Value_Added

Yeah, it is a bit more work. I don’t really use technical indicators for much except buy/sell points and in this instance they can help collect more premium before being called away or put the equity. Oftentimes it’s just easier to buy or sell the position outright without messing with options, especially if you wouldn’t be able to live with not owning it or not having the cash from it.

I was just using the index as an example to @73 Reds scenario of selling covered calls. As @Gregmal said, you could do it with any security, especially one you find to be undervalued. I’m not familiar enough with options to know how to effectively search for mispriced options. But if you already have your eye on a specific security, could workout great. Typically I sell slightly OTM puts to initiate certain positions and sell slightly OTM calls to exit certain positions. I’ve done this to lower my cost basis, never to generate income but it sounds appealing under the right conditions.

Just thinking here but wouldn’t a more effective income generating strategy be to sell OTM puts on the index then If it gets assigned, sell covered calls against the position. That way you’re always generating income whether you own it or not and aren’t spending anything to roll the call of the appreciated stock. If it appreciates and the option is assigned, you go straight into selling OTM puts. Im not a big options person but if solely for generating income from the index, what’s the downside to this versus only using covered calls and having to roll them?

In the U.S, If truly living off of the income from either strategy (sole means of income), qualified dividends offer a large tax advantage here (not too difficult to meet the criteria for qualified dividends). As an example - if married filing jointly, you can make up to approximately $126,000 in dividend income and pay no federal taxes. If using options, it is taxed as short term capital gains. Obviously, taxes shouldn’t be the primary factor, especially if you can earn a much higher return using an options strategy.

NRP - Natural Resource Partners. Royalty company that will be returning lots of cash to shareholders with a free call option on carbon capture

Added to CNC

Curious is something like FXY would be a good bet here with unallocated cash sitting in USD…

Everyone feels they can beat the market. And simply thinking about it doesn’t seem all that hard. It’s really the same as most things in life…emotion and our actions often get in the way of better outcomes. People with clear minds have great ideas…and hindsight is 20/20. “I can do this” …until you don’t. Even index investors sell at the wrong time. The key is to have a strategy and execute on it. The media and mania gets into people’s minds and they act irrationally.

if you’re fully invested then you can’t take full advantage. Sure you can reposition into cheaper businesses but it’s not as good as cash. I think Blake’s point is simply that the market is in the higher priced side and he is being defensive with cash to take advantage of a scenario where there’s a fire sale. @Blake Hampton it’s important to remember that everyone here has a different investing style and are at different points in their life. Yours will not match any of them exactly. Simply staying invested knowing that the market will always move up over the long term works for some, especially when you hold quality purchased well. Some just DCA into indexes and that works. Others pick individual companies awaiting a catalyst and exit after said catalyst. Some mix these strategies. Some never sell because of taxes. There’s no wrong answer. Focus on you. You don’t have to convince anyone but you need to ensure you know what your strategy is and you need to execute on it. if you want to opportunistically sit in cash and wait for fat pitches, do it! But don’t let the markets “expensiveness” fool you from not acting. META, LULU, and NFLX are great examples….all down huge while the market was arguable still expensive with more room to drop if you had an extremely bearish outlook. META and NFLX were both down -75% while the market was only down -20%. LULU was down -50% while the market was hitting all time highs. The wrong market outlook and an attempt at forecasting could’ve easily left you on the sidelines. I’m of the opinion that if you sit in cash that you need be willing to make very large bets to fully take average of great opportunities when they arise. I’m sure your goal is to beat the SPY over the long term and to do that you must remember that cash is an anchor if you don’t use it opportunistically with large bets. Best case is you time it perfectly and you can deploy 100% into deeply discounted quality….but you likely won’t. Worst case is you sit in cash and do nothing. Key point to take away here is that cash is often tied to a bearish mindset that can be paralyzing and act as a HUGE anchor. But it can be used as a tool for outsized long term returns if you know how to use it.

Pretty good memo from Howard Marks put out yesterday. More of the same old stuff but there are good points made about current macro…There are alot of indicators that say the market is very expensive but there are also a lot of indicators that say we’re not really in huge bubble territory yet. Aside from the memo…I think there is a lot of value in the market right now away from the tech and fads. These companies will not be immune from huge drawdowns but boy it’s tough stay in a large cash position with them sitting there looking all cheap and such. https://www.oaktreecapital.com/insights/memo/on-bubble-watch

Brett Kelly from Kelly Partner Group (KPG.AX) comes to mind. Numerous references to Munger, Buffett, and Mark Leonard in the company’s “owners manual” for investors. https://info.kellypartners.com.au/hubfs/Kelly%2BPartners Group Website 2024/Documents/Investor Center/Owners Manual/KPGH Owners Manual Version 4 Oct 2024.pdf?hsLang=en The shareholders recommended reading list says it all. I don’t follow the company so I’m not sure if he follows these principals or just touts them but the company seems to be performing very well. -Creating Shareholder Value -common stocks uncommon profits -Good To Great -Titan -Founders Mentality -Outsiders -100 Baggers -Intelligent Investor -etc…

ISSC isn’t exactly a drone company “yet” but their R&D budget is largely allocated toward advancing airplane safety by innovating the cockpit and controls of aircraft to become pilotless (drone). Obviously this is YEARS away and maybe even never-their first step is a cockpit without a co-pilot. Great business too. They keep acquiring small companies and product lines from large companies (Honeywell), incorporating their extreme efficiencies (completely vertical on most products) and making a tidy profit. They’re in a position now where they can really flex their operating leverage muscles. CEO mentioned they have extra manufacturing space for one or two more product lines (which will increase their EBITDA margins even more) before they need to expand their facilities. He believes with their current facilities, $100m in revenue is doable. They’ve announced 2 product line acquisitions since this statement was made so I’m making the assumption that over the next few years revenue will creep near $100m (from 45m currently). The expansion is already designed and planned and will cost $5 million to build. Per the CEO, purchasing product lines from a large player like Honeywell also allows them to cross sell their other products to existing Honeywell customers that they would otherwise have to spend money to acquire as a customer, likely with much less success. Projected EBITDA margin as their manufacturing space is fully utilized and newly purchased product lines are taken vertical is 30%. Back of the envelope math…give the projected $100 million revenue a haircut and assume $80 million in revenue. 25% EBITDA margin (current) would be $20 mil in EBITDA. No reason a business like this wouldn’t trade at 20x EV/EBITDA multiple…assuming they stay mostly debt free then the EV would be $400 million (versus $140 million today). If they get to $100m in revenue with 30% EBITDA and trade at a 25x EV/EBITDA, that’s $750m EV. Decent selling pressure due to the passing of the previous CEO. It seems his estate is liquidating his shares and this was mentioned in an earnings call as well. Lots of insider buying beyond that. http://openinsider.com/search?q=Issc Again, not a drone company but technically could be if they ever attain a pilotless cockpit. Great thing about ISSC is that they are currently and historically profitable with some degree of a moat. So they have funds to allocate to the R&D of a pilotless cockpit at a pace that makes sense based on regulations they see in the market…versus most other startups which lose money and have no hopes of making any. Also to note is their revenue is much less cyclical versus prior years as they have taken on more high quality clients via the military and Honeywell customers. This is also mentioned in earnings calls.

Any recommendations on literature that would help to understand this better?

G Bank - GBFH. Trades a bit expensive after the recent run-up but it’s a well run bank with near 50% insider ownership. High NIM, seemingly high quality nationwide SBA loans. There is also a huge call option on their gaming, credit card, and fintech division (could be worth billions over the long term) which is slowly and successfully playing out. This is what has created the high P/BV multiple (along with their rapid deposit and loan growth). Their high quality gaming deposits and credit card revenue are replacing their low quality deposits from CDs. Management seems well aware of the regulatory progression of fintech and gaming and they seem well suited to execute on their patents going forward. Interesting situation.

Thanks for all of the recommendations. This is more a fintech catalyst/opportunity with a core banking business as its foundation. I understand the fintech aspect but it is essentially a call option on the position. I need to ensure the core banking is sound as that is where the downside exists. It appears that while they’re a small community bank, they have a large reach across the majority of the US for SBA loans specifically to non-resort hotel chains. It looks as though the Bank Investor Handbook will get me started to help gain an understanding of the financial statements and filings (though The Bitcoin Standard has me intrigued from a curiosity aspect…not sure how much it would help me in this situation).

Thanks, I’ll check it out! And yes, I meant this for a small regional bank so this is exactly what I was looking for.

Does anyone have any good recommendations on literature that would help someone better understand banks? More so from the perspective on what to look out for when looking through their financial statements (red flags) and proper valuation based on the quality of deposits, loans, investments, etc…

I enjoy having Lutnick in charge of my capital. Especially with such a huge catalyst so visible on the horizon.

This isn’t entirely accurate. Constellation (previously Exelon) changed reactor power depending on grid conditions at plants that were money losing due to negative power prices. They no longer do this since the state and federal subsidies covers their costs but is is certainly allowed. https://www.nice-future.org/docs/nicefuturelibraries/default-document-library/exelon.pdf

IMXI

The inflation reduction act has made nuclear power an amazing business in the U.S. for the next 10 years. Guaranteed money with a near completely protected downside. There’s a lot of upside optionality as well such as above 2% inflation, volatile power prices and selling their base-load power at a premium to mega cap and tech companies who are “going green”. Take a look at CEG (Constellation) earnings call and accompanying presentation from yesterday. Pretty impressive how much the inflation reduction act has helped them.

Seems GTX may fit here now with their recent capital restructuring (now a single share class). Tons of cash flow with minimal reinvestment needs, they seem hellbent on paying off debt and buying back stock. They bought back 10% of their shares in 2023 and approved another 15% (at current prices) for 2024. I don’t see why this wouldn’t continue going forward. Business is in a good position too from both a turbo standpoint and zero emission vehicle (battery and hydrogen fuel cell) standpoint. Seems like the focus switch to hybrids could be a small tailwind for their core turbo business as well.

Sure, anything is possible but it’s not likely. Big tech is always a day away from some new innovation that turns the world on its head. If these develop into additional high margin revenue streams, valuations and sentiment will continue in their favor. With that said, their current offerings can become out of favor just as quickly and valuation could go the other way. All businesses in their current form have a growth ceiling - even small caps. It’s important to keep this in mind. Just because something is small doesn’t mean it’s destined to be bigger. Oftentimes when small businesses chase growth, it’s value destructive which will ultimately be reflected in the stock price. Best thing to do is understand what you’re buying and understand how to value it. Once you do, buy it with a margin of safety. If you can’t, just index.

Knowing the circumstances which would cause a margin call is the big pause for me. I know a lot of people out there use leverage in an unintelligent way which is also where most of the horror stories come from. When I get a mortgage on a rental property, I have a pretty good idea of the risk before signing the papers. The value of the home dropping during a housing downturn doesn’t scare me because I won’t get a call that the loan is due because of it. I’m ignorant on the subject, but it seems like stock market hysteria could cause just that even though you know you hold a company’s stock which didn’t really lose any long term value (hopefully). I just don’t understand that aspect enough to feel comfortable with it.

I’m at 0% but not because I think it’s stupid. I think it is an extremely useful tool , but unfortunately is one I don’t understand how to properly manage. To elaborate, I understand leverage…but I don’t understand how it is initiated, what kind of market scenario would constitute a margin call, which investments are viewed by the broker as risky vs safe, etc…for now I just use options as a form of leverage, though it isn’t true leverage which is the topic of this poll. I’ve looked into it via some Google searches in an attempt to learn the ins and outs but can’t seem to get comfortable. All I really find is how people use it for their investment style versus a fact sheet of how it works. Probably because of the multitude of different results and scenarios possible with its use.