twacowfca

I'll lay you odds on that. :)

Uh Oh! The bar chart is giving us the finger again. This time it's kurtosis with the left tail especially skewed fat. :)

What's TV ???

Well that didn't take long, looks like your 97.5's have doubled, way to go TWA! Thanks, Wayne. BRK has a lot of tailwinds. Nevertheless, we've reduced the VAR by taking money off the table as the stock gets increasingly above the repurchase limit at the same time we've increased the notional exposure. :) Feb 24, update We happily had the opportunity a few days ago to take advantage of the little bounce around the expiration date that coincided with the announcement of the Heinz acquisition. We closed out all our short term calls as the stock is now about 10% above the repurchase limit. However we continue to hold the common and leaps. This investment/trade has worked out almost as well as the awesome Fairfax short squeeze in 2006. The price movement of BRK has been less, but we have put a lot more into BRK than we added to FFH in leaps in 2006 because of the high MOS as a consequence of the Buffett "put". :)

I understand he's not a teetotaler.

This is a good point and one I rarely see brought up by those who want to see guns out of the hands of the public. When I see a man make a statement for elimination of guns I laugh because it is easy for him to say, he has the upper hand over half the population (women) by being physically stronger. 96% of violent offenders in jail are men, and women are easy targets. A gun in the hands of a woman levels the playing field. What would be the effect on rape, assault, and muggings if all women were issued a hand gun to carry in their purses and properly trained in its use? If that little lady had been in the audience in the theater in Colorado or in the school in Connecticut or on the Island in Skandinavia, there might have been a shooting, but there wouldn't have been a massacre. Or alternatively she could be one of the victims. The proliferation of arms in the US is simply an arms race run amok. The best defense against a crazy with an assault rifle is not another gun. It is a set of sensible laws that keeps the assault rifle out of the crazy guys hands in the first place. The gun merchant lobby how ever knows that the best thing for their business is easy unfettered access to lots of guns. I realize that I will change no ones mind so I better stop now. I agree. Keep all guns as much as possible, not just the most deadly, out of the hands of criminals or nut cases. And motor vehicles out of the hands of drunken drivers.

Cool It. Let's get back to investing.

This is a good point and one I rarely see brought up by those who want to see guns out of the hands of the public. When I see a man make a statement for elimination of guns I laugh because it is easy for him to say, he has the upper hand over half the population (women) by being physically stronger. 96% of violent offenders in jail are men, and women are easy targets. A gun in the hands of a woman levels the playing field. What would be the effect on rape, assault, and muggings if all women were issued a hand gun to carry in their purses and properly trained in its use? If that little lady had been in the audience in the theater in Colorado or in the school in Connecticut or on the Island in Skandinavia, there might have been a shooting, but there wouldn't have been a massacre.

Don't let the facts get in the way. I sleep safe at night with our door unlocked half the time because the potential burglar never knows what might happen if he crosses my threshold. That's a lot more deterrence than having policemen on the prowl night and day. I don't need to own a firearm because some of my neighbors do. When a pistol became practical to carry, it was called the great equalizer. Before then, the toughest pugilist or someone who was good with a blade or any gang could steal or kill with impunity. I can take care of myself, but a diminutive lady I know surprised me recently by telling me that she always carries a pistol in her purse when she goes downtown. She's an expert marksman. and knows how to use her pistol. Real story: In the 1950s Harold Smith was the only person in his Reno, Nevada Casino straightening up one morning when some Mafiosi who wanted to take over the town came in and started tearing up his place. Harold pulled a sawed off shotgun out of his drawer, put it on the counter and said, "You boys are up a little early this morning, aren't you?" They tucked tail and got out of there. End of confrontation , no bloodbath. :)

Before we all get our hopes up, the article is meant to be satirical, not serious. Cheers! Their reporter, April Pazzo, is on the job rather early this year. :)

It's probably not very scalable for a large fund . I like it in IRA's, because there is no tax on short term gains. We 're all friends and family so it's fun to play around with, but the short term calls are very speculative now because the repurchase limit being five percent below the market price isn't much of a floor with a short term horizon. What's worked extremely well though in absolute gains is the leaps. These are scalable for the size of our accounts. Owning the leaps has given us great leverage compared to merely owning the common. The repurchase limit still being only five percent below the price of the common is quite important for the MOS of owning the leaps because of the long time horizon. Plus, we don't have to pretend we're traders. We can sleep on the leaps. :)

If I am understanding this correctly, you're saying the IV of the OTM calls has more upside than ATM/ITM calls of the same date/strike? How far OTM did you go if the strike is only 1 month out? Or are you planning on continuously rolling contracts over on a monthly basis as long as nothing systematic happens in the market? If not, why not just purchase 2015 LEAP OTM calls? There is more upside if the underlying increases in price. Then, the IV of the OTM call should increase as the strike price approaches being ATM or ITM. However, if the price of the underlying doesn't advance, there is no downside to the convexity because it won't matter what the IV is if the short term call expires worthless or near worthless. We added to our 95 strike Feb 13 when it was slightly OTM and also picked up the $97.50. These were cheap, and it won't require a big move for an asymmetrical payoff. Well worth the risk of a mostly total loss IMO. :)

An interesting, although obvious statement by Taleb seems apropos this trade: "A stochastic process subject to an absorbing barrier will have an observed mean higher than the barrier.". :)

The trade is very asymmetric, skewed to the upside when the stock is close to or at the repurchase limit. Time decay makes short term options especially more risky the more above that limit the stock is. Leaps, particularly deep ITM Leaps, are relatively less risky than other calls, especially when the stock is significantly above the repurchase limit. I too like Leaps for this trade: however why deep ITM? I would think the time horizon of the Leaps are adequate for managing the risk that the stock takes longer to rebound. I would think ATM or slightly OTM Leaps would provide more leverage on the upside while the one-two year time provides a cushion to protect the downside. They are more prone to systematic risk I suppose. What are your thoughts? When the stock is significantly above the repurchase limit, there is much more time decay risk because the stock could become range bound with the lower limit below the price of the stock at the time of purchase of short term calls that are especially subject to time decay If, on the other hand short term calls were bought when the stock was at or near the repurchase limit, the likely lower bound would be very tight. Thus any significant volatility would likely be up volatility, exactly what is wanted after buying a short term call.R There is much more risk if a short term call is bought when the stock is above the repurchase limit because volatility over a short time period could be downside vol as well as up vol. ITM calls or Leaps will be much more forgiving of a little (say 5%) downside vol in that circumstance. With a little downside vol they might only lose a little value or live to fight another day while short term ATM or OTM calls could be wiped out. That's why we will likely be rolling our short term calls to Leaps now that the stock is significantly above the repurchase limit. :) One analyst has BRK ranked #1 or #2 of all the stocks in the S&P500. Long term holders who wanted to sell to avoid tax increases did so before the new year. BRK has lots of upside potential if the market isn't bearish. :) Having said all that, we did otherwise, rolling our expiring January options into February calls because they were dirt cheap and because the distribution of the IV for the different strike prices of calls is favorable for increase the more an OTM call moves toward being ATM or ITM, the opposite of the tendency for a "smile" pattern to manifest since the financial crisis with puts. We took most of the money off the table, but still doubled the notional exposure of the short term calls. :)

The evidence would be the methodology used in particular studies. Most studies of the small cap effect take various deciles or quintiles of stocks by market cap, track the performance of each group for a year and then rebalance. Obviously, the smallest cap(s) by decile include a number of beaten down companies, especially after the market has taken a dive. The rebound in that case can be huge. Select Comfort got beaten down in the last market meltdown to the point that it was a microcap and then bounced 20 or 30 times above it's low. Same with Crocs and many others. I can't give a citation, but I think there has been at least one study that tracked all the stocks in various market cap deciles, including those that went out of business, in rolling multi year periods. I think there is still a small cap effect in general, although much less than in the studies that rebalance yearly. Most of the small cap effect appears merely to be regression to the mean. On another thread, I showed how to get dramatic outperformance in a volatile, but ultimately flat market simply by making purchases and sales and then rebalancing to a 50% cash position as the market rises and falls. Essentially, this means buying when a flat, trendless market has smaller capitalization and selling when the market has higher capitalization. There have been long periods when the market hasn't been bullish that small caps have under performed. There is a very interesting note in today's Barron's, The Trader column, January, 21, 2013, (no functional link, try google if you don't have a subscription) about an apparent anti mega cap effect. There aren't enough data points for a reliable statistical analysis, but it appears that when a company advances such that it its market cap approaches about 5% of the total S&P 500 market cap, it faces powerful headwinds, almost a limit. When that quasi limit is approached, that stock almost hits the wall and declines, no matter how good it's business or prospects or general industry or market bullishness. Is this merely a random correlation? Or is there something that logically would cause this to happen? The idea is that this is not a spurious effect because most funds investing in that space have formal or informal rules preventing or discouraging holding a position that constitutes more than 5% of the value of the portfolio, which likely would be composed of S&P 500 stocks. The latest example of this effect is what happened to Apple a few months ago as it approached this apparent limit.

I too would love to see it. In doing this kind of data massaging, one has to very careful, or you might only find what you want to find. The first flag is the survivor bias I got a hard copy of the study a year or so ago as I like to do when reading interesting long doccuments. It's in another residence. I think it used the Compustat database, which is capable of eliminating survivor bias. To the best of memory, the study's methodology was good.

Agree with your comments but at least he is licensed to hold a concealed weapon and nothing was loaded in the chamber. Probably a slap on the hand and long lineups at the Airports to follow. But, it's certainly the wrong time to make such a mistake. Then again, when you learn the guys story - I can understand why he got his concealed weapon license. If I was Patrick I would have a loaded Glock ,a retired ex Navy Seal and a big old Rotweiler as my constant companions, he has ticked off some really bad people and he is onefearless mutha if you ask me. I have a Glock as well as a Mossberg 500 home defense shotgun. Funny thing is I that I tend to side with the liberals on weapons, yet there are so many wackos out there with them, that i feel the need to have one until other people can't have them. Catch 22. A guy who was a long term prosecutor in Washington DC had an interesting editorial this month about the paradoxical effect of the DC gun ban. When the ban was finally declared unconstitutional by the US Supreme Court, the murder rate in DC almost immediately was cut in half. No link, but the article can be googled.

Does the TSE require the record date to be before the ex div date to allow time for trades to clear?

twacowfca, that's very interesting. Do you happen to have a link to those stats or know where I might find them? I'm almost certain that the link has been posted on this forum in a previous thread, and the study discussed. Hopefully a search will find it. :)

Giofranchi -- now you are embarrassing me! And while we're on the subject, I enjoy your posts a lot. Perhaps that's because I can most identify with your style of investing and I'm desperately seeking out others to confirm my innate bias! Hopefully not.... And as for my infrequent posts, may I just say that I look at the amount of posts that you and some other very regular contributors make and I think -- how do they do it, where do they get the time?? I can barely keep up with what's been written, viewing videos posted up etc. that by the time I'm finished it's late and time for bed. I must be seriously slow! I think what my friend was referring to was that the most successful and well-known of the owner-operator companies are likely to be close to the end of their lives and that somebody else -- an inferior owner-manager if you like -- will be running the company in the not too distant future. He likened it to buying great companies after they've already been great. As you say giofranchi, what we should ideally be doing is hitching a ride from those owner-operators who likely have a couple of decades of their working lives ahead of them. You bring up another crucial point in my opinion. I don't believe it's enough to buy any old owner operator -- some of them are complete plums and have become very wealthy despite themselves. You've got to feel confident that the owner-operators "get it". They systematically look for bargains, try to buy the proverbial 50 cent on the dollar. My thesis is that this attitude (combined with a great work ethic) at the top permeates down through the organisation and invariably this culture gets ingrained into DNA long after the father figure has departed. Think about Berkshire or Leucadia or Fairfax or Markel. Will the culture there change after Buffett / Munger / Steinberg / Cummings / Watsa / Markel (x2) retire? Perhaps they won't have the same drive or same genius, but even at that I believe they'll be more equipped to grow value for OPMIs than the vast majority of agent managers. Anyone disagree with my thesis? Well, I agree 100%! But you already knew that! ;) And, please, don’t tell my partners that I spend so much time posting on this board… they are a bunch of dull engineers… they won’t understand… and I will run the risk to get fired!! ;D giofranchi Great comments, Gio and others. The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better. Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset. Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds. :) :)

I had some UVE for a while, but it didn't but found that holding it was causing to much discomfort for me. Their risk is very concentrated (or was...think they expanded their operations to other state(s)). I held UVE a few years ago too. Haven't looked at it for awhile. The growth was there and decent dividends, but the earnings were very lumpy resulting in that uncomfortable feeling!!! Perhaps time to revisit. And then couple that with some history of under reserving... Yeah. This popped up on a thread over a year ago. It took about 45 minutes to put it in the too hard pile. If I'm not mistaken they had some huge number for DAC that was way bigger than anything I had ever seen, as well as reserving issues. Plus, a lot of the buyers of their policies (?) or whatever they sell were outside the US. Too many yellow flags to want to spend time on them.

I felt the same way. Nothing wrong with it...just didn't feel right. Cheers! The man who sold the claim (evidently he had offered the claim to distressed debt or claims investors at the highest bid) wasn't a victim, but an offshore owner of a Madoff feeder fund. The managers of those feeder funds, unlike the victims, we're generally sophisticated operators who didn't ask too many questions about how Madoff made his remarkable stated returns. Once the fraud became known, a prudent, sophisticated manager should have waited for price discovery to see how much his claim was worth, given that the world's best attorney for recovering money was aggressively persuing restitution to victims who lost money. That he did not wait for price discovery to run it's course, suggests that other time sensitive motives a may have influenced his decision to sell the claim of his feeder fund for what was almost certainly going to be a discount to the value of the ultimate recovery.

- Mr. Taleb, "Antifragile" And he identifies the exact opposite of owner-operators in the banking industry: - Mr. Taleb, "Antifragile" I guess that’s really my problem with the kind of BAC. I am interested only in owner-operators, and it is extremely hard for me to spend much time studying something that is as far from an owner-operator as it could be. In the short run (2012 and, most probably, 2013 too) I surely let some good opportunities go by, but in the long run I am confident my predilection for owner-operators will serve me well. Here his another thought: of course, if you jump in and out of stocks, buying when they are extremely cheap and selling as soon as they approach your estimation of fair value, the banking industry should be a sort of amusement park for grown-ups! Especially big banks: in fact, you can predict with much confidence that once in a while they will go bust, so no reason at all to hold onto them when they approach fair value, and then they will be bailed out and won't be allowed to fail, so no real risk to buy them when they become extremely cheap. A sort of free lunch, isn’t it?! ;) giofranchi They are not better businesses through the credit cycle. In fact, they are horrible, almost as bad as airlines, except that there may be a pittance left for a few TBTF banks at the bottom of the cycle. However, as with Lord Keynes "credit cycle investing" before he became a value investor, it is possible to make money on them by getting in at the bottom of the cycle and getting out at the top. The institutional imperative makes it difficult for all but a few banks, usually owner operated, to resist the allure of easy profits when there is a boom. Cut rate loans or loans that are not well secured made by banks that are not conservative puts pressure on sound banks. Then, better small banks are acquired by publicly traded banks that show good profits when times are good. It's like Gresham's Law: bad banks drive out good.

Oops! I forgot. Community banking may have much less pocket risk than with other types of small businesses. The investors are usually local business people, often customers of the bank. Thus, there is usually commonality of interest between management and shareholders. What small banks do you like best?

+++1 Agreed. You have enlivened the board. Thank you for your many interesting posts. :)