrinsic value per share. You want to generate cash flow. You want to make money for shareholders. You want to have each dollar of retained earnings to generate a similar or higher ROE. The truly great business can grow without retaining earnings (increasing book value), and the incredible one can do it and shrink their equity. That is why great businesses trade at a multiple to book value. +1. definitely helpful, especially the part about each dollar of retained earnings generating similar or higher ROE.

I think that the value of a stock comes from 2 things listed in order of importance 1.the future cash flows discounted at a reasonable rate. I think this accounts for 80% of the value of a stock 2.the tangible value of it's assets aka book value. about 20% Let's look at few companies with respect to earnings and book value A. AAPL- price to book of 6. This means you are paying 6 times for the assets of the company. If apple only owned one chair and one desk for a cost of $100, you are paying $600 for the entire company. B. PBR- Price to book of .36. This means you are paying 36 cents on the dollar for all of it's assets like rigs, property plant and equipment. Now with respect to future cash flows of apple and petrobras, i think we would all agree that apple has a brighter future than petrobras. Apple has pricing power, high margins, and good management. Petrobras sells a commodity product, has management that might be stealing from company funds, and low margins. Just using the two to show how future cash flows should be the major thing that people look as opposed to price to book. Let me know what you guys think.

I hear that ackman and icahn own these but i can't seem to find it on their 13Fs. Why is that?

Ya, it's decent. I paid out for a year and plan to keep using it. There seem to be alot of free resources list in the thread above so probably worth giving those a shot. I tried the 10 day and really like it. Can't take the plunge and pay for the whole year yet.

i think a good way to judge if an option it's overpriced is to look at the the implied volatility. Usually stated as a percentage. that percentage is basically implying how much the market thinks that a stock will move in a year. Unless you have a model of what you think volatility should be or are an options market maker, you probably wont know if the volatility is over or under priced. As a general rule though, you probably want to stay away from buying options in stocks that have news or are implied to move a lot. An example is HLF or stocks that have earnings coming up.(everyone knows that HLF might be a pyramid scheme and stocks move a lot more on earnings and often times are priced to move 10-15% move in a day)

Also would like to know this

thanks for all the wise words everyone!

who is this scrub? what's his track record?

Novagold is an interesting miner that has a 50% stake in a huge gold mine. Klarman also has a stake. http://seekingalpha.com/article/2782045-novagold-resources-and-its-elephant-sized-gold-deposit

After reading Thinking Fast and Slow, i have come to the conclusion that I am way too overconfident about my prospects as an investor and would like to ask board members for estimates about how long it would take someone who is reasonably smart and reads/looks at companies to become and above average investor.(able to beat the S&P) I know that the base case for personal investors is something like 70-80% will lose money and not be able to beat the market, and I assume that I am no different.

what do you mean by it's the best performing currency but still flat?

Not joining this board sooner!

LOL the old 250x earnings right?

Stop looking at quotes of stocks every day.

This is exactly what i was looking for yada. Thanks so much. Will spend a bunch of time reading it over many times to get a better understanding.