Gregmal

I have seen few folks as consistently wrong and outlandishly stupid as Dennis Gartman over the years. He may deride those making money as "“young, brash, utterly naive, ill-educated, egregiously overconfident, neophyte-yet-fearless ‘investors.’” .... but Dennis is unequivocally "“old, brash, utterly naive, ill-educated, egregiously overconfident, and fearful’” Its like the guys who have been wrong just feel the need to get louder rather than look for ways to invest. While things have definitely changed IMO over the past few months, it wasn't long ago you could find TONS of quality companies trading at very reasonable valuations. That number has recently declined substantially, but that still doesnt mean there arent opportunities. I mean, even a 100% layup for these dopes would be Berkshire. I dont find it the most compelling investment at the moment, but for shits sake, it is undoubtedly a 100% better option than just sitting on cash. And I dont think anyone can make the case its "expensive". So what are people like Gartman whining about?

You are assuming that they are 100% long all the time, which is not the case with hedge funds. When the index went down 20% last year, they were probably down 8%. The index fell 5% last year, and the smart folks "only" lost 4%. Thats a big 90 basis points of outperformance during a bad year if it means sacrificing 20%+ during a good one. Overall, the industry saw its biggest annual loss since 2011, declining 4.1 percent on an a fund-weighted basis, according to Hedge Fund Research Inc. https://www.bloomberg.com/news/articles/2019-01-09/hedge-fund-performance-in-2018-the-good-the-bad-and-the-ugly

Or put another way, the "we dont try to beat the index" only became a marketing pitch after years of futility. If the mostly widely accessible, highly endorsed, liquid product, available to absolutely anyone, did 30%, and you did less, YOU made the wrong call. Now I say that lightly, because strategies change and no one gets it right all the time. In fact, I dont even think every fund manager, should consistently be expected to beat an index all the time, but performance like what many of these guys put up is inexcusable. And to make matters worse, they cant ever say "we were wrong". So instead they dishonestly move the goalposts around and pay healthy sums of your fee extracted money to marketing folks to come up with clever new spin and sales speak. I know plenty of folks who manage money and who dont always "beat the index". I know plenty of folks, who do. None of them "need" all these super fancy offices, and suites, watch, shoe ensembles to do their jobs. They dont need the fancy degrees from waspy universities either. In fact, I think the story of Bill Ackman is a pretty informative one to observe. He got caught up in his fame, his arrogance and ego became his undoing, his celebrity status and wealth became the product, and he sucked a big one. He then commits to get back to basics, downsized his firm, kept quiet, basically became simplified and long only...and voila, his returns this past year basically resembled those of many of the fine folks here who do those returns from home/normal people offices, AND CRUSHED "the market". I think a lot of the "highly complex" stuff is also just marketing bullshit. There s a line in the Big Short, something to the extent of "its meant to be that way to make everyone feel stupid"...and I think a lot of that applies with these funds. There are obvious exceptions...despite blowing up, the LTCM guys for instance probably warrant their weight in gold, as do others. But the majority are judge ultra advanced hucksters.

Because these same "hedged" funds, also get walloped and underperform big time on the way down, as was evident last year and in previous choppy years as well. Over the years, many "hedge" funds have evolved into largely long only or active in esoteric trading strategies, but certainly not hedged. If anything, as you insinuated, the "hedge" has just been salesmanned up to rationalize poor performance. You can justify doing 8% against 30% for the index when you did 10% vs -5% for the index the previous year, or something to that effect. It doesnt fly when you've underperformed the index by a huge margin for a decade. Further, in relation to 2019, it is also surprising given how, basically starting in q2, there was a noticeable capitulation amongst many of the smart money funds; the FANG stuff literally started showing up everywhere in the August and November filings. So somehow, even with the outperformers, these geniuses found a way to suck wind again. This, plus, assuming you didn't totally get played last December, everyone, period, no matter what "strategy" you used, got a 10% bump just holding onto the same stuff they owned for the first couple weeks of January.

I'm kinda mixed on this because I feel its(like everything) situation dependent. Spek is probably right though, a lot of the recent "fund manager wisdom" IMO stems from capitulation and is influenced by one of the greatest bull market stretches in history. I try to do a bit of both. I have a core of investments I literally never sell. I have additional allocations to those core positions that I allow myself to trade. Then I also have a percentage of capital that is purely for trading. It varies on a short term basis with regards to what works better. I wouldn't recommend falling in love with either strategy, just staying flexible and open minded. Earlier in the decade I made a lot more money on the buy and hold stuff. The last few years its been trading. This year in fact my core stuff was pretty abysmal, with the top 5 maybe doing half of what the S&P did. Whereas I did triple digits trading. Things like CLF did virtually nothing on a buy and hold basis, but generated solid returns via trading. MSG I held and even added to, but never sold a share, and it returned like 10% for the year. The flaw with this managers analogy with compounding, is that buying and holding is not the only way to compound capital. Not even close. I'd probably argue in fact, thats its easier to compound(ignoring taxes) just bouncing around to the highest conviction ideas. Theres something mentally, that prohibits valuation sensitive investors from ever being involved in a 10 bagger or 100 bagger. You will NEVER own a NFLX or AMZN or TSLA all the way through if you pay attention to those things. But, you can fairly easily, consistently(like on a regular basis) find ways to pick up a quick 3-5%, over and over and over again.

https://nypost.com/2019/12/31/steve-cohen-one-of-few-bright-spots-in-bad-year-for-hedge-funds/ "The average hedge fund this year is up 8.5 percent" How is this even possible? Just bouncing back moderately from last November/December should have had folks in low-mid teen return area. Would have thought for sure the returns would have been similar to what a lot of folks are posting in the 2019 returns thread. Truly incredible the degree to which "the pros" just completely fail.

Something I do, trying to capture and detail many different things of use to me both from an investing standpoint, and a life perspective, is document or remember how things happen and how I respond to them. One of the neatest is the Annual Letter to myself. We all love reading the Buffett Letters, as well as probably quarterly or annual letters from our favorite managers. It helps spark thoughts, puts things into perspective, and tracks the evolution of "something" that obviously is of interest to us. Also a great way to detail things like "am I on track with my "guidance" from previous years?" "Am I typically consistent or all over the place year to year?" "What do my previous forecasts look like and where were they right/wrong?" "What is my forward outlook?" "What did I do well, and what could I have done better?" Curious if others do anything similar.

Added a good amount of PCYO the past week, EZPW, added some CTO, got some GRIF today, and for shits, got into some $5 calls on TAST as there seems to be a reasonable chance this'll bounce over the next Q. Like last year, dont think I really need to do very much in order to do very well in Q1.

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Sitting here watching the final tickers trend of 2019, I come to the realization we all missed the most obvious one....pot stocks.

What an awesome post Castanza, thanks. In relation to your trade, this has to be one of the best posts Ive ever read on this site and should really be a nice starting point/primer for anyone looking at the framework of the perfect investor. Take a fundamental understanding of a business, watch it play out, anticipate certain catalysts, holding through speculated momentum surges, and then flipping into the crescendo. Especially impressive allowing your understanding of the share price driver to trump your itch as a value guy to bail on a richly valued security. Value, momentum, and timing=$$$$$. Hard to fuse all 3 but when done, its a beautiful thing. Well done.

Started venturing into SPCE with some puts.

To truly answer the question, we can likely deduce the average value investor is not an Uber driver but rather a white collar worker who earns a reasonable amount more than the Uber/lyft driver. Therefor, the answer is Lexus and Acura’s.

I'd echo Subaru's and also add Mazda. Both are totally underrated, high quality yet affordable cars that dont get talked about enough.

Or.....enter black swan... not unheard of in the world of professional boxing. The fight is fixed and Mayweather takes a flop, and all of our observable data points were irrelevant. Those that wagered correctly, lose big. And then you get "the rematch", which pays Floyd and Conor for round 2! Often following the money/financial incentives is pretty useful as well. In which case McGregor's weighted odds would have been higher than the ones purely based around the data set above. Which one is the correct one? If this happens 100 times, what is the distribution? Subjective and interesting nonetheless.

In which case it’s really no more insightful than anecdotes like “buy low and sell high”. Giving greater weight to your highest conviction ideas is really just common sense. But it’s also again, subjective. Buffett, Icahn, and Tepper all have different top ideas. Some will do better than others. When all else fails, look at your results.

If the inputs are subjective, and the variables ever changing, then it’s no different or more reliable than any other product or paper put together on how to “beat the market”... But there’s nothing that will ever stop the Excel sheet crowd... it has zero to do with the math being wrong or right. It has to do with calculating things that aren’t linear or regularly constant in terms of their predictability. I mean Mr. Einhorn is still absolutely convinced that Amazon and Tesla can’t possibly fit into his 476 tab spreadsheet that justifies their valuations.. a decade later. And if you ask him, the “math” is telling him he s 1000% right... Dillard’s, was an easy way to use math to make money. But you can’t openly apply that successfully without applying something subjective in determining whether the idea fits the criteria for application. And even then, there was the spreadsheet crowd, totally fixated on “they’re got bad operating metrics”. Many of these folks are too married to their own preconceived notions and incapable of evolving with the markets. It’s to their own determinant not mine...but if you’ve cracked the markets with some mathematical formula.... more power to you.

The difference between the blackjack cheat sheet and applying some mathematical cheat sheet to the markets is that the markets are always changing. The 52 cards in a deck don’t. One persons 42% odds are another persons 66% odds in the stock market... and both can be wrong. Whereas a 9/4 against a face card has the same “odds” every time. I’d also add that even an indisputable %/odds(which is rare if not nearly impossible by itself) can change instantaneously, because of some black swan event coming out of left field, rendering the entire premise useless. Such as the for profit prisons a few years back. Over reliance on tone deaf/non malleable mathematics is probably the single greatest area of stealth wealth destruction for otherwise generally intelligent folks in the stock market.

Investing is just intelligent and disciplined speculating. Nothing more, nothing less. There is a thread of the wager inherent in any opportunity. If there wasn’t there would be no variance in rates of return. The Kelley criteria is no different than any other ideological framework. Choose and apply as it suites you. No successful market participant should be married and/or permanently divorced from any specific strategy.

Great decision buying AMD. It continues to surprise me how some (only a few) companies can re-invent themselves. My son (who is in grade 12) alerted me about 2 years ago to what was going on at AMD; he and his buddies are into technology and he explained to me that AMD was a company on the rise. Alas, i was too busy thumb sucking to do anything about it. I use it as an example with him to how small investors can do well if they do what Peter Lynch advises: take advantage of what you see in your circle of competence. I was quite torn about selling it since my cost basis was so low. I like the management team and what they’re doing. I think they have been executing very well. Solid products, good growth in multiple segments and a really solid pipeline. But the valuation has gone bananas. 200+x earnings is too rich for me. But I’m definitely looking for another entry point. It’s hard to say whether this will trade at a fair value anytime soon. Thanks Excellent trade. What made you choose to sell at 200x rather than say, 150x? I am just curious because one area I would like to improve on is with handling these "non circle of competence" buy sell decisions. I can look at a real estate company and say, Im selling at 5% discount to NAV; easy. But holding AMD from 10 to 47 or whatever obviously involved some sort of valuation work and discipline. And like I said, since the earnings multiple was never really all that traditionally obvious, I am curious your thought process; if you dont mind sharing. Also, if you wanted to hang on or rebuy, in the future you can just utilize shorting long dated calls. If you wished to one day repurchase AMD at 30, just sell something like the January 2021 $30 call for $18-19. You get a little extra premium on your sale, are position neutral with no tax obligation yet, and if your bearishness is warranted you then just cover the call position into the decline effectively putting back on your long position- STILL with a long term basis.

Added to NFLX puts, shorted some WING, and put back on a small bit of BYND short.

Merry Christmas all.

GOOG is a whole lot closer to FV than where I bought it ((~$1050 blended). I sort of try to reduce positions when they approach fair value, although with GOOG, it’s a tough call. CTVA is my 3rd round trip this far. Yea IDK. I just dont think you can really ever get a "fair" value on something like that. Its one of the largest companies in the world, and covered by everyone. IMO on a relative basis its probably pretty efficient in terms of how its priced. So you dont ever really have an edge. I remember David Winters saying it reached fair value and selling(a guy with like 2% portfolio turnover) at like $1030, a few years ago. Now its $1350. To me, or at least what I tell myself, if that its an irreplaceable business, that should do better than the market on the way up, and hold up better on the way down. As long as it trades at a price I can cross a few bridges to rationalize, I dont ever see myself selling it. Just buying the dips. One of the few securities in my portfolio I have in that category.

Exited all but a few remaining shares of TPL. Love the company, but high 500s to almost $800 in a couple months works for me. Agree its probably wise to lighten up GOOG too, but I am incapable of selling it. Same goes for MSG.