arbitragr

My thoughts exactly. The timing part is hard, that's why I'm less inclined to make big bets with LEAPS. I do hedge however, I use predominantly futures to hedge but. And even if you do have a long-dated contract, there will in most cases be some liquidity problems down the track, which means if you sell you might sell at a discount to your expected price, or else wait for liquidity to come into the markets ... which means more time decay.

Okay great guys, thanks. Much appreciated. So then, with the mechanics out of the way ... so why not just go long on the stock then and bet big? i.e. I could never bet big with a leap, like I do with BRK/A. Full conviction, with some leverage too? What are the advantages of options/leaps over stock, if you're not using it to hedge.

So correct me if I am wrong ... Going long by taking a position in a LEAP probably isn't the smartest way to go long? Since there are uncertanties regardind timing (i.e. time decay of option over the life) and volatility? ie options are best just left for hedging? especially if the contracts are cheap?

Hi all, I know some of you like to allocate capital via options. I just wanted to get the scoop on the pros and cons of each. I'm thinking about taking an options position. In the past I've never had the courage to, because the capital that I put up is quite large and would only want to make absolute sure things will work out, and also that options relates to three things: time, volatility, and price. I might get the last one right, but I don't know anything about the former two variables. I've tried options in the past but haven't been successful b/c as time wears on, the option value would diminish (this is for a LEAP position). Options is just like buying stock with leverage, only a bit cheaper ... is it not? Please enlighten me.

Hi all, I'm curious about WEB in relation to his views on real estate/property/REITS. Anybody have anything they could direct me to? Despite his aversion to Real Estate, WEB has invested in REITs personally see Altucher's book. But he won't invest in real estate via BRK due to the tax disadvantage compared to other REITs. Charlie was involved real estate when he was younger, so I guess their aversion to real estate is genuine, at least via BRK seeing as though Charlie has at least some expertise in that area when he was a young lawyer. The best I can find is this during the 2002 Annual Meeting: QUESTION: Regarding their views on real estate investing. BUFFETT: If I was proposing a real estate investment, Charlie would say no, no, no or a while and I'd judge how [strongly he feels]. Under most conditions, it's hard to find real estate that's mispriced. We all know what a Class A office building in Chicago represents. Occasionally there could be big opportunities -- it might be because of a lot of chaos in financing. MUNGER: We don't have any competitive advantage over others in the field... and tack on our tax liabilities... so by its nature, real estate tends to be a poor investment for people with our C-corporation tax structure. We spend very little time thinking about real estate and when we have gotten into it, it's usually been with so-so results. We are in a period of "chaos in financing" right now and CRE tends to lag the economy. Go figure. Cheers and thanks in advance.

Most countries whose economy is tied to commodities in some way, currently has their currency trending higher against the US$.

The market is frothy as heck. Be fearful when ... yada yada yada ... The time to sell is when confidence is on the streets.

Probably the lawsuits. Don't think WEB wants to be in a morally tough situation, ... same thing with PetroChina. Ratings agencies were probably in the wrong anyways in this credit crisis.

You're right yudeng ... there's probably not alot of social benefits to GS' trading activities for society. However we live in a capitalist society, and what gets compensated the most isn't necessarily the most socially beneficial. Some examples; highly paid sports stars - why on earth do we pay people 10M+ a year to kick or hit a ball around?? I'm not sure either, but people like to watch these athletes and as a result they get paid for it. Some may even consider the entertainment value of watching these athletes "socially beneficial", despite the fact that it makes them less productive because they sit around all day and watch the TV or go to the game at the stadium. Or in the past, tobacco companies ... great product from a financial perspective, great business model, hugely profitable, great compensation, but socially disastrous for people. In terms of trading vs. curing cancer ... I think what you're referring to is financial capitalism vs. production capitalism. Technology increases the production factor in the economy, helping making it more efficient and to some extent socially beneficial. However, traders could argue that what they're doing is maintaining the price function of the economy ... i.e. helping financial markets maintain proper price discovery in a range of asset classes and commodities, oil, interest rates, securities prices for example. Traders and financiers, also marshal capital to the economic actors who make use of it best, and firms like Goldman improve the sophistication and facilitation of capital flow of these markets, they can of course sometimes go overboard, like what we've seen with the exotic instruments during the credit crisis, but that is part and parcel of capitalism - a cycle of risk, failure and success. So economically speaking, traders do serve some capitalistic function, albeit a less socially beneficial one vis-a-vis say, renewable energy engineers. Having said that, I would venture to say that for every 1 trader at Goldman Sachs, there are probably thousands of failed traders who enter and exit the market pool of traders constantly. Just look at the retrenchments in the financial sector. So I wouldn't say that GS represents a large enough population of traders to the extent that our allocation of human capital goes disproportionately to trading activities and financial capitalism - it's just like aspiring athletes who don't make the cut, and then decide on a different career path. For those that don't make it into Goldman they find other avenues of work, which probably in all likelihood will fall somewhere within the production function sphere of the economy.

Yeah I don't use IB, unfortunately. But I do know about them. Lot's of my friends use them. I use two full service brokers, they're both bulge bracket firms. You can't get access to the over the counter market otherwise (i.e. distressed debt/junk bonds, or even IPOs), well not the best deals anyways. I don't think IB will ever reach that space because they don't have an i-bank department. ;) Might be a bit more expensive, however I'm not a frequent trader so doesn't really matter. I care about gaining access to deal flow. I've only ever used 1 online brokerage.

How do you get such a low rate?

Ha! Just remember that the broker call rate is about 2%. My broker is charging 4.25% + broker call. So your cost of capital is about 6.25%, well ... mine is anyways. Decent hurdle rate I guess. :) ;)

Probably relates to the firm the poster is working for I gather. I'm not sure. But I've used plural form in the past because of the aforementioned reason.

I think the best opportunities were presented to us in late 2008 and Q1 2009 (especially March) of this year. A substantial part of my networth has gone into BRK/a/b in that Feb/March period:

Nice. ;) You do know that Baupost and Oaktree as well as Bill Gross are on the other end providing the funding for CIT? They obviously see some value there.

Hi all, I just wanted to get survey on forum members' asset allocation by industry/asset class if possible. If you don't want to talk about it, then that's okay too. Mine is: BRK/A and BRK/B: 46% Distressed debt/Junk Bonds: 24% Rest is in cash: i.e. about 30% Despite being in a middle of a recession, I wouldn't be a pedal to the metal buyer here. Right now, I probably think that things in the equity markets are fairly valued to be honest. Well at least compared to late 2008, and Q1 2009. I'm slowly allocating my cash. On balance, I think there are better buying opportunities ahead, and we may even see a little correction later on in the year. However I'm unsure which sector/asset class to allocate the rest of my cash to as we enter that stage, which is why I'm writing this thread just to get some ideas. I'd like a little bit of diversification. There are alot of attractive opportunities as we head into a recovery: tech, commodities, real estate, infrastructure ... all having similar correlation. I can't decide ??? I could probably even increase my junk/distressed debt position and I would be okay long term. Howard Marks, an investor I respect, is about 65% allocated to junk. Thanks in advance. Cheers.

:D :D :D ... suprised California isn't in there somewhere.

From personal experience, almost 90%+ of the analyst community in the financial sector uses Excel. Even though there's free stuff out there. The scalability of Excel makes it attractive to the sell side firms - you can perform simple financial models to very complex ones depending on your coding knowledge. Which makes it very attractive. Anyone use Bing lately? That's almost exactly like Google once you get past the exterior. lol ... I think maybe this is what prompted Google to declare war on MSFT's crown jewels the OS, in the first place. Which then led to this now. Will be interesting how things turn out.

So b/c someone else has bought GE that means all rational analysis goes out the window? WEB is down 50% on GE. You should at least analyze it yourself. If you saw the numbers you would think twice. In any event, I think Watsa would probably have second thoughts now. That statement was made in late 2008, when the worst of the crisis was just starting. GE is no longer a AAA rated company.

I'm pretty sure you wouldn't be so silly as to rely on just one index. You can use it along with other indicies. e.g. auto sales, oil prices, shipping, housing etc ... I think back in the day of Rockefeller, Vanderbilt and Carnegie, when Graham was still around, economists and analysts used such indicies b/c that was the main forum of transportation of materials and supplies that were important to economic activity, since that was the only form of well developed means of transportation. If you go back and read securities analysis you'll find some graphs and mention of train indicies. And I'm pretty sure Warren used it too back then as a young analyst. Using it today I think he's just re-flexing his analyst muscles, and I guess, in a way he still thinks it works as an indicator ... if he still uses it today. Things have obviously changed now, but still very interesting, especially as oil prices make rail more attractive as a means to transport raw materials across the country. His investment in Burlington was based on the same premise/thesis. Thank you.

Thanks.

Most of their lending comes in 2 buckets: - consumer - commercial The consumer is basically auto loans, mortgage loans around the world, especially in the UK. The commercial loans are predominantly in commercial real estate, and equipment financing to related businesses that they deal with in their other businesses i.e. health care, aircraft businesses. If unemployment goes to like 10%+ and we have a protracted downturn, there will be a very high amount of loan defaults IMO. GE have had SEC investigations in the past regarding their low provisioning rates for non-performing loans in the GECS business, so I think there could be a suprise on the downside. Their tier 1 ratios and loss provisions are generally lower (when it should be higher) than the major banks.

http://abcnews.go.com/Business/story?id=8039651&page=1 Anybody know what that freight train index is, that they were talking about?? ???

So what sort of figures do you think GECS will produce Mandeep? You're not worried there? They've had issues re; the integrity of their accounting figures for GECS: http://www.forbes.com/feeds/afx/2008/09/05/afx5395144.html If unemployment blows out we could see a more prolonged trough for the stock due to credit losses, also especially if we see an extended downturn = energy and tech businesses won't get going at all.

GE might take a while to work out. :-\ But you're very patient Mandeep. ;)