dipod Posted February 15, 2023 Share Posted February 15, 2023 Extremes seem to pop off at different times in the markets. Obviously investing in companies that are well priced, stable, and growing earnings with good future prospects makes the most sense (and should take up the bulk of an investors portfolio). I do sometimes wonder about devoting a small percentage of an individual's portfolio to exploiting these extremes to add some alpha. Clear cut ones don't show up all the time but they do present themselves every now and then. a)EV bubble of the 2020s comes to mind. Lots of these companies with no positive earnings traded at insane valuations. There were also non-EV firms that just had one idea or the other with almost no discernible earnings that were bid up to insane multiples: PLTR is a good example. b)The great crude oil lows of the 2020s. There was a time when CVX dropped to the high 60s. There was maximum pessimism at the time. It has roughly tripled from these lows. c)The crazy BTC surge before it's more recent drop. Companies like MSTR and MARA were insanely priced. They almost fit what a reasonable observer might call a bubble to a T. d)Big TECH (META comes to mind) also had a very negative run last year. But they have heavily rewarded individuals that bought at their ridiculous lows. As a younger investor with some, but not as much experience compared to the others on this forum, would you call making directional bets on these kinds of opportunities value investing? I imagine that some of these asymmetric opportunities could generate significant returns if a long term mindset and well priced derivatives are acquired (say LEAP Calls and Puts). With derivatives, the max loss can be pre-defined but the gains can be notable under the right circumstances. There's obviously the issue of the market remaining irrational for prolonged time periods. I recently watched the documentary on the Beanie Mania and it was quite instructive on how human psychology does move things in strange directions that make no long term sense. From the informal side, I notice that a good source of these "extreme ideas" is just informally gauging what financial media is heavily fixated on. On a semi-quantitative basis, many reddit threads kept mentioning the death of many tech companies during the back half of last year. There were very few threads talking about any value in names like META. Over time, mean reversion has taken its course with many of them. In a currently playing out scenario, AI has become the new buzzword on social media. Lots of these AI firms have been bid up quite significantly over the last few weeks. I believe AI is certainly useful but it does not explain why names like NVDA, C3.ai, BBAI should almost double in a short time frame. Lots of rambling on my part but for those with experience in situations like these, how do you typically evaluate these opportunities, size them, and make bets? And mods, pls delete this if it's not appropriate for this sub. I read so many of the posts on here and learn a ton from them. Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 16, 2023 Share Posted February 16, 2023 (edited) We have always made directional bets over a 6 yr time (12% ROE, double in 6 yrs). We focus on commodities because we're smart enough to know that we can't predict direction with any reliable accuracy; but over a 6 yr period we will experience at least one full commodity cycle. As long as we are willing to average, or round-trip; even if we bought at the absolute top, we're probably going to do very well. The obvious instruments are LEAPS, convertibles, and long-term warrants. In the corporate world, DOL x DFL = ROE. In the investment world DOL is via the instrument, DFL is via the margin used. Risk manage accordingly. Because you need to wait, tax planning is an issue. Make 5x, vs 2x, and a poor choice will burn you. And 'cause we know we're dumb, we pay off debt with all capital > $X. Thereafter, it comes down to temperament, taste, risk tolerance, and expertise. Not for everyone. SD Edited February 16, 2023 by SharperDingaan Link to comment Share on other sites More sharing options...
nafregnum Posted February 16, 2023 Share Posted February 16, 2023 While I was trying to find a quote, I ran across some good comments from Allan Mecham -- he says he just has a basket of favorite companies which he thinks are run well, and he ends up just trading in and out of those because he already understands them from reading their reports and watching them for multiple years -- just sits still and waits for one of them to hit a speed bump one quarter and buys if the market overreacts and offers a good price. https://acquirersmultiple.com/2017/01/allan-mecham-look-for-cockroachlike-businesses/ It seems similar to the idea you're working on, but it might give a person a little more conviction to hold through any temporary pain. Buying at max pessimism is the goal, but so hard in practice, because by definition it's not "maximum" until even you are feeling pessimistic too. I could feel the pessimism hitting Target in 2016 or '17 when Amazon bought Whole Foods and TGT got whacked just because everyone thought Amazon was gonna kill all retail. It was a good entry point for a long-term holding, but might not have been the "best" business I could've bought at the same time. The CNN site has a "Greed and Fear" index meter. I wish I had the same meter for each individual stock. Anybody know of a site that does that? Link to comment Share on other sites More sharing options...
dipod Posted February 16, 2023 Author Share Posted February 16, 2023 Thank you all. Very useful points. In terms of an informal fear and greed for a stock, I love to look for unusual bumps to new lows or new highs based on a sudden change. For example a 1 day 20-30% drop gives me reason to take notice. Link to comment Share on other sites More sharing options...
competitive-advantage Posted February 16, 2023 Share Posted February 16, 2023 Fool.com had a number that showed how many percent of the users expected the stock to beat the index. I don’t know if it’s behind paywall now or just gone. Recently I invested using Grahams Simple Way, but it’s to mechanic for me. I prefer to find great companies and just wait for them to reach a fair price. Link to comment Share on other sites More sharing options...
learner Posted February 17, 2023 Share Posted February 17, 2023 There was another post about an investor that invested in S&P500 and just traded in and out of BRK in a tax shielded account. Made high teens return Link to comment Share on other sites More sharing options...
CorpRaider Posted February 17, 2023 Share Posted February 17, 2023 (edited) Maybe you want to look into time series momentum AKA trend following. Edited February 17, 2023 by CorpRaider Link to comment Share on other sites More sharing options...
ValueArb Posted February 25, 2023 Share Posted February 25, 2023 Brownfield Capital. Link to comment Share on other sites More sharing options...
Simba Posted February 25, 2023 Share Posted February 25, 2023 Yes to all your points. Takes a heck of a lot of time + effort (almost a full-time job in of itself to be honest). Riding a trend is fun, just hop on the F*** off, before the station peaks (i.e. when you have 10M Redditors all-in on meme stocks, that's your sign to head for the exits). Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 25, 2023 Share Posted February 25, 2023 At 100,000 feet, most approaches are broadly similar; sit in 'good' companies, take the time to know/understand the darlings of choice, and swing trade. It is good advice, it rewards the patient, and most would do very well. But the approach ASSUMES that the darlings are industry monopolies/oligarchs, earnings aren't materially volatile, and they are largely a function of the broader economy and competent management. Dividends will almost always continue to get paid; simply forecast the macro, and bet on Mr Market periodically mispricing. A great deal of the conversation on the COBF board! Commodities simply amplify earnings volatility, and mitigate reliance on competent management. Share buybacks versus dividends, forecast the commodity cycle, and no reliance on Mr Market periodically mispricing. Diversify by forecasting 2-3 commodity cycles, risk manage by pushing anything > $X into treasuries. The higher CAGR and periodic adverse 35% drawdown, offset against a stack of treasuries. Not viable, UNLESS you have a longer investment horizon. SD Link to comment Share on other sites More sharing options...
Sweet Posted March 12, 2023 Share Posted March 12, 2023 The collapse of Silicon Valley Bank has been followed by expectations that there will be more runs on regional banks - who knows. Regardless of what happens it’s seems likely that stock prices of regional banks that will get throttled by the extreme shift in sentiment. If a few survivors can be identified a lot of money could be made. Link to comment Share on other sites More sharing options...
Castanza Posted March 12, 2023 Share Posted March 12, 2023 (edited) 8 minutes ago, Sweet said: The collapse of Silicon Valley Bank has been followed by expectations that there will be more runs on regional banks - who knows. Regardless of what happens it’s seems likely that stock prices of regional banks that will get throttled by the extreme shift in sentiment. If a few survivors can be identified a lot of money could be made. A basket of long dated call options in some of these could be interesting Edited March 12, 2023 by Castanza Link to comment Share on other sites More sharing options...
Gregmal Posted March 12, 2023 Share Posted March 12, 2023 Truist I’m going to keep an eye on. However I think the money will be finding a few derivative trades of the regionals. Not sure exactly what they are yet, but things that get thrown out with the bath water due to guilty by association or shoot first ask questions later mentality. I think we already kind of saw signs of this with JPM getting crushed and then reversing Friday. The dumb dumbs and bots will bid down everything, but then real investors will realize winners are being given away. Not much different than tech stocks in March of 2020. Folks sold them and it’s like yo, you realize this is good for them, right? Link to comment Share on other sites More sharing options...
Sweet Posted March 12, 2023 Share Posted March 12, 2023 (edited) 33 minutes ago, Castanza said: A basket of long dated call options in some of these could be interesting Castanza, could you help me understand the chart. Obviously the more retail deposits you have the lower risk your total deposits are - according to the chart at least. However what about loans vs securities? Can we generalise that the higher the loans plus securities the better? JPM, C and SIVB are notable outliers here. Edited March 12, 2023 by Sweet Link to comment Share on other sites More sharing options...
Castanza Posted March 12, 2023 Share Posted March 12, 2023 22 minutes ago, Sweet said: Castanza, could you help me understand the chart. Obviously the more retail deposits you have the lower risk your total deposits are - according to the chart at least. However what about loans vs securities? Can we generalise that the higher the loans plus securities the better? JPM, C and SIVB are notable outliers here. You’d have to dig into the holdings to see what they are and if they hedged. But I believe that is the general consensus. For the situation on hand it seems like deposits stickiness, size and diversity are more important. Link to comment Share on other sites More sharing options...
dipod Posted March 12, 2023 Author Share Posted March 12, 2023 Was actually discussing this with a buddy last week. Bought a good slug of common shares this week but if the contagion continues next week, making selective purchases of LEAP calls makes a lot of sense here. I personally love JPM, C, SCHW, and some of these regionals. Link to comment Share on other sites More sharing options...
lnofeisone Posted March 12, 2023 Share Posted March 12, 2023 1 hour ago, dipod said: Was actually discussing this with a buddy last week. Bought a good slug of common shares this week but if the contagion continues next week, making selective purchases of LEAP calls makes a lot of sense here. I personally love JPM, C, SCHW, and some of these regionals. This is my plan. Buy some IAT as this saga unfolds and if we go lower, start picking up LEAPs in the likes of PNC, TFC, BAC. Link to comment Share on other sites More sharing options...
LearningMachine Posted March 12, 2023 Share Posted March 12, 2023 (edited) 3 hours ago, lnofeisone said: This is my plan. Buy some IAT as this saga unfolds and if we go lower, start picking up LEAPs in the likes of PNC, TFC, BAC. I think there might indeed be dichotomy between market's voting machine and the reality of risk of bank runs at regionals. Ackman's comments don't make any sense about widespread contagion to regionals. Unlike at SVB, my guess is 99th percentile deposit at the average regional bank is going to be under FDIC limits. So, there is a chance market might offer opportunities, even though regionals don't have the cost-of-deposit, tech-investments, operational-leverage-improvement benefits of BAC. @lnofeisone, instead of IAT (which is focused on bigger 37 regional banks), why not keep an eye on KRE (which has 143 holdings, including smaller banks). There is a chance KRE might end up facing the dichotomy more, and as a result might end up falling more due to contagion from SVB in the stock market but maybe not in reality because percentage of deposits protected by FDIC will probably bigger with KRE than IAT. See https://www7.fdic.gov/sod/ . Sure, in the extreme case, maybe risk might end up materializing for a few banks in KRE, but that is just a few of 143. If the risk does materialize for a few, KRE might drop a lot, creating opportunities. Thoughts? Edited March 12, 2023 by LearningMachine Link to comment Share on other sites More sharing options...
SharperDingaan Posted March 12, 2023 Share Posted March 12, 2023 (edited) This is 2023, not 1993; the banking thing is just getting started. This is the age of social media, crypto, 'bots and viral growth/decay. Volatility is materially higher as impacts that used to take days to spread, now take hours. Crypto is full of black swans, the ecosystem is really a global network 'too big to fail', and any one of these swans is severely disruptive. Regulation is reactive, messy, and not getting any better. There's no need to rush. Example: There are some who believe that simply because they asked SVB (on Friday) to wire their money elsewhere, the wire will be honoured. There are others who recognize that if the money hadn't left SVB during the day on Friday, you're now just an unsecured creditor (above the 250K deposit insurance limit). A crypto stable coin had USD 3.3 billion on deposit, it has had to significantly 'break the buck', and founders are desperately putting up their own capital - praying they can avoid a run. At least 2 other lessor but better known stable coin are in similar straits .... As the coins run off the collateral USD paper has to be sold. However with supply flooding the market across most terms, price has to immediately fall and yields immediately rise. If the yield curve is not to rise abruptly the fed has to step in as buyer of last resort - following which there will not be any future rate hikes for a while. The media screams panic, the financial sector cries 'uncle', but 2-3 months out? ... the broader economy actually does pretty well. A good 'blow-up', and there ain't going to be anywhere near as many obstacles to getting inflation down. SD Edited March 12, 2023 by SharperDingaan Link to comment Share on other sites More sharing options...
SharperDingaan Posted March 12, 2023 Share Posted March 12, 2023 Sadly, no crypto implosion ..... https://www.wsj.com/articles/federal-reserve-rolls-out-emergency-measures-to-prevent-banking-crisis-ba4d7f98 “After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the president, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, Calif., in a manner that fully protects all depositors,” they said. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” SD Link to comment Share on other sites More sharing options...
Castanza Posted March 13, 2023 Share Posted March 13, 2023 (edited) Truist CEO retired....today.... Edited March 13, 2023 by Castanza Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 13, 2023 Share Posted March 13, 2023 (edited) 54 minutes ago, Castanza said: Truist CEO retired....today.... wow... talk about timing... don't lock the fire doors behind you... Edited March 13, 2023 by fareastwarriors Link to comment Share on other sites More sharing options...
Spekulatius Posted March 13, 2023 Share Posted March 13, 2023 Just now, fareastwarriors said: wow... talking about timing... don't lock the fire doors behind you... I am sure the new CEO has a great time on his first day on the job. Link to comment Share on other sites More sharing options...
hasilp89 Posted March 13, 2023 Share Posted March 13, 2023 think it was the CEO of Truist Securities not the bank. Link to comment Share on other sites More sharing options...
Castanza Posted March 13, 2023 Share Posted March 13, 2023 23 minutes ago, hasilp89 said: think it was the CEO of Truist Securities not the bank. Haha good catch! Still significant and a bad day to leave! Link to comment Share on other sites More sharing options...
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