BG2008

Can anyone provide an update on the "good" VIC users and any recommendation for Sumzero Users?

I have noticed that there is a divide between the smaller bankruptcies and the largers one. The Trustees/lawyers for the smaller BK tend to charge reasonable fees. Some even agree to work on a % of payout. Then there are the $50+mm bankruptcy cases where the lawyers literally will cost you an arm and a leg. You pray that they wrap things up quickly. Their reimbursable expenses can be quite extravagant as well.

This is sad, a fortune that was made over 50 years and vaporized in under 15 years.

Real Estate in markets that are geographically constrained are great businesses. I'm not saying that they are cheap. For example, RE in Manhattan, San Francisco, Hong Kong, etc. There literally aren't anymore land on the island of Manhattan to build anymore buildings. In general, real estate are very high margin businesses. Assuming there is no debt on the asset, it's almost impossible for RE owners in these markets to go under. If privately owned, most RE have cashflow/revenue margin of 50+%. Obviously, interest rates and the cost of financing will dramatically affect the value of the owned RE. Things to watch out for with RE is changes in the demographics and crime (or perception of crime). While most assets depreciate in value over time, RE assets actually appreciate while allowing the owner to take tax writeoffs via depreciation on the building. Financing also allows one to take on an immense amount of leverage (4-8x). There's a quote out there saying something along the line that real estate is the only business where dumb people can become rich over time. With all of that said, I believe that many of the REITs are overvalued because people are chasing yield. REITs in the late 90s were paying 10+% dividends because rates were higher. Despite RE being great businesses, I'm not quite ready to dip my toes into them due to the low rates.

SPY Puts at 5% OTM three months out costs about 1.5%. It's the cheapest hedges I can find. If you've got long positions, I say just pay up and get the hedges rather than trying to short individual names.

Anyone here have confidence that they can do 50% a year? Or Even 30+%? More importantly, what strategies will you use?

Yes, a lot of market neutral really aren't market neutral in 08/09. I want to make some distinctions. Spinoffs are not 100% market neutral, the sum of the parts will still depend on the market. Merger arb spreads will blow open in 08/09. Some deals will fall apart. The ones that do close are market neutral, if they close. I don't consider merger arbs to be truly market neutral. Pure liquidations are truly market neutral. However, the price on a future liquidation distribution will likely fluctuate all over the place prior to distribution. But, if the distributions are within a 6 to 12 months period, then it is truly market neutral. I would imagine that share class arbs, long share A and short share B to arb out large discrepancies will likely work out well as all share prices fall and the A/B discrepancies gets narrower with a lower stock price in general. Trades involving litigation, regulatory decisions, and other "event types" may work in your favor, but the 08/09 crisis will still price your securities much lower than 07. Would love to hear feedback from people on what's truly market neutral and what isn't. This is an important component of my portfolio allocation. Buffet partnership never really did 130/30. His portfolio was more 65/35. 65% was general undervalued (Low P/BV, low P/S, low P/E) and 35% was event driven (merger arbs, liquidations etc). Meiroy - It's contradictory for you to say that Buffet can do his 50% for 20 years. I agree that Buffet will do 50% in one calendar year if he has less than $1mm or $10mm. But, he did manage money for 20 years and he clearly did not achieved 50% returns. I thinks that's exactly why his statement is puzzling to a lot of us. He says he can do 50% in 1 year given a small amount of capital. But, his track record was closer to 30% on average during his partnership days. Why would today's environment be any more beneficial.

No one has really mentioned event driven investing so far. Keep in mind, Buffet had 1/3 of his portfolio in market neutral event driven investing. I believe someone had mentioned that he would put his money into some sort of arb plays that produce smaller absolute returns, but very high IRRs. My overall observation about the market is that the pure net-nets are hard to come by. Micropac (MPAD) is a cashflow positive net-net for those who cares. They make military grade components that has no chance of being outsourced. But, there are no catalyst to re-rate the stock. Other interesting ideas include Hudson technologies where there is a re-rating of the earnings power. The company went from earning about $2mm a year to earning double digit millions because of an EPA ruling. Stock from a low of about $1 to around $4 in early 2012. Events that includes spin-offs likely generate great IRRs. Trades involving the IPO of nitrogen fertilizer plants have been great for the parentco, same goes for refineries. I guess anytime you have a hidden gem that all a sudden has a dividend yield slap on it gets quickly re-rated. I believe that to do 50% in a year, it's hard to do so with a simple buy and hold from day 1. Perhaps, you need a 10% position to double and then you have 110% and you benefit from the effect of compounding within the same 12 months period. People should pay attention to Joel Greenblatt's strategy. He did earn 40% over 10+ years. I think that the Graham stuff is tough to do 50+% in today environment when most companies are earnings based rather than asset based. There are other smaller iliquid strategies that I'm involved that will generated 50>% a year when done right.

I want to clarify that I don't intend to open a restaurant. I intend to open a concept that can be scaled. I have no desire to open the next Momofuku or Per Se. I believe that despite the QSR, Casual dining, fine dinning, etc there are still concepts that can be scaled very profitably into a loyal brand of say 50-10 locations regionally. The focus isn't on doing one restaurant so well, the focus is on perfecting the next Chipotle by creating a great menu and minimizing complexity. Perhaps, it's a philly cheese steak joint made with premium ingredients like hangar steak. Think in-and-out burgers etc. Obviously very tough to build a great brand like in and out burger, but the initial concept is important as well as the execution in the roll out.

Fast Food Franchisor. Always wanted to do one with Chinese food. Simplify the menu and offer it similar to Chipotle style (yes, I'm aware that they've got a concept going) Got another idea for a seafood shop, Most seafood shops (including supermarkets) are way over priced and do not offer enough value add, heck, what do you do with a raw piece of salmon fillet? How long do you bake it? How do you grill it? How do you season it? What about side dishes? The first few would have to be built out. They can be high ROICs. After you perfect the model, start photo copying it and franchise them.

Is anyone still following this? I did a quick back of the envelope calculation for the $/SQFT for the company. Assuming no value for the insurance company (let's just go along for now) There are 277k sqft of real estate including redevelopment square footage With 34.1 mm shares outstanding and at 4.04 Cad per share, the total market cap is $137mm Canadian dollars. This implies a valuation of $494 per square foot. Put this in perspective. Manhattan residential is about $1,000 for the generic stuff in NYC Replacement cost and transactions for non-manhattan retail is typically $150-$300/square foot. I've seen comps in the $60-$100 for distressed stuff as well. Manhattan retail can sell for in excess of $10,000/square foot. Keep in mind, Mongolia Growth uses square meter, to covert multiple by 10x to get to a square foot number. From a rental revenue perspective, the 9 month rental figure is 1.174mm. Annualized, this would imply a 87x rental multiple, when the US trades at 10-12x rental multiples. Obviously, there are square footage that aren't generating income. I've seen emerging market real estate go parabolic, i.e. China. But, the $/SQFT is 1/2 of manhattan real estate, I don't know how much more upside there could be. If they were using leverage, then there could be significant upside. This is clearly not the case. I doubt leverage makes sense since the interest rate in Mongolia is higher than 10% and the yield on RE is about the same.

I think that consumer staples in general in emerging markets with large market share and strong brands are good companies to own at the right prices Tingyi - Beverage and instant noodles in China Uni-President China I recall that baby formula companies in general are great businesses. Some dairy business have a hidden gem in it's baby formula business. Mead Johnson is a publicly traded company

I was having a discussion with my friends who invest full time and someone mentioned that he studies up on good companies and knows them very well. When markets crash, he's able to buy with conviction. He mentioned "I know that the home alarm companies and asset tracking companies will continue to receive monthly subscriptions going forward. It is a high margin business with recurring revenue. With Fossil, I'm seriously worried about whether people will buy watches going forward back in 2009." So, I'd like to create a list of good businesses regardless of price to get ready for any impending selloff. Tellular and other home security business - Recurring revenue stream, high margin, good reason for their existences, cost outweighs benefit, hard to duplicate, hard to physically wire 500k homes etc. Most REITs - Long term leases, high margin, trophy assets can't be replaced, i.e. 5th Ave Manhattan real estate, real estate in most land constrained cities, Boston, NY, San Francisco, etc. Unilever, Proctor and Gamble, Coke, - Branded food products - loyal brands, high margin, consumer staple

Some high level thoughts about concentration: 1. Big picture, I try to have 5-10 positions in 2/3 of the portfolio with any single position maxed out at 20% at inception. The other 1/3 consist of event driven/workouts where I expect a return of cash within 12 months. Sounds familiar? Yes, Buffett utilized this allocation. Instead of shorting 20 1% positions, the workout portfolio is in essence my hedge against a 08/09 crash. It is intended to be like holding 1/3 cash, but earns a respectable rate of return of 8-15% a year. 2. Situations that involve high cash balance/asset value relative to EV and management is not expect to make an acquisition, i.e. presence of activists or shareholder friendly management teams makes me a bit more comfortable about building a large position. Obviously cash burn or rapidly deteriorating businesses are exceptions to this rule. 3. I don't mind being concentrated in liquidation plays where I believe the downside is less than 10-20%. You're truly shielded from market risk in these situations. These plays won't make you rich, but the IRRs are nice. 4. For higher reward trades with the potential of going to zero, I set a % of AUM that I can stomach losing. I use the Kelly criterion as a back of the envelope method to calculate a max concentration and then I take that max % down by at least half. It's a bit of an art, but it's not a bad idea to start with the Kelly formula and your rough estimate of what you think the edge/payout are. 5. I also allocate less than 10% toward high conviction LEAP strategies where I am in essence capping my loss at the cost of my premiums, i.e. a 1% LEAP position in JCP. I'm in essence paying for the benefit of hindsight in 1-2 years while capping my losses. 6. I avoid having multiple of the higher reward/potential zero trades simultaneously as a 08/09 style selloff can potentially wipe all of them out simultaneously 7. I also try to minimize my holdings in financials as the equity is inherently levered 10 to 1. I have a healthy respect for Black Swan events and think that the world is caught between the "cliff of deflation and the hell fire of inflation."