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worst of times?


Guest cherzeca
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Guest cherzeca

for a long term investor seeking to preserve wealth, equity indexes are elevated. fixed income pricey, with plenty of interest rate risk.

 

what to do?

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Go long convexity. It's going to blow (just font know when) ... so long vol and long bets that pay on major drops.

 

Interested: what do people here see as cheap ways to go long vol? Vxx calls seem expensive to me, even at strikes twice current prices on short maturities.

 

C.

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Big US banks are still inexpensive, Berkshire was cheap two months ago, Fairfax was/is way out of favor, Biglari Holdings is reviled but priced less than liquidation.  Did you just get a bunch of new capital to put to work?  Seems like there's been plenty to buy and plenty to sell in the last half year.

 

How much money has been lost by those on this board that continue to try to trade the coming market crash instead of sticking to what works for them.  This guy says he's a long term investor and you want him to go long volatility?

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Guest cherzeca

Go long convexity. It's going to blow (just font know when) ... so long vol and long bets that pay on major drops.

 

Interested: what do people here see as cheap ways to go long vol? Vxx calls seem expensive to me, even at strikes twice current prices on short maturities.

 

C.

 

i've looked at long puts and vix vixens, and i dont like the pricing.

 

i am more than 50% cash and waiting in my "conservative/wealth preservation" portfolio.  i think we are in a shoe store, just dont know when they will start dropping.

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Guest cherzeca

Big US banks are still inexpensive, Berkshire was cheap two months ago, Fairfax was/is way out of favor, Biglari Holdings is reviled but priced less than liquidation.  Did you just get a bunch of new capital to put to work?  Seems like there's been plenty to buy and plenty to sell in the last half year.

 

How much money has been lost by those on this board that continue to try to trade the coming market crash instead of sticking to what works for them.  This guy says he's a long term investor and you want him to go long volatility?

 

thanks for response.  while i am a big believer in researching individual names, for this wealth preservation portfolio i am preferring indexes.  "if you want to make wealth, concentrate; if you want to preserve wealth, diversify".  i am not keeping up with inflation with so much cash, and btw, my cost inflation seems to be trending well above 2%...

 

"Did you just get a bunch of new capital to put to work"  just trying to defease a hopefully long retirement

 

 

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I'll mostly +1 globalfinancepartners.

 

Go classic 60/40 or even 50/50, total US market + some intl on stock side, some good bond fund on fixed income and forget all the fancy options/vol/convexity/blahblah.

 

And yeah, even at these yields, good bond fund will outperform cash.

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Guest cherzeca

Did you own the US stock market indices at a lower level?  If so, why did you sell?  Is Berkshire Hathaway not diversified enough to sub into a 'wealth preservation' portfolio?

 

i have sold banks given the nice run up.  also i have a risk-on portfolio that makes me view the conservative portfolio with perhaps too much risk avoidance.  some cash is from a cash balance retirement plan that distributes only cash. 

 

but i do believe that market timing on the downside makes sense...meaning buy dips.  just havent seen too many dips.  if you are saying buy and hold, i get that. but i prefer buy on dip and hold till you can sell and take a profit...

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I was adding, or writing puts on, BRKB when <$170. BRKB is my largest position.

 

My second largest position is WFC and I  have been writing puts at strike prices of $50-55 for the last 8 months, usually 1-3 weeks out. I'll hold some of the positions I've gotten put to since I don't own 10% of WFC yet  ;) I've also sold some by writing covered calls.

 

I recently bought some GILD in the sixties and AMGN in the one sixties and they are still reasonably priced.

 

Other than that I can't find much.

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Big US banks are still inexpensive, Berkshire was cheap two months ago, Fairfax was/is way out of favor, Biglari Holdings is reviled but priced less than liquidation.  Did you just get a bunch of new capital to put to work?  Seems like there's been plenty to buy and plenty to sell in the last half year.

 

How much money has been lost by those on this board that continue to try to trade the coming market crash instead of sticking to what works for them.  This guy says he's a long term investor and you want him to go long volatility?

 

GLRE was cheap @~80% book value with a new CEO with a Lancashire pedigree.

 

Yeah I want to like GILD just because they haven't been dumb and "done a deal."  But it is beyond my depth.

 

Retail and autos are in crapper.  EAFE financials...

 

Seems like quite a bit of dispersion in valuations in this market really.

 

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Yeah I want to like GILD just because they haven't been dumb and "done a deal."  But it is beyond my depth.

 

I sold GILD last time when they were "dumb and did a deal". That cost me a 5 bagger.

 

I guess it was also beyond my depth.  8)

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Here's what I would do if starting now. Figure our what you would like your ideal overall asset allocation to be. Meb Faber has some useful white papers and a book on this at his website http://mebfaber.com/. Consider buying assets that are cheap now ... emerging markets, especially small caps (you can get broad exposure through First Trust Emerging Markets FEMS and other etfs), Japan, etc. Hold cash to buy investments in the other components of your ideal allocation as they become "cheap" enough for you to feel comfortable. Periodically survey investments in the under owned segments of you ideal allocation to find candidates that meet your criteria.

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Yeah I want to like GILD just because they haven't been dumb and "done a deal."  But it is beyond my depth.

 

I sold GILD last time when they were "dumb and did a deal". That cost me a 5 bagger.

 

I guess it was also beyond my depth.  8)

 

Yeah, if they make a move after (another) biotech crater I might buy some just based on faith in management and respect for their ignoring investment bankers for years.

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Well a large cash position is a position to take advantage of convexity ... if you pull the trigger when the time comes!

 

Big US banks? That may well be - with rising rates, prices near BV and ROEs ticking up, but it sort of feels like that's a play for another a few percent against a market backdrop where everything may be sold indiscriminately again (as I said up top, just not sure when).

 

 

Go long convexity. It's going to blow (just font know when) ... so long vol and long bets that pay on major drops.

 

Interested: what do people here see as cheap ways to go long vol? Vxx calls seem expensive to me, even at strikes twice current prices on short maturities.

 

C.

 

i've looked at long puts and vix vixens, and i dont like the pricing.

 

i am more than 50% cash and waiting in my "conservative/wealth preservation" portfolio.  i think we are in a shoe store, just dont know when they will start dropping.

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Also, I think long vix is an extremely expensive trade. The cost of rolling over the contracts monthly or whenever they do it makes it tough as a long term trade if I remember right. So most of these traders that are "short vix" aren't really betting that volatility will stay at record lows, they're just betting that transaction expenses will continue to be high and vix wont swing too dramatically. I think most derivative-linked ETFs are like that. I thought about buying the 3X long oiat one point, but the chart didn't seem to match up with the "3X".

 

Of the two companies I've reduced positions in this week one is now up 75% and one is now up 20%. So if helpful I can just post what I'm doing and everyone can do the opposite.  8)

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Firearm stocks are attractive right now.  Look at RGR / AOBC.  I know, I know.. ethics.  Just don't tell anyone you bought them or you can blame it on me.  Not something you can exactly sink half your portolio into but could be one part of a diversified portfolio.  I think the market is over-reacting / over-predicting a large slowdown in purchases.  Earnings will pull back a bit for sure but still too cheap right now.

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Firearm stocks are attractive right now.  Look at RGR / AOBC.  I know, I know.. ethics.  Just don't tell anyone you bought them or you can blame it on me.  Not something you can exactly sink half your portolio into but could be one part of a diversified portfolio.  I think the market is over-reacting / over-predicting a large slowdown in purchases.  Earnings will pull back a bit for sure but still too cheap right now.

 

no free lunch,

 

RGR is very cheap. How do you get comfortable around sales going forward ? What if we are the top of the cycle for revenues? Any insight into revenue visibility would be appreciated. Thanks

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RGR is very cheap. How do you get comfortable around sales going forward ? What if we are the top of the cycle for revenues? Any insight into revenue visibility would be appreciated. Thanks

 

Last year was probably a peak that won't be repeated for awhile but I don't think sales will plummet.  Based on what we have seen so far this should be the second best year ever.  The industry will gear down is my bet.  The average earning estimate for AOBC for this year has the PE at 12 and next years avg estimate has them at PE 10.  Those estimates build in a large drop down in earnings, 30-40%, from last year so it is cheap even if sales drop.  Sales just need to stabilize at some point and I think it will have to rise. 

 

They have outperformed their earnings estimates in each of the past 4 quarters so there's that too.  Generally by large margins too of 20%+.  Maybe just a fluke but maybe people are too pessimistic on it.  I think it's great if people hate the industry.  Hopefully insiders get fearful and pull back on production.

 

You need to size this accordingly, it's a competitive industry.  I actually much prefer AOBC but I am probably going to buy RGR just to diversify.

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If you go back to the mid-2000's (the Bush era), earnings for gun companies would imply significantly more risk than 30-40% of earnings. Both of those companies were averaging EBITDA in the teens versus current LTM of ~$150M (RGR) and ~$250M (AOBC). There's a lot of theories on how the market's changed (boy scout gun merit badges have increased as an example), but just be careful basing a downside on 30-40% downside. I know at least AOBC has been diversifying, so maybe that helps.

 

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Here's what I would do if starting now. Figure our what you would like your ideal overall asset allocation to be. Meb Faber has some useful white papers and a book on this at his website http://mebfaber.com/. Consider buying assets that are cheap now ... emerging markets, especially small caps (you can get broad exposure through First Trust Emerging Markets FEMS and other etfs), Japan, etc. Hold cash to buy investments in the other components of your ideal allocation as they become "cheap" enough for you to feel comfortable. Periodically survey investments in the under owned segments of you ideal allocation to find candidates that meet your criteria.

 

Thanks for sharing. What is the best place to park the cash in the meanwhile, as executing this strategy for me seems to be on a 3-5 year timeline.

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