TheAiGuy

Or you increase your compounding power by 10-15% over the long-term life of the investment. This would be much more helpful than a 10-15% one-time boost. well, it's also a levereed bond portfolio of CCC rated MBSs. How do you feel about owning a basket of that at a 15% discount to NAV?

You're right -- I'm assuming the NAV won't revert to the mean. But why would I assume that? I don't really have a view on the underlying, I think the attractive bit is the discount. If I had a way to arbitrage that discount in a shortish period of time, It would be interesting. Equally, if I found the underlying fund interesting, that would be attractive. Personally, I don't see any CEF's where I'd want to only the underlying portfolio. However, If you're interested, there is an activist CEF (special equity fund -- ticker:SPE) that tries to spur liquidation events that's run by a value guy (I think they're called "bulldog"?). There are a couple of other funds that specialize in this, FWIW

It's not that -- TEI is a decent fund with a decent manager and it looks cheep, I just don't get why I would want it. Say that discount disappears in a year. TEI's 3year average discount is something like 4%, so say in a year you get +12% ± change in NAV + 8% yield. So, that's 20% and then maybe 7% a year afterwords. Okay, that's not horrible, but I think I agree with the others that it is equity like risk in the NAV and if the discount takes more time to converge to an average value, then the return is looking just okay (2year ~= 15%/year; 3 years 12% year, etc). The longer it takes, the more the return will convert to the underlying returns of the portfolio. Mostly, it doesn't scream "free money!" to me, it screams "free nickels!"

I look at these from time to time, but every time I walk away thinking that I could buy a POS fund with poor management, high fees and a insane portfolio selling 5-10% than where it should.

Jet business model: 1) Get Scale 2) Achieve economies of scale and lower fixed costs as a percentage of revenue 3) Profit.

Not that it's the right way to value BRK, but if you take $16B of earnings as CF and run a 5% growth for 10 years DCF, your hurdle rate is only 7% to make current price cheap. If you use 10-15% hurdle rate, it is quite overvalued. That's why you have to bring other parts into equation to persuade yourself that it's rather cheap. Or just go with P/B. ;) Why would you use a 10-15% hurdle rate for BRK? Because I want to have 10-15% return. Hurdle rate == return rate. What you want to make shouldn't have a place in a discussion about what fair value is. If possible I would like to make 100% annually, but I'm not going to call something that is expected to return less overvalued. Fair value is always relative to what you want to earn. Of course one generally should accept a lower return on investments with less risk. No, one shouldn't necessarily do that, but one might have to. It's an important difference, and there are many instances of lower risk investments having higher returns. Fair value is in relation to your hurtle rate, which makes it suggestive. You can have a hurtle rate of 100% before you take the risk of equities if you want, and that definitely changes fair-value. I might consider that asinine, but there are no rules here. Edit: I miss-read you, realized you were saying basically the same thing.

Interesting read. I think highly of Yergin based on his book, although I'm skeptical of his argument that solar adoption will be slow b/c coal, oil, natural gas and fracking have been slow to be adopted. The components of a solar system are largely manufactured and that changes their economics (I could be wrong here -- my knowledge of the resource requirements is iffy at best). Yergen could very well be right, but it's hard to say how quickly the cost curve could decline when serious R&D budgets are devoted to a large-scale implementation of solar power (especially when there are a very large and possibly economically irrational players devoted to its development (China, Elon Musk) as mentioned in the article). This was true was true with fracking as well but I think your dealing with different types of economies of scale and R&D in solar

I'd just like to say that I hope everyone had a good time today and picked themselves up something nice. :)

what explains a 40% drop ? Seems like it's concentrated portfolio but has decent names like Amazon, Google , priceline etc It's ETF liquidity. Most of that drop is the ETF trading price, not the underlying securities. It should return to close to par by the end of the day if it isn't already b/c its arbitragable

Dunno. VIG is pretty liquid for an ETF and the orders didn't go through right away. Does feel like free money, though.

Bought AAPL and VIG at 15% discount to underlying stocks (was at 20% but trading was halted...)

A couple of points here: 1) this isn't the type of thing you can conclude from fMRI -- showing increasing or decreasing activation does not imply intelligence, it mostly imply that a section of the brain is involved in the specific psychological task the person in the fMRI is doing. 2) The experiment, as you've explained, sounds far fetched. Typically, in fMRI studies people are completing a specific psychological task (for examples, identifying pictures they have previously seen) and it is very, very difficult to have people act freely (as would be needed to participate in a group discussion) and make inferences about the fMRI signal.

I mean, I've taught that example to make the exact opposite point.

So, this is spoilery: I don't know that I love this example -- there's a good justification for being "tricked" here (see <a href="http://web.mit.edu/cocosci/Papers/nips99preprint.pdf">this paper</a> for a technical explanation of why). Basically, given the actual "rule" they have selected, you are unlikely to see that particular sequence of numbers if they had just picked a random sample. Much more often than not, given the sequence they presented, the rule that people guess when they're "tricked" is the rule that is statistically most likely given the sequence they've presented. They're framing the behavior they are observing as "confirmation bias" but I could just as easily give the same example to argue that people are rational b/c they are doing the mathematically correct inference. I think the counter argument they are making is kind of absurd -- yes, disconfirming evidence is often stronger than confirming evidence, but in practice we face an absolutely massive number of inferences like this every day. "Bias" makes it sound like a bad thing. (not to argue that that the type of reasoning they suggest is a bad thing -- just pointing out that they present this particular example through a very specific lens that supports a pre-determined argument, which is ironic)

JAllen's comments are really good -- thanks for the heads up. I completely agree -- a lot of the value is that they can pay their bills by issuing "overpriced" stock to their engineers. Doing so lowers their funding costs, but I'm not sure how you quantify the value of that. It is easy to see the rate of growth, accounting for this using something like EBITDA/share or Gross Profit / Share (20-30% a year per share value). Again, I completely agree. That's what I think is interesting about problem.

Hi all, I'm starting to look at companies like Amazon and Charter that don't show a lot of current profits but are plowing all of their money into investments. At a high level, I'm wondering how to think about value of these companies because it's not at all clear to me what makes a good measure. In one sense, you can price these companies (as opposed to value them) with and EV/EBITDA or P/S multiple using market comps, but that's a relative value technique and I'm looking for an absolute worth. One idea is to take a guess at revenue (for AMZN) X years in the future, think about what the likely business make-up will be, slap a margin on that and discount it back. That's a VC-style approach. Another thought, though, is to think of what the business is currently worth given intangibles like market position, possible monopolies, etc and track that change over time. That's basically impossible, but it's what's important. Any ideas?