Making 50% per year like Buffett (on small sums)

[ERICOPOLY]

Eric, To be clear... When we were buying those calls FFH did not look anything like a sure thing.  I'd have to check but I am pretty sure the calls went into a loss position right away.  Mine were all Leaps.  To this day I have short term calls only once or twice and the result has been a wipeout. 

 

June 2006 was when I first bought - FFH started to look as though it would survive by this point.  Then came the lawsuit, and then the restatement.  It was exciting but not alot of fun. 

 

My observation is that most people would not invest in these at the time because FFH looked like too much of a wipeout.  Exact same thing happened in March of 2009.  And the exact same thing was happening on this board this summer when blue chips had reached generational lows. 

 

 

 

You're right.  I remember being down quite a bit on those calls within the first few weeks of ownership.  It might have been 50%.  That restatement however is what shook my confidence -- I blame it in part for my selling too early.  I still trusted management, but I no longer trusted that the market would drive the stock up so high so fast.

[Guest]

eric, are you retired full time now? do you still invest or sitting on bonds collecting interest?

[Guest Dazel]

 

What is a realistic number to retire on these days? any thoughts?

 

Dazel.

[Myth465]

I would retire on $1 million, as an investor $2 million.

 

I figure I can earn 7.5% to 10% on that cash and live off $60k - $100k. I would still do stuff but my 9-5s wouldnt be fully booked.

[shalab]

I think 5 million with house, car paid off is a safe figure - so you dont have to rely on investing prowess to survive.

 

On the other hand, 1 million in liquid assets may also suffice if it can be compounded at 7-10%/year.

[Eric50]

Why retire if you like what you do?

[ERICOPOLY]

eric, are you retired full time now? do you still invest or sitting on bonds collecting interest?

 

Retired at 34 (37 now) but not in bonds (nothing in bonds).  I have enough invested in stocks to live on dividends -- so all in equities.  There's risk to that, but I don't like the compounding prospects of bonds after tax and inflation.  If I'm in bonds is there room for me to spend 3% of net worth every year and still have my investments keep pace with inflation?  Here is the thing... to live on 3% pre-tax income with projected inflation of 5% per annum over the next 10 years and 38% tax rate I'll need 11% pre-tax from bonds!  Okay, that's not blue chip yield territory!  On the other hand, I can own blue-chip stocks that pay 3% and generally speaking they'll hold the line with earnings and ultimately dividend increases matching inflation (plus some real growth perhaps).

 

So at age 37 I've just got too many years left to risk it in bonds -- inflation will slowly destroy me.  So I've chosen equities.  Now, if I were 80 yrs old my attitude would be different because I wouldn't have enough years left for a 2% loss in real net worth per annum to matter.  But from age 37 a 2% annualized purchasing power loss adds up and is unsustainably risky.

[ragnarisapirate]

Great thread guys.

 

2 things:

 

1) are there any good value leaning books on options?

 

2) Is anyone else buying SHLD calls?

[Myth465]

I have learned alot about options from this board. I think the main thing is you need a catalyst. I am not buying Sears calls because I dont see one.

[shalab]

So at age 37 I've just got too many years left to risk it in bonds -- inflation will slowly destroy me.

 

Eric - you are absolutely right. There is a story about a widow in Chris Brown's book in the "the little book" series. In this case, a widow was asked by her advisors to put her money to bonds and at the end of her life, she had to rely on her sons as inflation destroyed the value of principle. However, he advised one of his clients to put money in Berkshire and the results were different :- ) and this was the seventies.

[Uccmal]

ragnar,

 

None that I have ever seen.  I have learned from board members and through trial and error. 

 

I go by the following premise:

1) Common stock must represent a value first.  That is, I would buy the common but I can get leverage through Leaps.

2) Leaps must be available and have some liquidity and not be obviously overpriced.  - to that end I wont buy Leaps in Canada any longer.

3) Options formulas are useless because you need to guess key inputs.  If I have to use a formula that requires me to guess key inputs them I have not done the job in Number 1. 

 

As said above I buy only Leaps >= 1.5 years left.  Sell no puts, calls, or anything else.  I buy Put Leaps on occasion as insurance but have moved more toward selling stock and holding cash. 

 

Recent option purchases:  wfc, bac warrants - Super Leaps.