Red Lion

I use Schwab and my wife uses Fidelity. I like the layout at Schwab a lot more than Fidelity. I also have commission free trades on treasuries at Schwab. So all of my cash is in short term T-bills yielding 4.5%+ at Schwab. They send an email and give a mobile app notification whenever your T-bill is about to mature, so it's not very hard to get on and reinvest the proceeds commission free in a higher yielding risk free alternative.

Sold $40 July calls on my BAM shares. Not getting a huge premium, but it pushes the dividend yield up to about 7% annually. I'm willing to let go of my BAM shares at $40 even with the short term capital gains since this would be essentially a 27+ multiple on forward earnings when competitors like Blackstone can be bought for a big discount.

I find your analysis very thought provoking and insightful on the macro. Thank you.

If 10 year yields go to 4-5% for a sustained period of time, it seems like stocks would still be a better place to ride the out compared to long term bonds since they should have decent earnings growth as things normalize. I don't think it's an issue of convincing a cohort of retirees to come back to work (short term solution). I think it's not farfetched at all to say that AI and robotics are going to have to play a roll in what comes. The demographic situation is very different going forward with a larger retired population and fewer productive workers, and I think this is showing itself in real estate prices, certain service costs, etc. If services inflation persists, the ROI for implementing AI and robotics to improve employee efficiency also goes up. I don't invest in AI or robotics short of some stock in GOOGL and AAPL, but I sure would like to if I could understand it. In California they're talking about raising minimum fast food wages up to $22/hr. I think the economics are really going to start making sense in some of these situations, which is good, maybe those fast food employees can go to work in home health care or construction, which is where society needs the labor right now I would say.

Long term government bonds seem like a great choice as I’m sure there will be QE3.0 if we do end up in a deflationary environment.

I followed you in on this one and have some in the money June calls as well.

Bought back my $78 June BX puts for a nominal profit. I still think these offer a pretty good risk:reward, but since I wrote these I purchased enough stock to make BX a full position. With this purchase I currently purchased back all of my short put positions which were a nice source of profits over the second half of 2022. I have a big chunk of money in t-bills I expect to use in a real estate acquisition and renovation, but otherwise I'm now pretty well fully invested other than an employer match in my retirement sometime in the next couple months.

Could you tell us more about the private lands deal? Is this a private fund type of investment or are you actually buying the land directly?

When I first started investing around the GFC I bought shares of vanda pharmaceuticals since it was a net-net. Sold for a 50-100% gain to whoever had received leaked information only to have it spike 20 times in the following weeks. first of several ten+ baggers I missed out on in the aftermath of gfc selling too soon.

A proud parent can always dream. Maybe I get some options in the management company…

My toddler has Canadian citizenship and is looking for bargains if this tanks the market.

Added APO.

Starter position in AAPL about 1.5% of my investment portfolio. I don't think it's a great valuation right now, but I made a mistake selling AAPL many years ago after a nice short term return. I plan to hold this long term and add a lot if we get a pullback to a significantly lower valuation.

Bought back all my puts except BX. GOOGL MED ESS AVB

I read the Intelligent Investor and Security Analysis around 2005/2006, and I feel like I got a different understanding of the term "net-net" and wonder if I've been all wrong this whole time which is why I can hardly ever find them. I thought net-net was where the: working capital - all liabilities (short and long term) is a positive number higher than the market price of the security. So cash + inventories - short term debt - long term debt. Are you not counting the long term liabilities in this calculation? Not saying you're wrong, maybe I've misunderstood the net-net all along.

Thank you. Northern California between Sacramento and Redding. I think houses are still overpriced here and heading down, the local economy is not super amazing and the median house is about 8X income here. BUT, this place is selling at way below replacement cost. On acreage right outside of town with a nice size house and an ag well. It would cost $850k+ to buy something like this and probably $1.2 million to build it including the land and well. I'm hoping to do a complete remodel before moving in and be out the door for under $650k. If this was a pure investment I probably would wait, but I'm so incredibly ready for a better place that satisfies more of my personal needs (proximity, house size, storage, land to have privacy and do whatever projects or hobbies I want), and I think this place will work out perfectly after the remodel is done. Hoping to get a decent cash out refinance at some point, because I don't want to leave a big chunk of my capital tied up in a home, but I do think the cash offer enabled me to get a better price on this place.

+1 on KKR. Not sure if it’s going to be this year or next year, but I feel like one of them is going to be a monster for KKR and you make money buying here for the medium to long term. The valuation is very low, and while the business is very PE heavy they are quickly building their infrastructure, credit, and insurance business. They have a big Asia franchise which I think is a bit competitive advantage and they have a big growth runway on Asia strategies ex PE.

I'm a first time homebuyer right now. I waited way the hell too long to buy a house due to a lot of personal reasons and some just plain stupid debt aversion at better times to buy. I'm under contract in my inspection window on a place for all cash at 35% less than last year's Zestimate. I do think this can be a good time for first time buyers, but only if they have a big slug of cash and can shrug off these interest rates for a few years until an opportune refinance zone materializes. I think buyers need to look long and hard for a good realtor to accommodate making low offers. I fired the first several I worked with because they would all just say to pay asking or close to asking price. It's crazy how much things have changed in just a few months in the housing market.

+1. I live in CA, often daydream about leaving, and it always amuses me the shock and horror I see on people's faces when I mention the thought of leaving to another state. These lifelong Californians think the rest of the country is like Venezuela or something, when we are the ones with rampant homelessness, drug use, crime, and an insane cost of living. The winters are pretty nice, I'll give you that.

Amazing. Congratulations on a monster year when it really counts.

To be fair, the IPO was in mid 2007 right before the collapse. The market was quite excited to see BX IPO (when the fed funds rate was north of 5%) and then the stock just got completely gutted over the next couple years. BX went on to gain it all back and then become ~7 bagger from IPO price to the peak, plus payout more than the IPO price in dividends. BX literally IPO'd with great hype based on the historical figures of 5%+ on the federal funds rate. Also, BX is far more diversified and earns a very healthy percentage of its income from FRE. I think it's fair to see BX trade at a lower multiple of Distributable Earnings, but at the bare minimum the business should be worth 20X FRE with the carry for free. This would put it at $86 based on trailing FRE. I believe this is a very conservative valuation, but that's around when I started backing up the truck, because I don't like paying for carried interest.

In my taxable account my return is just -0.8%. I entered the year with a lot of cash, still have a large amount of T-bills, and mostly bought on the way down, had some hedges and a couple long positions that worked out, but most did poorly and would have done a lot worse if I hadn't added to positions at the lows. This is a low 7 figure account. My 401k that I just started last year is down 26%, fortunately there's only about 60k in this account. My business has a large mid 7 figure beneficial interest in PCG stock which rocked it out this year with a 34.7% return. When factoring in the PCG stake I actually had a very nice gain this year, and am overall pleased with everything but my 401k performance. At least that's the smallest account, and one I'm not going to touch for 30 years or so.

Agreed with Gregmal. Also, these GPs have been through many cycles with good and bad investments along the way, and there hasn't been any crippling litigation or anything. I'm actually in the business of suing large corporate defendants for my day job and belong to organizations of trial attorneys that do the same, and I am pretty sure the GP's are not on anyone's radar in terms of big pending litigation. There's always a non-zero chance of litigation, but the GP/LP structure has a LOT of jurisprudence behind it, and I think it's probably going to take a case of outright fraud to make a good case. There's always the breach of fiduciary duty type causes of action, but like Gregmal says they've usually setup pretty ironclad contracts governed in pretty ironclad jurisdictions. Some of the biggest exposure to litigation is with the biggest and most blue chip of all like JNJ, MMM, PG, etc. But even if one of BX's LP's subsidiaries manufactured forever chemicals and faces huge liability, BX is likely legally insulated. So I would argue that in some ways BX has a more resilient business model less prone to serious litigation than a lot of multinational corporations.

I'll keep it short, there's a lot more analysis on this and similar companies in the Brookfield thread and there's also a Blackstone thread lurking out there somewhere. Obviously this is all my point of view and maybe I'm totally wrong, wouldn't be the first time, that's why I set 5% position sizes. BX is the leading alternative asset manager. It was founded in 1985 with $800,000 according to Schwarzman's autobiography and has been one of the great success stories of the last 40 years. The business model is that Blackstone is the general partner to myriad limited partnerships. The GP typically gets paid management fees and carried interest on the different funds. The management fees are incredibly sticky, predictably, and as long as BX continues to start new strategies and grow its existing strategies, the management fees will continue to grow at a healthy pace even if there's a downturn in the markets. BX is well diversified, so it's not just PE, it also has the biggest real estate business in the world which is mostly focused on industrial and multifamily. It also has huge credit and infrastructure businesses. BX has just under $1 trillion in fee paying AUM which is about 2X the size of its biggest competitor. Will 5 or 6% interest rates be a drag on BX compared to ZIRP? Sure, I admit that. Will 5 or 6% interest rates kill fundraising in its tracks? I think not. BX is adding new strategies, and has had enormous success with fundraising in real estate from retail investors. This fundraising (BREIT-retail) has slowed, but only after an amazing run. This same strategy can be rolled out with other products. BX is asset lite and earns an insane ROE, doesn't need its own capital to grow. It has a net cash balance sheet. BX pays out 85% of its Distributable Earnings as a variable dividend. DE = FRE + carried interest + disposition gains. Carried interest and disposition gains will likely be down for the short-intermediate term while rates rise, but as long as BX continues to raise AUM, it has more and more carry eligible capital which is setting us up for record carried interest on the other side of this cycle. More importantly, BX can be purchased today for less than the value of its FRE, and you get carry and disposition gains for free. BX did $4.29 per share of FRE in the last twelve months and is trading around $75. So this means BX trades at 17.5X its Fee Related Earnings. FRE will almost certainly continue to grow at high single digits or faster with an 85% payout ratio. Then you get the carried interest and disposition gains which will likely be substantial on the other side of this business cycle. https://www.blackstone.com/wp-content/uploads/sites/2/2022/10/Blackstone3Q22EarningsPressRelease.pdf

Bought a little bit of BX with the small amount of cash I had in retirement account. This is essentially a full position for me at about 5% of my liquid portfolio, but I added 20 basis points, I think it's a real bargain here.