Myth465

Thanks Uccmal. This is how I use them. As cheap leverage, or when I have a catalyst (Deep Water Horizon being the best example). What do you think of Leaps with High Yield? I notice when a stock is high yield the leaps trade with no premium. One can buy them and make an extreme amount of money with a relatively small movement. SSW and options on many of the MLPs a year or so ago would have worked well, and my guess is leaps on FTR will work extremely well. The stock is at $9.6 and should it trade to $12 by 2013, I will double my money. The yield is 8%. I think it will move down to 5% should the low interest rate environment persist for much longer. ---- I am getting more and more excited about them, and have also noticed that they allow me to hold alot more cash and not give up so much in the way of return. One can also trade down on them during a selloff and not have to worry about a wash sale due to buying different strike points. I see many advantages to stocks, and only 1 disadvantage - you have to get timing right, or buy a cheap enough leap that it doesnt matter.

This guy knows his stuff. Lol even down to the Gates part. Gates said its his duty to watch over Berkshire until .... I guess giving a man $50 billion kinda makes him feel like he owes you something.

I sold a tiny bit to buy something else and we are up over the last few days. You guys owe me. I hold a decent chunk of FBK and its surprising that we are so cheap. When do you guys see this happening, I see it being quite cheap. I would honestly take $2 - $2.50, and believe most shareholders would be happy to be done with it. FBK doesnt seem to respond to much of anything so it makes it hard to really hold based on fundamentals. I think most holders have thrown in the towel and would like to have the capital to put in other things, especially considering the massive rally over the year in pulp and in the general markets (perhaps im really just speaking for myself).

Investor 2 - Sounds like Mike Burry Like Investor 1, he was also a doctor, taught himself investing in his spare time (do doctors have spare time?), and launched his fund in Nov. 2000. Since then, it has risen 146% vs. -18% for the S&P 500. Like Investor 1, he too invests in a highly concentrated fashion, but does a bit more short selling (largely replaced today with a very large position in credit-default swaps). http://en.wikipedia.org/wiki/Michael_Burry --- Investor 5 - I would guess Bill Ackman Another MBA, he just started his own fund this year, after many years as a principal of another money management firm. He grew up in the real estate business, so some of his best investments are in this area. Unlike the other managers, who prefer to keep a low profile, in a few cases he has been an activist investor on both the long and short side.

Ya its a trap. New mines will crash prices, but they will come online due to politics. Aside from that it had all the properties you alluded to. Vital, great margins and high returns but insignificant to total cost of goods (it costs something like .001 for the metal that makes a cell phone vibrate), and very little other interest in bringing on additional supply due to it collapsing the small insignificant market. China inmo kinda screwed up, there will be new supply now because its now viewed as strategic by the US and Asian allies. I would hate to have been the guy who owned the rare earth mines down there, hopefully they are state owned.

Very interesting returns Boaxiaodo. I have never seen any of those names, will have to spend more time looking overseas at some point. I really dont like the moves in oil. I feel like there is a legit supply demand issue coming but this is all a bit too fast. Being in Houston you have to feel glad about rising oil prices, but man are we moving. Drillers are ordering rigs, M&A is picking up, and it seems like the boom is back on. I am seeing wierd $120 predictions also. QE2, and a lack luster world wide recovery appear to be driving up speculation. Its been nice for my port, but I am now grossly overwieght and will have to start trimming. Hopefully my timing is better than last time ;).

Sounds similar to what rare earths were before the big China incident. The perfect business is always a small monopoly. With that said I have no idea.

I am looking at event driven value investing if there is such a thing, and am really digging into Leaps and longer data options (maybe 8 months). How do you all use them? So far so good, my only issue is do I stay near the money, deep in the money, or out of the money. I am a pessimist by nature so even if I think something is worth $60 and its trading at $20. I want to make money if it hits $25 - $30. This usually leaves me slightly out of the money on 2 year leaps. Am I missing something or leaving alot of cash on the table buy not going a bit further out on the risk curve.

Spin very interesting first post. Seems like you rarely swing but when you do its a nice one. Do you think China and Oz are joined at the hip? Also do you think the miracle economy is eventually due for a correction?

The more I think about Realty the worst it looks. I love REITs but with personal or commercial realty you need massive leverage and price appreciation to really make money. Stocks dont call with broken toilets.

Thanks Scorpioncapital. I have decided that you are right. I will be repositioning my portfolio to 80% Deep Value, 5% Owner Manager (I plan to put about .5% in each stock for tracking purposes and will move in big when they are significantly undervalued, right now its about 2.5% of my portfolio for 5 stocks (I dont think any of them are doubles currently)), and hopefully about 15% cash by the end of next week. Hopefully I know what I am doing.

What if the price of LUK collapses and you are stock with the stock, also what if you want to move the funds to another stock? Those are the major risks I see.

I feel old but am relatively young (27). Rmitz is correct, I am not built for the rat race, and would like to exit sooner then most. I will continue working, but its nice to do something by choice vs. having to do something. John Maynerd Keynes - In the long run we are all dead. Newton - For every action there is an equal and opposite reaction. Myth - For every Buffett quote, there is an equal and opposite Buffett quote. One has to keep in mind the context. Buffett - If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that. Now I am no Warren Buffett (probably shouldnt even be mentioned in the same book, let alone on the same post or page), but I didnt bother learning all this for 15% on a low six figure portfolio. As I said before I hope to have the high class problem of having to put large amounts of capital to work. I believe you are on to something. Originally it was a hedge against ignorance. Now its more of a historic thing. I will need to noodle on this one a bit. You have a point, either one knows what he is doing and invests his own cash or he doesnt....

I was trapped in 3 different airports and forced to watch CNBC. It seems like everyone and there mom has gone crazy for stocks. I am enjoying the rally like everyone else, but believe its time to cash in some chips. Our situation in the US is improving, but our problems are real. They have been sweep under the rug in my opinion and its hard to walk around the house without tripping if you have a lumpy carpet. The Economist even ran a few articles on the Jan 1 issue questioning the recovery / bullishness. Thoughts?

Thanks for so many high quality replies guys. I should probably clarify. I have been gone for 2 weeks (had to get away and kill a few braincells) and upon my return things look great. Everyone is talking about how we have had 2 years of double digit returns and many expect the same going forward. All I hear about is tax cuts, record cash at the corporate level, and an up market. I do think the recovery is real, but I dont think the hype is. One shock to the system and we will head down, and we have several predictable shocks being set up (muni bonds, sovereign debt (EU, US, Japan), commercial real estate, upcoming fight over debt ceiling, political gridlock, oil price shock). Once a muni defaults I predict we will see mass hysteria until the state or feds bail it out. Anyone of these will cause a change in sentiment and apply downward pressure to stock prices. I also hold quite a bit of oil and gas stocks. I like my stocks but dont like the hype surrounding $90 - $100 oil. I think oil should be about $80 or so, and know my stocks will get hit when oil finally moves back down. The stocks have particular catalysts which are independent of oil and gas prices. Over the last 4 years I have basically trained myself to worry when I hear happy talk and to be happy when things go down. Its interesting. The solution inmo is to raise cash on the rally in preparation for the pullback. Considering my size, the best hedge inmo is to sell. ----- Zorro here was the original plan. I am finding that most of my returns are coming from Deep Value, while a huge chunk of my capital is trapped with owner managers. Between ATSG, SD, and ATPG. I have done quite well. There were a few dudes in Deep Value, but most of the leaps have worked out. I plan to allocate 40%-70% of my investments into a small, but diversified basket of Owner Managers who have skin in the game and cash on hand. I am hoping that these investors will act as a counter cyclical force during Market crashes. I believe they will have the skills and capital (FFH, BRK, FUR, Loews) to expand their businesses by making great deals, buying chap assets, and expanding market share during a downturn. They should also do better then cash in up years. I next want to invest 30%-60% of my assets into a diversified basket of deep value high reward securities. These securities should be of decent quality, but should have an attribute that has the potential to lead to outsized returns. They could be businesses experiencing extreme stress (ATSG with DHL at 11 cents or SFK), be highly leveraged (URI during the market collapse), deep discounts to book value (CNA and FFH (with CDS) due to misunderstanding), or could be Leaps with a catalyst (FFH, ATPG). These securities may be riskier then the owner managers, but should deliver outsized higher returns. Finally I want to have up to 20% of my total portfolio in cash on hand for downturns. ----- Scorpion I am small and had a good 2010. I feel like that duck moving up in the world though, have to keep in mind everyone had a good 2010. ATSG and Oil during the moratorium (via leaps) inmo were easy 100% returns. I think Mr. Market will deliver a few of these to us each year. I trust Prem will get his 15% but not too much more. Size eventually weighs us all down. Its a problem I would like to have though. The owner managers serve another useful purpose. I see myself as a business man of sorts and have learned more from the crop of 10 managers I follow than any book. I have done well in FFH and ORH, but Prem has helped me compound quite a bit of money in insurance. FUR has given me a firm bit of knowledge when it comes to real estate, which will be useful as I buy other REITs and eventually property. Not sure I would pay so close attention if I didnt own shares, which is why I am leaning towards a token 1% holding if the shares are fairly priced. ----- 15% is great but wont make me rich, or will make me rich quite slowly. I am quite sure L, FFH, BYD, LUK, and a few others are good for a lumpy 15%. That will include several years of 0% and a few years of 50%. Out of all the investors I admire, my favorite would have to be Ericopology and the Cornwell capital guys. I have done nothing but loose money on leaps, but am turning the corner with respect to timing / catalyst investing. As of now the only way to raise cash is to clip my owner managers or clip my winners mid catalyst. Both seem like crappy choices, but perhaps there are worse things in life.

What do you guys think. I have 2 sets of stocks in my portfolio. Deep Value plays and Owner Manager plays. I planned on holding my owner manager plays for the long term, but find myself rethinking this strategy. Do you all buy and hold looking for a steady eddie 15%, or churn and burn based on valuation. At this point the lion share of my gains is coming from my deep value holdings, while a significant chunk of my capital is stuck with owner managers. I believe these managers will deliver 15% per annum but also want to do much better than that. Currently I have 3 options. Buy and sell based purely on Value. Buy and hold companies led by skilled allocators as long as they arent overvalued (currently doing). Hold a token position in Owner Manager companies to watch them, but continue to deploy 90% of capital based on valuation. (leaning towards this, already have done with FFH, and will be buying more when I see a catalyst or turn). I guess my biggest issue is I think this may be a fools rally and would like more cash. I like my deep value holdings, and can only really see myself selling some owner manager holdings which appear to be dead money for now (Loews, maybe FUR or FFH). What do you guys do, think?

Why not wait until the collapse?

Parsad I agree with everything you wrote, except for your thoughts on rap.

I was referring to when Buffett said the Berkshire buyback offer came in short. That pissed him off and he bought the company primarily to fire Management. Funny story. ---- By 1964, he had a relatively large position in the company. When he visited with management they told him they had just sold some more mills and intended to use the proceeds to buy back stock. Buffett told management that he would tender his shares for $11.50. It appeared that he had struck a deal at this price. A few weeks later, Buffett got a tender offer from Berkshire Hathaway - at $11 and three eighths - or 1/8 less than what he had expected. According to Buffett, he had been "chiseled for an eighth." He explained, "I would have tendered my stock. But this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton (the company's CEO)." Read more: http://www.benzinga.com/media/cnbc/10/10/529818/buffetts-biggest-mistake-buying-berkshire-hathaway#ixzz19WqmJCGy ----- A blind squirrel could poke around the insurance patch and find a cheap nut. This smacks of pride to me but to each their own.

Like him or not (im not a fan) I think the man deserves an answer from the Freemont board. I think this has more to do with pride than valuation. Buffett made the same mistake with Berkshire though and it worked out for him. I still dont see what some of you guys see in him. Just goes to show that I need to enroll in a few writing classes prior to doing anything public.

I dont think locking yourself in a library and reading for years is the right approach. At the end of the day you will need to think. You are essentially making a very educated bet, handicapping a few variables with each investment. You get paid if you are right, and go broke if you are wrong. I learn the most from others mistakes but still make a few mistakes myself. I would honestly read the LUK shareholder letters and annual reports starting from year one. After each year I would make a basic projection about the key operating businesses, and would read the next year to check and see if I was correct. LUK has owned banking, insurance, and manufacturing businesses so its a gold mine inmo. At some point you have to learn how to think. Thats just my 2 cents, and its overpriced.

I am a fan of Tim Ferris. Here is another interesting video on taking 1 year off every 7 years.

I agree they have a moat only government can touch :D. My issue is they are overpriced and we need those earnings. They will take a haircut which will push down the E on that PE ratio. It will be made up as the pie expands but I dont want to hold a MSFT or WalMart which is overpriced and does nothing for a decade while it adjusts.

I thought something like this would happen, http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2665.0 I usually bet on big business against big government, but this is big business vs big business. Retailers like WMT dont want to pay 2% on transactions when their margins are razor thin and they provide more value. They would prefer to pass the savings on to the customers so that they have more left over to buy more. I dont know what a fair percentage is for credit card and debit cards but feel it will go down overtime. Once it gets to where it needs to be Visa and Mastercard will have great moats. They should be regulated utilities basically inmo.

Einhorn says the same things. I dont think anyone takes the ratings agencies seriously, but some institutions dont have a choice. They have to hold a certain type of paper or used to at least.