ValueArb

Looks like an opportunity to short ARKK again has passed, it's back trading in the $35 range from a peak at beginning of August at nearly $50. Cathie can console herself that she is still up nearly 20% on the year, given that Dec 2022 ended at ARKK's five year low just under $30. It's not the tech stocks, I compared her chart to the QQQ, and it is up far more this year and its decline since August is far less. Thats been the norm since Cathie's hot year ended in Feb 2021, the QQQ has done far better than ARKK in almost every period.

Interactive Brokers has an accumulate tool where you can have it slowly buy small numbers of shares at intervals throughout the day, and limited to specific ranges you specify, such as just above bid up to a max price.

The last 60 years the ten year treasury has an average yield of 5.9%. Given the massive increase in federal debt and deficits we are running, I'm looking for at least 8% in the next five years.

The US actually built 117 carriers during WW2 vs Japan 19 carriers if you include “jeep” carriers. https://en.m.wikipedia.org/wiki/Aircraft_carrier_operations_during_World_War_II

Humans really shouldn’t be classified as Homo Sapiens, that’s an title of pure hubris. Instead we should be more correctly identified as Hominidae Patternia Matchius. We are simply apes that discovered how to predict the future, imperfectly, from patterns in data. And once we find useful correlations we tend to ride them until long after they stop paying benefits and only stop when it starts beating our faces in. As rates fell over 40 years shortening durations kept paying off so profitably that by the time rates started to rise there had to be huge institutional inertia against issuing longer dated treasuries. Everyone who had ever argued for longer durations in fear of higher rates in the preceding decades had been repeatedly revealed as chicken little fools. They were likely marginalized while the reigns of power were probably mostly populated by those who made their bones arguing for or agreeing with shortening durations. They were likely seduced by the siren song of temporary inflation means temporary rate increases, the song they wanted to hear. Even now, the assumption is rates will fall over time. If inflation isn’t dead and rates continue higher in the next five years we may think wistfully back to this year remembering the US missing the opportunity to lock in more 30 year treasuries at “only” 5%.

great points.

March 16, 2022 the S&P closes at 4,358. The next day the Fed made its first rate increase to 25%. Today the S&P closed at 4,224 with Fed rate 5.3%. Down 3% in a year and half (not counting dividends) while interest rates up by 5% in probably the fastest increase in history. To be honest, I think the market has done pretty well all things considering. Now you could argue the rate increase expectations started in December when market was over 4,600 and is really down over 9%, but even that should not be considered too bad.

https://www.bloomberg.com/news/articles/2023-10-17/top-japan-fund-bets-english-disclosure-to-lift-small-cap-shares?srnd=null A top-performing Japanese small-cap fund is betting that pressure on companies to provide financial information in English will help spur demand for shares that foreign investors tend to avoid. Gesiuris Asset Management’s Marc Garrigasait, who manages the Japan Deep Value Fund FI from Barcelona, got a head start by side stepping domestic brokers for information and spending months studying translated material to help find undervalued firms with liquid assets. This year it’s enabled his fund to beat 97% of its peers, according to Bloomberg data. “When we analyzed all these annual reports translated to English, that’s the moment that we said, ‘wow, this is incredible, we will launch a fund,’” said Garrigasait, who started Japan Deep Value in 2016. An improvement in transparency may help revive foreign demand that drove Japan’s stock market to multi-decade highs earlier this year, partly thanks to improvements in governance. While many foreign funds remain bullish over the long run, they have taken profit in recent weeks as the blue-chip Nikkei 225 Stock Average slid on concerns over the risk of higher US interest rates and an economic slowdown in China. Garrigasait’s currency-hedged fund has climbed 22% this year, more than double the Topix’s return in euro terms. He focuses on firms with ample free cash flow, little debt and a traditional business model that is easy for investors outside of Japan to follow. His $37 million fund has its biggest stake in Shinnihon Corp., a construction company that’s up almost 60% this year and has foreign ownership of less than 20%, according to data compiled by Bloomberg. ... Tokyo’s bourse operator said last week that it discussed mandating firms that are popular with overseas investors to provide English-language material. Less than half of the firms with a market cap lower than ¥25 billion ($167 million) offer investor relations presentations in English, compared with more than 80% for firms with a size of at least ¥100 billion, according to TSE figures.

Here is one example of how misguided the article is. It devotes paragraphs to anecdotes about his investments in airlines, consolidation, increases in fees, claims from a single study that fares are higher on consolidated routes and a man who refused to leave a plane when asked. Yet in 2018, the year this was written, United had its lowest profit margin in four years and its return on equity had declined 5 years straight. American airlines had its lowest operating margin in five years. Both had declining returns on invested capital over previous four years. Not compelling evidence that consolidation was driving higher fares and profitability. And the author even quotes the most important Buffett quote at the beginning of the airline section, that he would have shot down the Wright Brothers if he knew what industry returns would be. A better analysis would be to compare profitability and returns on capital for airlines by decade, but the author doesn't have the understanding or critical thinking skills to build that comparison. My guess is that it would show increasing ROC and margins for the mega airlines for the 2010s over previous decades, because that's why Buffett changed his mind upon investing in them. Then the author actually has a supportable (but still weak) case that consolidation is bad for consumers. The reality is that airlines have to make reasonable profits or they won't stay in business. The counter argument is that historically investors didn't understand the high capital costs and continually gave airlines funding they didn't deserve, and got poor returns for their ignorance. After deregulation in the 1980s investors funded massive growth in airlines and fares plummeted below the cost of capital reinvestment. Those poor returns may have translated into slightly lower prices for consumers, but are unsustainable. A decade like 2010 was inevitable, where pricing finally returned to reasonable levels to support the massive level of capital reinvestment the industry requires. And guess what happened after this piece was written? In 2020-2021 airlines took such massive losses that they nearly wiped out all of the profits from the 2010 decade, and Buffett exited all of his airline positions with his own large losses and hopefully a renewed vow to rejoin air-acholics. This misguided static view of dynamic market economics is echoed in todays DOJ suing to block Jet Blues purchase of Spirit (#6 buying #7, becoming #5) saying "consolidation bad" and that Spirit's ultra low fares will disappear (while seemingly ignoring the fact that Spirit also charges $100 more in fees per ticket than any other airline while cramming customers into the smallest seats of any airline). Spirit has lost $1.5B over the last four years growing its business rapidly by underpricing its fares, how long can it continue to charge those fares? Only as long as shareholders and banks are willing to give it money.

Yea its a bunch of half sourced innuendos and anecdotes. Buffett is clearly not perfect, as he is a human being, but their criticisms are based on complete misunderstandings of what Buffett does and why, and even how investing works. For example, its pretty clear Warren Buffett never bought a share of Verisign, that was such a small position it can only be either a Ted or Todd purchase. What points resonated with you enough that you felt they were valid?

https://www.bloomberg.com/news/articles/2023-10-17/top-japan-fund-bets-english-disclosure-to-lift-small-cap-shares?srnd=null A top-performing Japanese small-cap fund is betting that pressure on companies to provide financial information in English will help spur demand for shares that foreign investors tend to avoid. Gesiuris Asset Management’s Marc Garrigasait, who manages the Japan Deep Value Fund FI from Barcelona, got a head start by side stepping domestic brokers for information and spending months studying translated material to help find undervalued firms with liquid assets. This year it’s enabled his fund to beat 97% of its peers, according to Bloomberg data. ... Tokyo’s bourse operator said last week that it discussed mandating firms that are popular with overseas investors to provide English-language material. Less than half of the firms with a market cap lower than ¥25 billion ($167 million) offer investor relations presentations in English, compared with more than 80% for firms with a size of at least ¥100 billion, according to TSE figures.

The Jimmy Zhong story is much better, an almost perfect crime by an almost master criminal who made one mistake he should have know better than to do. https://www.cnbc.com/2023/10/17/crypto911.html In 2012, someone stole 50,000 bitcoin from the Silk Road, an illegal dark web marketplace. Over time, the value of the stolen bitcoin skyrocketed to more than $3 billion dollars and for years it remained one of the biggest mysteries in the world of cryptocurrency. Almost a decade after the 2012 hack, the thief made a critical mistake that allowed the IRS-CI to crack the case.

Criminals never learn the lack of anonymity problem with crypto, which I think is both good for crypto and society. If I started my own "hit man" web site that required crypto deposits for hits, and just turned in everyone who made a deposit, am I doing a good thing, or a great thing? https://www.justice.gov/usao-ndga/pr/doctor-pleads-guilty-dark-web-murder-hire-plot On April 18, 2022, while in the Northern District of Georgia, Wan accessed a dark web marketplace from his cellular telephone and submitted an order to have a hitman murder his girlfriend. The order included the victim’s name, address, Facebook account, license plate, and car description. In the order, Wan stated: “Can take wallet phone and car. Shoot and go. Or take car.” Wan then electronically transferred a 50% downpayment of approximately $8,000 worth of Bitcoin to the dark web marketplace. Two days later, Wan messaged the marketplace’s administrator, stating that the transferred Bitcoin did not show up in his escrow account on the site. The next day, the marketplace administrator asked Wan for the Bitcoin address to which Wan had sent the payment. In response, Wan identified the Bitcoin wallet address and provided a screenshot of the transaction. When the administrator said that the address Wan provided was not in their system, Wan replied, “Damn. I guess I lost $8k. I’m sending $8k to escrow now.” Wan then electronically transferred an additional Bitcoin payment worth approximately $8,000 to the marketplace. … About a week later, on April 29, 2022, Wan electronically transferred another payment of approximately $8,000 worth of Bitcoin to the dark web marketplace to ensure his escrow account contained the total required to complete the order. ... On May 10, 2022, after the value of Bitcoin dropped, Wan electronically transferred another payment of approximately $1,200 worth of Bitcoin to the marketplace to ensure his escrow account still contained the total required to complete the order.

Doesn't this mean that sending Ukraine ATACMS is actually saving the US money? I mean these had to be close to the age of disposal, which isn't cheap. Sending them to Ukraine got them disposed of for free;)

I don't do quantitative investing, so I have no idea what variables you can tweak and what filtering you can apply to come up with a fund following algorithm that has a long history of outperformance. I just see too many complexities and friction from my vantage point. This is why I'm also skeptical on even reading other investors 13Fs, not only the long informational delays but the differing goals/objectives between my portfolios and theirs. For example, I have no interest in what Buffett is buying, he's forced to buy megacaps and Ted/Todd are forced to buy large caps, I can buy anything and feel there is likely far more higher return opportunities in small/micro caps where stocks aren't liquid enough for the vast majority of professional funds. But that said, I would be interested in access to positions in funds that focus on small caps and microcaps, but never for any automated formula. I'd only use them as suggestions to do my own investigation of, just because some of the best funds all own something doesn't mean they are right about it or did their research properly. If its a mistake I want it to be my mistake and learn from it. If I can't understand why they bought it, let them make the profits, I'll skip it until I can develop a thesis on it that justifies buying it. I get the allure of automation coming up with a "Magic Formula" but I'm skeptical about finding any. Even Joel Greenblatts basically fell apart in the US market as soon as he publicized it. Probably too many people trading the same ideas, or it could have been a lucky pattern in the data that persisted for a long while but eventually reverted to normal.

Some good Ed Thorp investment stories. He certainly wasn't a one trick pony, his curiosity to learn and understand new things must have been off the charts. https://miltonfmr.com/ed-thorps-remarkable-journey-from-beating-casinos-to-dominating-wall-street/

Sometimes there is a great deal of downside protection moving money from management's pockets to yours.

I think the problem is that you're getting the worst of it due to market price flows. Lets say you find the most popular position X in midcaps based on the latest months database. So you add it to your portfolio. Then eventually one month you find its no longer a top 5 midcap in the database, so you sell it. Problem is you bought it only after a bunch of funds bought it, and only sold it after a bunch of funds sold it. So your purchase basis is likely to average out significantly higher than those you are coat-tailing, and your sales prices are likely to average out significantly lower than theirs. The performance margin for average market beating funds vs. the indexes are likely to be narrow enough that that your worse purchase/sale prices are more than enough to drop you below index returns. And this is assuming you can get timely monthly data. In the US trades are reported on 13Fs anywhere from 45 to 125 days after they happened in previous quarter. So data is likely to be very stale.

Not sure I understand, are you saying buy top 5 most popular in each size category among all global funds and insiders? And where do you get the data? My only comment so far is to say one year isn’t enough to give a lot of confidence.

https://www.wsj.com/finance/investing/carl-icahn-bet-on-the-big-short-2-0-now-he-says-the-game-was-rigged-1ce090aa?st=9xvzh88rowv439c&reflink=article_copyURL_share Hedge fund overpays for properties to prevent Icahn getting paid out in the CDS he owned?

Something that was pointed out to me elsewhere that makes a lot of sense is that if Ukraine has taken 500,000 KIA, since Russia has been on the offensive for the vast majority of the war their losses should be significantly higher, in the 1M to 2M KIA range. That seems equally absurd.

If we didn't get dragged into the Yom Kippur war in 1973 when Isreal was attacked by Egypt, Syria, Jordan. Saudi Arabia, Iraq, Libya, and Kuwait (with the aid of Tunisia, Morocco, Cuba & North Korea), I find it hard to imagine that we'll get dragged into their war with tiny Hamas, even if Hezbollah steps in.

the reason Buffett has given for why he doesn’t calculate DCFs is that they make it too easy to fool yourself. If you love the business but the DCF valuation isn’t high enough it’s easy to tweak a couple inputs just a small amount and voila! It’s now a bargain. you are correct that using a PE or PEG ratio is just establishing of thumb based on a theoretical DCF. If you use them you should run DCFs at various growth rates , durations and with different risk free rates to get a feel for how these factors change relative value as they change. But then you no longer have any need to calculate DCFs for any investments, you know if growth rate is roughly X% for Y years what a good valuation should be, and if growth period increases how much value will increase. Getting back to Buffett’s objections, all valuations are estimates and should be ranges. The hyper precision of an individual DCF is misleading, and a waste of time. You simply can never know the true growth rate and period with any accuracy.

Buffett never uses them so neither do I.