SharperDingaan

If you want the better asset (Bitcoin vs Gold), responsibility for your actions is the price. It's that simple. You lose your private key, you compromise that key, you screw up - and you wear it. There is no 'un-do', no 'cancel', or correction of 'fat finger' error. And there shouldn't be. We know that there are at least 1,040,000 BTC that are lost (creators Baltic boat-cruise story). There are a great many more that are essentially locked (the wallets that all those BTC computer ransom payments were going to), or were simply forgotten. Derive your own number. But it does NOT mean they are nullified. To get the money out, Mt Gox just has to be able to pledge them as loan collateral. Which Mt Gox can do, because it was the Oracle that originally issued those wallets - and the keys that went with them. Welcome to the world of cryptocoin ;) SD

After-tax cost of financing that you're going to use for the project. If you're looking at an investment, look at their bond rating and the market yield on their 5 year bond, & calculate Beta. Thereafter plug the variables into the CAPM model to obtain the discount rate. Just keep in mind that you're calculating off of historic rates, and that this works best with stable companies - not small, or unstable ones. It's also not particularly good, but it will at least give you a ball-park number. SD

Good point. The implication is that this is essentially an estimate as to the aggregate global QE (resulting from the crises?) that has yet to bleed out into the main-street economy (CPI inflation measure). SD

If you think Bitcoin is the digital equivalent of gold, you are comparing 1 'unit' of Bitcoin to 1 'unit' of gold. Rkbabang has the right valuation approach. 21M total token/total available gold in troy oz (6,703,960) The limitations are that not all 21M token are accessable (lost the wallet private keys), and most gold does not 'trade' in the market 1 Bitcoin (gold equivalent) = 3.132 troy oz (6,703,960/21,000,000) = 3.132 x 1,222 gold price = USD 6,647 1 Biticoin (market price) = USD 4,701 More realistic estimates of 'tradeable' gold, would be (1) aggregate quantity on offer in open derivative positions, and (2) aggregate quantity of bullion in various vaults. If 50% of the 6.703,960 troy oz typically does not trade, the Bitcoin (gold equivalent) is maybe USD 3,323. SD

As at 10am (EST), the spot price of an oz of gold is USD 1,222. A Bitcoin sells for USD 4,701. If a buyer believes that Bitcoin is a substitute for gold, is it really rationale to pay today - 3.85x (4701/1222) the price of an oz of gold for it?. If most folks would think 'no', wouldn't you expect the price to fall further? https://www.kitco.com/gold-price-today-usa/ https://coinmarketcap.com/currencies/bitcoin/ If cryptocurrency as an asset class, were to rise in value, what would it require? We would suggest that until the regulatory space catches-up, and implements pro-active policy, it doesn't look good. Then look at what higher education is teaching in those cryptoclasses. Most of it is to 4th year and MBA students, very basic, and culminates around the ICO. Todays students may well become a significant chunk of future demand, but they are unlikely to have any significant impact for a good while yet. Hence, one has to ask if an investment today, is perhaps too early for this party? The answer should depend on the purpose of that investment. SD

Agreed a swing trade isn't for everyone. Just keep in mind that if you only repurchase the quantity you sold, the $ difference is a partial return of your capital outlay. You can benefit through either (1) having more shares for the same outlay, or (2) the same number of shares for less outlay. When our focus is on capital recovery we're almost exclusively (2), and only progressively shift to (1) as outlay declines to zero. For us this is risk management. Per full disclosure. Swing or not, should be based on systematic periodic assessment. If you want to keep the stock, is next quarter likely to be better than this quarter?, if no - sell up to 1/2 your position, and buy it back later. Make your decision, live by it, and no new capital outlay. We find that at best a swing trade will extract 20-30% of the potential value, and will go our way maybe 3 of every 5 times out. It is not sell on a double and you're done; it's a process, there will be a number of iterations, but persistence should eventually get you there. We voluntarily post as a courtesy to others, and where relevant, try to suggest 'higher level' practical solutions to identified issues. We are not publishing a text-book of 'how-to' examples, and we are not a substitute for due-diligence. We apologize if posters have interpreted our comments beyond that intended. Hence, the disclosure. SD

I solve this problem by never averaging down... This is very smart. I have wrestled with this a number of times. Nearly every time I have averaged down in the last few years I have gotten stung. Stock A looked real good at my buy in price, therefore, it must be better at a cheaper price. The problem arises when the position gets bigger and bigger, and keeps dropping in price. And then it drops way beyond any expectation I could have dreamt up. At this point I should buy more after all: "there is blood on the streets, we should buy at the point of maximum pessimism, If it was a good buy 50% higher then its a great buy now... etc." ... A case in point for me is Whitecap Resources (WCP-T). On this I have averaged down. It was all well in good when it was trading at 7.50 to 8.50 but it is now at 5.50 and I have too much in it. In order to right size the position I will end up selling a good chunk on the way back up when I hit break even. The position is just too large to carry for very long comfortably. I still believe that WCP is a great company but I dont want to hold the whole company. When I really crunch the numbers honestly the amount I will make on the way back up from averaging down will not be very much, IF there is a back up. By averaging down I have reduced my aggreagate purchase price from perhaps 8.50 to 7.20. Is it really worth it to get trapped in a position, for who knows how long, to make a spread of 1.30. I have concluded that it is not. For me position sizing is the most important thing now. Its a tricky thing to figure out but I try to do the best I can. Once I figure out the right size for a position it is best to stop and ignore it. Its hard and takes discipline... My experience with averaging down has been quite consistently satisfactory and I wonder why. From FFH AR 2011, experience with International Coal: As an example of our long term value investing approach and the need to be patient and calm through adverse market fluctuations, in the table below we show you the results of our purchase and sale of shares of International Coal. This is a company of which Wilbur Ross was Chairman and owned 16%. Our Sam Mitchell, who originated this purchase idea, joined the Board in 2008, after we had acquired 13.8% of the shares. -Purchases of International Coal Sales of International Coal Number of Shares (millions) Cost per Share Total Cost 2006 1.4 $4.58 6.4 2007 19.7 4.39 86.3 2008 9.1 1.81 16.5 2009 15.0 2.87 43.1 Total 45.2 $3.37 152.3 -Proceeds per Share Total Proceeds Number of Shares (millions) Cost per Share Total Cost 2010 22.6 $7.26 163.9 2011 22.6 14.60 329.6 Total 45.2 $10.93 493.5 Total realized gain: 341.2M The table shows how we averaged down from our initial cost of $4.58 per share to an average cost of $3.37 per share. We sold half our position at $7.26 per share (a 115% gain) and only five months later, there was a takeover offer for the whole company at double that price. In spite of not buying only at the low and not selling only at the high, we earned $341.2 million by selling at over three times our cost. Our experience with International Coal is exactly what we have done over 35 years of investing – average down when buying and average up when selling! An added advantage in this case – we got to know Wilbur and he is an excellent partner. Obviously the excerpt is a selection of a selection bias but I could put up similar tables for my gradual involvements in Fairfax, OdysseyRe and The Brick among others, including some cyclical stuff. Maybe it's just luck and I agree with others about checklists, slow thinking, writing down etc but I wonder if the factor you mention about position sizing may not be an important determinant ie deciding in advance about a potential maximum percentage of portfolio with quantitative triggers (price vs intrinsic value) on the way down and up, hopefully in that sequence. I think Newton did the opposite once with his South Seas investment but that's another story and maybe by quoting the difficulty of quantifying the madness of men, he was the father of behavioral finance. A clear potential disadvantage with this strategy is the implicit need to have available fire power and this perhaps ties in with what SharperDingaan is trying to explain in a different thread (house money etc). Take the above with a grain of salt as I seem to become more and more confused in today's markets. Cigarbutt, I generally like your posts: they are smart, and well thought out... you know a refutation is coming :-). Averaging down: works until it doesn't. Do yourself a favour and read the entire Pennwest post. There was thesis drift through the entire thing. Initially I got caught in it but realized that and got out with some loss. Maybe SharperDingaan has somehow managed to trade in and out and make money along the way. But read carefully what they write. It is often dishonest in how they define their results. They never come straight out and admit that they lost money on a situation. Maybe they never do... but there is no honest disclosure so how would I know. Using a Fairfax example to dispute this is all good unless you look at the situations where they have lost huge: Invested 500 million in Canwest weeks before it bankrupted and they lost everything. Blackberry, Torstar, SFK-Fibrek, Resolute, the market puts that cost hundreds of millions, or billions. Without their bond desk they would have been gone long ago. Invested (got lucky) in Sandridge because they liked the sleazeball in charge? If you want an exercise in studying cognitive biases you need only look at FFH and all the threads. The thesis drift in the threads is pervasive. For a long time it was about great investment results but crappy insurance underwriting, then it switches to great underwriting but lowsy investing. Prem wrote for years how they were targeting 20% annual returns, then dropped it to 15% which they have never come close to meeting. He wasn't going to give the company to his family but he has. Then there are the nasty tricks along the way to maintain control of the company. Investors on this board are blind to FFHs foibles. I made my decision to sell the stock in and around 2012 and never look back. I agree with you that Writser has created a great checklist. Mostly it involves writing down your thesis, initiating and starter position, and then sitting with it. I am endeavouring to work with the sit with it portion, for years if necessary. Cheers, Al Just for completeness. We have made money on PWE/OBE, but it hasn't been enough for the risk we've taken. It was also primarily made by repeatedly selling up to 1/2 the position at a higher price, and reinvesting the proceeds at a lower price. We averaged down our cost base, got a higher share count, and did not have to put up new outlay. On earlier occassions when we've spoken to the technique (hedging via a synthetic short) we've been criticised for it. We materially reduced our posting on OBE, because we know folks are hurting, and it's not helpful. A lot of Albertans are in very real danger of losing their livlihoods, I know some of them, and the coming change will very likely cost some of them their families. SD

It's usefull to take a more 'numbers' approach ..... Of every 100 super-wealthy; how many got wealthy via a questionable source (75%?), and then how many used questionable practices (offshore accounts, charities, legal/tax accountants) to maintain it (90%?). You may be the angel, but you operate in a dirty ship - & soot on the wings is enevitable. If you made your money 'the old fashioned way' (stole it!), you've additional problems. Preventing your friends from stealing your money, and staying alive to enjoy it. Pillage is straightfoward, but you're only usefull so long as the pillaging remains good; after which you'll have a medical/flying accident just before the money vanishes from your offshore account. As 'inheritance' depends on how skilled your successors are - it's a self correcting merit based system, and pretty hard to fault! The wealthier you get, the smaller your gilded cage becomes. And if you're forced to procreate out of a steadily diminishing gene pool, it's not long before the hillbilly 'syndromes' start making themselves felt. Everybody thinking the same way, us versus them 'tone' deafness, rapidly diminishing 'street smarts' etc. It takes a while, but its no different to cooking frogs - do it slowly and you'll eat well, as they will not jump out of the pot. History shows that all civilizations eventually fail - but if they were ALL good enough to BECOME civilizations, what did they ALL do that caused them to fail? We would suggest that it was the corrupting influence of extreme wealth. 'Nature' at work. SD

Nature is very good at thining out the herd. A good chunk of the nouveau rich will blow themselves up well before they get to be old money, and a good chunk of old money will not successfully transfer accross generations. Drugs, drink, depression, family dysfunctiion, revolution, etc. will thin the population further. Time is a bitch, you cannot take it with you. As soon as you're dead your stash will be looted, and there is little you can do about it (ie: Egyptian Pharoahs) And as Ramses (Egyptian pharoah) demonstrated, your 'statues' will also be repossessed and 'attributed' to someone else! SD

Look into the mining industry. https://www.trafficsafetystore.com/blog/mining-operations-autonomous-vehicle-technology/ https://www.nbcnews.com/mach/science/robots-are-replacing-humans-world-s-mines-here-s-why-ncna831631 Labour is expensive, and in increasingly short supply. The technology works best in controlled spaces, and the more hostile the environment the better (self-driving ore loaders, where explosive gas/rockfall is a very real danger). More importantly it's not visible to Joe Public (hence no protests against job loss to the 'machines') and it saves lives, lungs and limbs; but it costs the unskilled their livelihoods. It's also dirt cheap. 10M in equipment under a capital lease might cost 8%/year ($80,000) and replace 2-3 people (2.5) at 80-100K/yr net of benefits. Per the P&L; spend an extra 80K to save 200-250K, and collect premium savings on reduced health and safety claims as added bonus. The same mathematics that is at work in automated warehouses and airport baggage handling. Great for productivity, but if you were one of those 'displaced', you're pretty much out of a job for good. The Corporate Social Responsibility (CSR) issue. SD

The take-away here should be that the US model is the EXCEPTION, versus the rule. Hence thinking that multi-national business in Europe, Asia, or even S America is much the same as it is in the US - is a big mistake. The faster 'shoot from the lip' decision making of the US often produces bad decisions, and feeds into the 'fail hard, fail fast' mantra much favoured by start-ups. All good, except that it's typically a fail with YOUR money, and NOT theirs. The slower 'consensus approach' typically produces better decisions, and more so - when the contributors are diverse. It also really comes into its own when dealing with highly disruptive or large-scale industrial/social change (ie: blockchain). Obviously, depending on what you want - you invest accordingly. SD

German (& many other European) companies operate under a two-tier board system; a Supervisory Board made up of shareholder and labour representatives, as well as an Executive Board which is the decision making body. The Supervisory Board is required by law, and has teeth. https://global.handelsblatt.com/companies/why-german-corporate-governance-is-so-different-892389 "Half of the non-executive directors in all public limited companies with more than 2,000 employees came from the works councils and unions (Codetermination Act). Thus German boards must, in theory, heed the concerns not only of shareholders but also of employees, creditors, suppliers, and local governments, and should take a long-term perspective that stretches over generations. Nowadays, the chairperson of the supervisory board holds most of the cards. He or she (in practice, it is still mostly a he) can never hold the position of CEO at the same time, but must stay in regular contact with the executive board to discuss strategy, business developments and risks." And this is in addition to the numerous supply chain cross-holdings at the holding company level and down; that are common practiice in both Europe and Asia. Hence take a run at a German (or Asian) company, and you pick a fight against a very large army .. and all of it's friends. In North America there is no such thing as a Supervisory Board, and for many; the expectation is that you can do pretty much whatever you want, and deal with the rest of the stakeholders later - if at all. Each approach has its own pros/cons, and the major variable is essentially the speed of change. Federally regulated Canadian banking has a fairly similar arrangement to Europe. Substitute the Regulator and the Bank of Canada for the Supervisory Board, the Individual Banks Charter for the Codetermination Act, and add ongoing operation 'at the pleasure of her majesty ....' Just a different way of doing things ;) SD

You might want to look at the board and governance structures of German (& other European), versus US, companies. There is a reason that they are more 'stakeholder' orientated. Buying a German company, and expecting it to act like a US one (especially in a crises), is often a recipe for tears. There are some relative bargains, but it also requires a change of mindset. SD

A few things to add to this. Thinking as a business owner means knowing the value proposition of the business; the how it makes its money, why, who's buying the product, where are they, and when are they buying it. And not for every product, just the 20% that make 80% of the money. In a rapidly changing business world, basing decisions on just valuation ratios - makes very little sense. WEB bought primarily 'brand' businesses (Coke, Sara Lee, etc.), and essentially substituted 'brand' for 'reputation'. Quality and brand went hand-in-hand, and a brand 'made the list' BECAUASE OF its reputation for quality (the moat). Cheap businesses with poor reputations didn't make the cut (better to buy the great business ...), and 'reputation' is not a line on either the P&L or BS. Yet we all know that the value of 'reputation' is repeat business, with/without current management. Inability to evolve is perhaps THE greatest impediment to value investing, and it is in many ways directly comparable to the evangelical in the 'bible belt'. I'll read another book, when the good lord writes one! The options are pretty limited :D The masters are very good at what they do, but the world has moved on. Obviously some things are just 'same old' in a new wrapper, but too many things are truly new (tech), and we all progressively 'stale date' as we age. Even the very good! Different strokes. SD

If you buy more house than you can afford, and get foreclosed on - what happens to you is on you. At any time, you could have sold and bought a smaller house in the same location, the same size house in a cheaper location, or just rented instead. You could also have taken in lodgers, or shared ownership. Yet, you chose to do none of these things? Nobody wins when somebody gets foreclosed - but it does force long overdue change. And therein is the rub - it's not the way it was anymore. SD

We all know that RE values fall as rates increase, and that it will not slow untill foreclosures have burned through the bulk of the FI loan loss provisions. We just don't like what it means. Yes it means that there are going to be a lot more foreclosures, and bankruptcies. The party is over folks. Yes, responsibility sucks! - & the economy is going to slow as a result. That's the way monetary policy works. I was stupid, I made bad choices, is not an excuse. You f'd up, you wear it. The great depression scarred an entire generation, as the great recession has scarred Gen Z - which will outnumber Millenials by the end of this year. Everyday, Gen Z is seeing what over-leverage has done/is doing to their parents (You/I), & doesn't want to mimic us. We f'd up. https://www.bloomberg.com/news/articles/2018-08-20/gen-z-to-outnumber-millennials-within-a-year-demographic-trends. Hard to lend money when your future customers dont want to take it. Hard to issue mortgages, when customers choose to rent vs buy, and be cash rich/house poor vs house rich/cash poor Harder to control the supply-chain as customers become independent. Equals a smaller FI industry. Not a bad thing. SD

We have a very good idea as to what will happen, we just don't know the timing. (1) The higher the fed rate goes the smaller the 'aggregate' lend (asset to the bank) becomes; simply because as rates goes up, more projects fail their IRR and NPV tests (and are shelved as a result), and the PV of securitized assets declines - significantly reducing demand for money. Same 'spread' on a smaller asset = less interest income. (2) Declining collateral values push corporate borrowers over the edge, and bankers into 're-structuring' - to avoid booking losses. Raise rates too quickly and credit-card/line-of-credit defaults absorb too much of the loan loss cushion, producing strings of sizeable 'one-time' quarterly write-offs. Less net income + lots of downside risk = P/E compressiion ... and the possibility of dilution through new capital raises. (3) The other name for large-scale, industry-wide restructuring, is QE. Most would suggest that now the 'system' is stable - CB's would highly prefer loan-loss write-offs to agressively hit the P&L; both to enforce 'moral hazard', and because there is still so much QE capital on the books to unwind. Further P/E compression, particularly if a 'zombie' bank is either broken-up or allowed to fail. Banking has gone nearly TWO generations without the discipline of 'moral hazard' - so it is long overdue for 'change'. The proportion of 'brick and mortar', to 'virtual' (& blockchain related) banking , is also very 'out-of-line' for todays global age. 'New pipe' versus old pipe, is coming to a bank near you - and a lot sooner, versus later. It's still a great industry, but the times are rapidly changing. Not a bad thing. SD

The old one was just a 'tourist' Zulu chief - but I do like his head-dress! The current one is Oliver Reed who played 'Athos' in the 1973 film version of the Alexanda Dumas book 'The Three Musketeers'. A bit more appealing in todays investment rough and tumble! https://www.imdb.com/name/nm0001657/?ref_=ttfc_fc_cl_t1 SD

You're really betting AGAINST the intertwining of the european banking system. Day-1; somebody, somewhere, screws up - all the banks go in the crapper, and media transmission accelerates contagion. Day-2; locals read about 'their' banks fall in their morning paper/media feed, and react accordingly. By end of day-3, the central bank in the 'source' market is actively intervening - & we're all speculating on how successfull that intervention may be. We learnt from 2006/2007 that if the bank is still solvent by early afternoon on day-2, it's probably going to survive the screw-up. So an enterprising lad would buy calls in the early afternoon of day-2, dump them at the end of the week, and margin the gain against a long position (held untill record date) to capture the dividend as well. The expectation being that to avoid an immediate collapse, the central-bank will temporarily repo enough junk out of the offender, that it can ensure a demonstration of 'confidence to the market' - via full payment of the next round of dividends. Thereafter it's just sit in T-Bills, until the next screw up shows up. Obviously the more players, and the more unique constraints there are, the more opportunities ;) Hence predatory investing in Europe. SD

You might want to think along more 'predatory' lines.... Assume that regulation/oversight of European banking is 'more-or-less' co-ordinated. While execution in each country will be along national lines, 'overall' execution follows a 'plan'. As with an orchestra, individual sections (countries) all following the conductor - to produce great music. The great recession was only 2006/7, we're finally recovering from it, and a lot of the cause was banking related (ie: LIBOR, instiutional corruption, etc). Arguably we're now at the stage where 'the system' is healthy enough, that reforms can be implemented without killing the patients. All banks down, as the tide goes out. UK banks were amongst the worst offenders, and the UK has the additional problem of the pending Brexit. Most would assume that a 'managed devaluation' and a BoE temporary 'put' on the UK banking sector would be part of the exit plan. A european buying a UK bank buys cheap as the tide receeds, buys cheaper as Brexit complicates, and gets both a devaluation boost and downside protection from the put - not available anywhere else in Europe. And as capital shifts from Europe to the UK, the cracks around the European banks progressively begin to show more ... So as a European, why wouldn't I help myself ;D SD

Long time ago when I first entered the working world I made a decision that I ONLY wanted to work for this type of company. I was there to learn the business, intended to learn from the best, and I wasn't shy in asking. In Canada that's a very short list of public companies, and a BIGGER list of private companies. While there's a material opportunity cost to working for these firms, if you can make your case - you'll get to do a lot more, and on your own terms. Practice for later. They are all very 'connected', very classy, and all have strong cultures - good and bad. But the higher up you went, and the more 'invested' you became, the harder it was to effect change. You had to be a young person, use the opportunity to learn your craft, and then leave. Ultimately they are long-term greedy versus the short-term orientation of the market, and use their ability to time arbitrage. Hence very similar to the value-investors mantra of buying when out-of-favour and reselling when everyone suddenly loves it. SD

You might want to consider what happens under 'right to die' legislation. Palliative care is a lot cheaper that end-of-life medical/drug intervention, and choosing 'quality of life' over 'longevity of life' is becoming a lot more common in NA as aging boomers approach end-of-life. Reduce demand for the 20% of intevention services that add 80% of the cost, and total cost comes down rapidly. SD

I'm pushing to become the actuarial abnormality SD

Keep in mind that regulation is RE-active, not PRO-active. FI's are expected to self-regulate within the rules of the sandox (set by the regulator), in return for hands-off regulation (letting the market solution prevail wherever possible). The regulator is just there to preserve the robustness of the system as a whole, and limit any aggregate net abuses. By and large it works well. There will always be fraud, and money-laundering. All that regulation can do is try to make it more visible, more difficult to execute, and shut it down where practical. But as in the drug trade, it is unrealistic to believe that you will ever get 'ahead' of the dealers. Not all provinces have the same view. BC is notoriously lax, and can do what it wants within its own borders - the Vancouver property market being an example. But if bad things happen there it will be BC and investors that take the brunt of the hit, not the Cdn banking system. Not what folks want to hear, but this isn't the US banking system. SD