How much and how fast will it go back up?

[oec2000]

did you not say that it you are unwilling to buy, you should also be unwilling to sell?

 

Of course, I meant, 'if you are unwilling to buy, you should also be unwilling to hold?"

[Guest ericopoly]

I try to keep things simple in order to focus in on the basic idea, not to artificially strengthen my assertion.

 

Then, please practice what you preach.

 

 

Somebody always gets hostile.  Now, what are you suggesting?

 

 

 

The only reason I repeated the tax assertion was to respond to your remark that "there are also places in the world where there are no capital gains tax." (You'll get my meaning if you see what I had pasted prior to making the point about most of us living where tax matters.) In any case, my argument does not rely on the tax issue alone.

 

 

I frankly didn't realize that you were using the tax question as a minor point in support of a larger assault.  So when I asked you to put it aside, it wasn't a ploy to dismiss the rest of your argument. 

 

I see the tax issue as a separate point from your uncertainty argument.  You can have uncertainty in a tax-deferred account, so you can understand my honest mistake.  Now, one of the problems of tying them together into a coordinated assault is that you are getting defensive of the one if I discuss the other... I'm not quite sure how I can proceed if it's going to be that way.

 

 

If you cannot handle two issues at a time, then you can ignore my tax comment - my second point does not rely on it. It is just my preference to discuss issues in a real world setting - theoretical discussions can get distorted completely out of whack with reality. To paraphrase a really smart guy, we should keep things as simple as possible, but no simpler than that.

 

 

Can I handle two issues at a time?  I think I've already suggested that you are hostile.  Now, if I remember correctly, you are the one with the Investing 101 remarks, am I right? 

 

I am happy to hear that your second point does not rely on your tax comment, because that's how I've treated them... as separate unconnected points.

 

 

Your tax situation is as irrelevant as mine (which happens to be the polar opposite of yours - hardly anything in tax-deferred accounts) unless the aim is to artifically strengthen your assertion that tax doesn't matter.

 

 

Man... insinuation that I may be artificially strengthening my assertion.  Can a conversation be had without so much hostility?

 

 

 

I was not prepared to do -- and that is to overweight a position.

 

This is a valid argument and I accept it. However, I also read your explanation to mean that if you decide to buy something, you will buy the full weighting immediately (assuming there is enough volume) - if it's a buy, then you should keep on buying till you are full. In this case, can you please explain why you were happy to hold your, presumably, full FFH position at $300, choose not to add at $250 but then decide to add below $220?

 

 

I have held a notional amount in FFH calls of 100+% this entire year.  When it got really cheap I made the "+" bigger, it was a greed induced decision based on perceived upside.  As the shares climbed 20%, the feeling of greed went away and I worried more about it going back to that level and possibly lower, so I sold and told myself that I would just buy it back again for another round trip if the stock drops back under $220.

 

I really don't know why you are interested in this trade.  It is almost as if you are wanting to show that I am not perfectly logical -- which is fine becase I will readily admit that I am not.  I strive to be though! 

 

The other day I had pizza even though I know it will give me heart disease.  That might actually cheer you up given how much you seem to hate me.

 

Somehow though, I have this nagging sensation that you wish to discredit my assertion that a hold is logically equivalent to sell/cash/buy via a distracting line of questioning pertaining to my personal FFH trades.  But yet I go along with the game and I answer your questions.

 

I can tell you that I plan on holding my FFH for a very long time because, as I've said many times, I see it as an actively managed mutual fund levered with float.  It is different from holding something like KO where one is left with only the investment returns if speculative returns are not captured.  FFH is doing the trading under the covers.

 

So I will always have a core holding of it, as I will always be willing to buy or hold it at most reasonable prices (and certainly $300 is quite reasonable).  The income from the float will erode most modest premiums to book over the span of a few years, but if we get up close to 2x book I will be making some hard choices as I will not want to wait around for float to erode that big of a premium.  I like float, but I don't like paying very much for it because market is fickle and can reverse .

 

Mungerville said recently that he doesn't really view ORH as a stock -- I am the same about FFH.

 

 

You also say that you were not prepared to buy FFH calls at $250 on the way down and that's why you are not prepared to hold the extra calls on the way up. But, by your own original argument, did you not say that it you are unwilling to buy, you should also be unwilling to sell? That being the case, you should logically sell out completely your FFH position at $250. In fact, you were also unwilling to buy at $230 - so why did you not sell out at $230?

 

I was feeling greedy so I increased the weighting at the super whopping discount.

 

 

In fact, you were also unwilling to buy at $230 - so why did you not sell out at $230?

 

 

We could be married, you know.

 

I felt the stock would go up further in the next few days, so I held.  Trust me, it's hard to sell anything at $250, let alone $230.  Something in my gut told me to wait for more easy money.

 

I am not fully logical, however I strive to be.

 

 

 

The screaming buy is the price that offers both the highest attractive investment returns and the highest speculative returns (at the same time!!), the "hold" offers less of both (so the motivation to sell it should be the same as the reason not to want to buy it -- it no longer "does it" for the greedy side of me).

 

I think this is what Jack meant by non-sequitur. You don't directly address my question as to whether there is a precise point ($350.37!) at which FFH changes from a buy to a sell for you. If there is, I would love to learn how you arrive at it.

 

 

To be honest I thought Jack was insulting you in some way -- went completely over my head  >:(

 

Now, if you ask me how I determine my sell price and I start talking about baseball, okay, you've got me.  That kind of an answer does not follow from the question (look up non sequitur).   

 

However, my answer to your question was that (rather than a precise numerical figure) it's the price that no longer "does it" for the greedy side of me. That's pretty direct logical flow from your question!  It's not a non sequitur, so I don't feel so bad for it being over my head.  Phew!

 

I think Sanjeev once passed a comment about either Prem or Roger Lace pulling the trigger when their toes tingle.  Now, are you going to say their answer (if in response to your question) is a non sequitur?  Would you get hostile with them about it?

 

I will know the right price when I get there, and I really thought you'd be quite okay with that kind of answer.  To give you more, it will be at a positive book multiple in the range of 1.5x-2x and on the day I sell it will be because I will be scared about a steep pullback, and I will sell.  I will likely think about the time that it traded at 1.75x US GAAP book in early 2007 and how I wished I'd sold out completely.  Remember, my view on FFH is that it's just an investment fund with float.  I want the float to be a tailwind, but it has to blow mighty hard to fill the sails of 2x book.  At that price I would take it out and put it in an investment fund... but that's what I say now.  I bet you at 1.7x book I'm fully out.  I gave you the best answer -- I'll know it when I get there. 

 

And you are right -- if the tax rate is too high it will be a consideration not to sell.  Nothing taken away from your point, but I didn't want you to get stuck in that rat hole without getting the value from the logical exercise, because often either the tax hit isn't enough to worry about given an extreme valuation, or simply it's held in a non-taxable account.  There's also the complication from puts -- one might buy a put at-the-money instead of selling, and I would use that strategy for FFH if overvalued (another reason to make it simple by leaving taxes out of this given that puts aren't available for all stocks but they work for this example).  Had I mentioned the taxes I would mention the put, then somebody would come back that puts are expensive, then I'd say that they can be financed by writing puts on other stocks, then we'd have margin conversations... blah!  Like I said, I'm not dodging taxes to strengthen my case, it's just a lot to talk about at once because the tax issue isn't as simple as you might be thinking.

 

 

 

Shorting uses up your capital when you could instead put that capital to work buying the next long position with potential for both investment returns and speculative returns.

 

Don't forget that short is speculative returns only -- not nearly on par with long-only potential.

 

Why is short speculative return only if your short/sell decision is based on the same price-value criteria as your longs?

 

 

My concept of a long position is that you make investment returns from the performance of the business, and speculative returns from a relative swing in the valuation premium of the shares.  If the relative swing doesn't happen, I still have a strong return from the business results if I bought at a low price relative to earnings power.

 

My concept of a short position is that you are hoping for relative swing in valuation, but time and business earnings are working against you.  If not earnings, then something like a new issue of shares at inflated prices will reduce the overvaluation.  I just, you know, it doesn't make my toes tingle -- I want the big money, and I don't think it is in shorts.

 

Well, anyways, that's why I don't want to tie up my capital in short positions -- I believe I will do better with long positions.

 

 

 

 

Both long and short positions use up capital. If, as you believe, the sell decision is as easy as the buy decision, shouldn't you be indifferent as to how you deploy your capital as long as you make money. If anything, having a mix of shorts and longs should reduce your risk without reducing your returns.

 

 

Anyhow, I think shorts would reduce my returns because I want the tailwind from the earnings of the underlying business.  Like with Fairfax, if they grow book at 20% per annum and I get an increase of 0.5x book value on top of that, it is my simple thinking that tells me it's better than finding a short position that will fall by 50% in the same time frame.  No kidding though, I haven't taken Investment 101.

 

 

 

 

Let me explain by giving a crude example why I believe buy, hold and sell decisions can and need to be distinguished.

 

To me, something is a buy when it has a big margin of safety - i.e. estimated discount to IV - and the perceived risk/reward trade-off is favourable (better than 1:1). This could mean a 30-50% discount to IV.

 

It becomes a hold when it is closer to estimated IV (and because it is estimated, it cannot, for me, be an exact point like $350.37). There is insufficient MOS for me to buy and there is also inadequate MOS to sell. In this case, price would be in the range of, say, 50-300% of IV.

 

A sell is when the price is so far above IV that I have a comfortable MOS to sell and switch into a better alternative (which could include cash). Remember, the buy and holders are not "buy and hold no matter what." They are "buy and hold until there is a very very good reason to sell."  

 

 

 

All I can say is that I'm not trying to talk you out of shorting.  I've never passed any comments on this thread that disapprove of you idea.  You asked my why I don't short and I told you.

 

I have no problem with "buy and hold no matter what", or "buy and hold until there is a very good reason to sell".  I don't criticize them, I've never done that (certainly not recently anyway).  A couple of years ago I might have been feeling frisky one day, but I don't remember any such criticism anyhow.  There's nothing wrong with that -- my greatest intellectual mentor of investing (Warren Buffett) seems to do it these days. 

 

I simply see the logical equivalents of hold/buy and like to think and talk about it because I have this interest in behavioral finance;  you know, like a psychologist might fully understand displacement, lecture his students about it, yet still fall prey to it.  I can see you as the kid in the psychology lecture standing up and grilling a professor for going over the various tricks that the mind may play, probing the professor with a line of questioning to see if he is hypocritical in his private life.  He's not!  He is merely interested in the topics intellectually, is trying to share them with others, but here you are stamping out his hypocrisy that in his private life he kicks the dog when he's mad at the kids.

 

 

 

 

[Guest JackRiver]

Eric

 

No I was not insulting him.  I was not trying to insult anyone.  In fact I was just pointing out to OEC2000 that he's just banging his head against the wall because you guys are talking around him or talking right through him.  This doesn't have to mean a negative thing.  It could be that some aren't reading his post close enough and therefore misinterpreting what he's trying to say and the replies come back at him in a form unrelated to his point or his questions.  Whatever the cause and if my opinion about what's going on is right, then it's a very hard thing to do, holding a discussion under those conditions.  It will create massive amounts of frustration for everyone.

 

And I don't believe OEC2000 has written anything in this thread that is the least bit hostile to anybody.  This is really bizarre.  Because I'm sitting hear reading this and it actually sounds to me like you guys are attacking him.  Maybe I'm just nuts. 

 

Anyway, I think your point about a hold being a buy is interesting.  I know OEC2000 agrees with you, and I agree with both of you (that is to say I understand the technical logic of it), but there's something about the logic that seems wanting.

 

Now I'm having trouble putting my finger on this, but If I just throw out some thoughts:  technically you could sell and buy back immediately, which outside of taxes and commissions is identical to holding.  So a hold as a buy holds true technically, but what about your earnings yield / cost basis?  I think somebody previously mentioned that that was irrelevant.  I'm just wondering if it really is irrelevant.  Your cost basis/earnings yield that is.

 

Are the two really equal, someone holding with a low cost basis/higher earnings yield versus someone coming to the table to buy with fresh cash (assuming later date and higher price)?  That is to say, are we unknowingly including the original cost basis in our justification of saying a hold is a buy.  Please don't jump ugly with me, I agree with you, a hold is a buy, I'm just trying to think it through to make sure in my mind that its a pure and correct statement/belief. 

 

Yours

 

Jack River

[Guest ericopoly]

Eric

 

In fact I was just pointing out to OEC2000 that he's just banging his head against the wall because you guys are talking around him or talking right through him. 

 

 

Keep me out of the "you guys" group.

 

I was neither talking around him or through him...  rather, I wasn't talking to him!  When did this thread ever become about him?  I never quoted anything he said unless he was directly responding to something I said.

 

Prior to reply #15 (yours, Jack) and reply #16 (Sanjeev's), OEC2000 hadn't even joined the discussion.  Reply #15 and #16 were on the topic of holding long term -- that's the topic I jumped into. 

 

OEC2000 is off discussing short selling for all I can tell, nowhere in the intellectual vicinity of my post.  Then, he starts trying to chew it apart and is simultaneously wanting me to agree with him on some short selling thesis of his that I'm unconcerned about except that he is really pushing it on me hard, so I reply that I don't want to invest without the tailwind of business earnings backing me up if my anticipated speculative gains never show up.

 

I'm the one who ought to feel roughed up -- I never once replied to criticise anything he said unless first spoken too.  Why he or you think my post about buy/hold had anything at all to do with OEC2000 is leaving me scratching me head. 

 

This doesn't have to mean a negative thing.  It could be that some aren't reading his post close enough and therefore misinterpreting what he's trying to say and the replies come back at him in a form unrelated to his point or his questions.  Whatever the cause and if my opinion about what's going on is right, then it's a very hard thing to do, holding a discussion under those conditions.  It will create massive amounts of frustration for everyone.

 

Once again, I never took part in any criticism of his shorting idea.  He did solicit my opinion however, it was sort of like a forced entry into my house where I'm sitting comfortably on my couch and he's all of a sudden standing over me firing questions at me demanding essentially that I address his idea that if I'm going to sell a share I own, I should then be willing to sell a share I don't own.  Talk about non sequiturs!  Selling property you own is normal, it does not logically follow that it is the same as selling somebody else's property.  That's why I thought you were telling him to buzz off with the non sequiturs!  LOL.

 

 

 

And I don't believe OEC2000 has written anything in this thread that is the least bit hostile to anybody.  This is really bizarre.  Because I'm sitting hear reading this and it actually sounds to me like you guys are attacking him.  Maybe I'm just nuts. 

 

 

Jack, please practice what you preach!  And if you can't handle two issues at a time...

 

Somebody comes out of the blue and says "please practice what you preach".  To see it in the context that I see it, consider my visual depiction of a psychology professor teaching a class about displacement, a student discovering he kicked his dog when mad at his kids, and then standing up in front of everyone saying "please practice what you preach".  It's completely inappropriate -- the professor is talking about a concept, and then all this disruption.  Does he have to practice what he preaches?  It's an intellectual idea regardless of the professor -- it can exist in a text outside and apart from the professor's mind, and is he really "preaching" anyhow?  This is why I thought you were scolding him for non sequiturs.  He has a history of this sort of interaction with me -- on a previous instance when he didn't agree with me he said his viewpoint represented "Investment 101", the implication being that mine... well, I'm sure it needs no explanation.  That was one of the last times he's conversed with me... I feel like he has an axe to grind, and it is supported further by the addional turds I find dropped along the trail such as "if you can't handle two issues at a time".

 

This is all in the context where I just laid a idea out there regarding buy/hold, in no way critical of anything he was saying about shorts, and in comes OEC2000 to interrogate me and asking me to practice what I preach.  I'm thinking, what is with this guy?

 

I answer a question about what price I would sell at by saying it is a decision based on relative greed essentially, and he's back at me again demanding that I give a price tag on it.  Well, I was skiing in Montana (Big Sky) during the latest drop.  It was dumping with snow and colder than a witches titty.  OEC2000 might have asked at what price temperature would I quit skiing and head for the bar, and I would likely have responded that I will head inside when my exposed skin is in pain.  There is wind chill, there is wind-driven falling snow pelting my now-sensitive skin.  I mean, my reply is entirely reasonable given that temperature/price... my tolerance for either will be a function of other environmental factors and how much I want a drink.  Yet I don't get through -- instead he comes back at me again accusing me of being rhetorically evasive (non sequitur is a rhetorical ploy used to weaken an opponents position).  I took a class called Logic and Reasoning 101 at the University of Oregon where I spent 5 quarters before transferring.  In that class we studied the logical fallacies -- they literally are tools for smarmy lawyers and intellectual lightweights to win arguments via bamboozling others.  I'm not going to use them on purpose because I think that's for people who can't think enough on their own to debate a topic on it's merits.  It's insulting to accuse someone of resorting to them when you're not right about the accusation!  It isn't an insult to accuse me of it when the accusation is real, but it's not real.

 

 

Anyway, I think your point about a hold being a buy is interesting.  I know OEC2000 agrees with you, and I agree with both of you (that is to say I understand the technical logic of it), but there's something about the logic that seems wanting.

 

Now I'm having trouble putting my finger on this, but If I just throw out some thoughts:  technically you could sell and buy back immediately, which outside of taxes and commissions is identical to holding.  So a hold as a buy holds true technically, but what about your earnings yield / cost basis?  I think somebody previously mentioned that that was irrelevant.  I'm just wondering if it really is irrelevant.  Your cost basis/earnings yield that is.

 

 

I think the cost basis is why many people keep on holding -- I think many feel like the money they put into it is all they serve to lose, but what I think is that the last market price that was offered to them is what they stand to lose.  Sanjeev felt this way when he sold FFH in November to hunt better risk/reward.

 

 

 

Are the two really equal, someone holding with a low cost basis/higher earnings yield versus someone coming to the table to buy with fresh cash (assuming later date and higher price)?  That is to say, are we unknowingly including the original cost basis in our justification of saying a hold is a buy.  Please don't jump ugly with me, I agree with you, a hold is a buy, I'm just trying to think it through to make sure in my mind that its a pure and correct statement/belief.   

 

 

Last summer I went over to the other side of the fence and read some conservative political books (Thomas Sowell's Civil Rights for example).  I wanted to hear what "the other side's" intellectuals were saying, because I live in a social climate of liberals only.  Along a similar vein, I also took the time to read Jim Cramer's book, Confessions of a Street Addict.  It was entertaining.  Now, when he was just getting started off managing money he got some advice from a trader he respected:  clear your head, sell everything.  The purpose of that exercise was that it would put him into cash, and he would therefore have to physically buy them back to maintain his previous position.  When doing so, he realized that it was harder to buy them back than it was to do nothing and hold them.  In other words, it made him realize that perhaps he should be digging around to see that these truly still are the only stocks he wants to own (things had changed since he originally bought them -- other stocks looked better and some of his prior holdings didn't look as good relatively as they once did).

 

Now, I'm not advocating that anyone sell everything to clear their head.  I haven't done that and don't plan to.  But I think by attempting to mentally adhere to a "my holds are buys" philosophy then I can achieve the same thing as the trader wanted Jim to achieve.  I'm saying all of this knowing that there is a severe bias against Jim Cramer and I will likely be attacked for mentioning him, so this is sticking my neck out.  Again, I don't advocate selling everything to clear one's head, but I think if you are human, and are prone to falling in love, then it's possible it might have happened unconsciously and selling/buying back forces a person to address any nagging concerns about the stock or it's valuation that have been suppressed by the love of the stock.  I think it may have been difficult for Sanjeev to sell, but once in cash it may have been difficult to justify a repurchase given what else he was looking at.  Jim's mentor simply forced him to see his holds as buys.  Another way of saying this (outside of Cramer's world), is that you should always revisit your thesis and evaluate this stock against everything else, taking relative value into account.  Then decide why you can't just sell it and buy the one you think is better.  Maybe it's because no better stock exists?

 

 

As long as you remain respectful in tone I won't "jump ugly" with you.  But if you throw out condescending comments like "please practice what you preach" (oh yes, the "please" makes it so polite) and "if you can't handle two issues at a time", or if you stay away from assertions like "hey, we all learned this in Investing 101 (but obviously not you)", then we'll never have that kind of relationship.

 

 

[Guest JackRiver]

I'm sorry Eric.  I really don't think he's trying to attack you.  I'm not trying to attack you.  I think he's following your points exactly as you intended them and making a legitimate counter point.  I don't know what happened before in other post, but by itself, I don't see anything hostile in his responses to your points. 

 

With regards to my question of unknowingly including original cost basis/"earnings yield" and your follow up, It appears to me that you've summarily dismissed the questions/concerns that I had.  I still would appreciate if you or anyone can give an example that really hits it home that those concerns are not merited.

 

FWIW in another thread to these boards in a discussion you were having with someone else I agreed with you and and summarized that agreement by saying you were "spot on."  So please don't think that my reply here is some sort of attack on your person.

 

Yours

 

Jack River

 

 

[Guest ericopoly]

I'm sorry Eric.  I really don't think he's trying to attack you.  I'm not trying to attack you.  I think he's following your points exactly as you intended them and making a legitimate counter point.  I don't know what happened before in other post, but by itself, I don't see anything hostile in his responses to your points. 

 

I never thought you were trying to attack me.  Remember, I assumed you were asking him to stop with the non sequiturs. 

 

You wrote to him (not to me):

It's hard to hold a conversation or debate a topic if people keep lobbing out non sequiturs and strawman arguments at you.

 

I thought you were scolding him for what looks to me like an absurd attempt to distort my buy/hold discussion.

 

I am willing to sell my own property, but it does not follow therefore that I should be equally willing to sell somebody elses (why engage in a trade where I can earn no returns from the underlying business).  He even asserts that I should be able to make just as much from short as from long, and that's why a sell is logically a short.  It does not follow!  It doesn't follow because a 50% specultive price swing (a 1.5 bagger) over a 3 year period is not as good as a doubling from business earnings in addition to a 50% speculative price swing (a 3 bagger).  1.5x is not equal to 3x.  It does not follow therefore that any sell decision is the same as the decision to short because selling a holding I own is a necessary action to catching the 3 bagger before suffering a loss of the speculative gain, whereas selling short engages me in a practice where I can't hope for a 3 bagger in the first place.  So the entire point he is trying to make is a whopping non sequitur as far as I am concerned.

 

I have not a clue what he's trying to prove there by tying it into my discussion, but my suspicion is that he was thinking it would weaken my logical reasoning.  But it's a non sequitur... it gives the appearance of weakening my assertion to a casual observer, but upon further scrutiny one can see that investing long means that I should be equally open to shorting does not logically follow (in latin the words for this are non sequitur).

 

So I sort of grinned when (I mistakenly thought) you were scolding him.  Jack backed me up before ("spot on") in a previous discussion, and he has my back again.  Who else would he be aiming it at?  OEC2000's non sequitur is so obvious to me, and given that you were directly telling him that non sequiturs are annoying... well, pretty much my last suspicion was that you were sympathizing with him!

 

 

 

With regards tbeo my question of unknowingly including original cost basis/"earnings yield" and your follow up, It appears to me that you've summarily dismissed the questions/concerns that I had.  I still would appreciate if you or anyone can give an example that really hits it home that those concerns are not merited.

 

I summarily dismissed you?  In what way?

 

You asked me the following:

 

Are the two really equal, someone holding with a low cost basis/higher earnings yield versus someone coming to the table to buy with fresh cash (assuming later date and higher price)?  That is to say, are we unknowingly including the original cost basis in our justification of saying a hold is a buy. 

 

I stand that yes, the two are really equal because the last price is what you stand to lose for both people.  Cost basis is irrelevant except perhaps if you have a tax situation that leaves you with significantly impaired capital to redeploy.  Yet people, being human beings are not wholly logical -- some of them can cling to the feeling that their hard earned cash invested at the cost basis is more dear than the easily won money at the table.  In the past I have heard considerable discussion about how some people can't let go of this.  You have probably heard somebody remark "oh they were only paper profits".  I haven't said that it is all people who fall prey to this.  I am also not saying that is the only reason why people wish to hold and not sell.  I have only used words like "many" or "some" people.  And it's not the only reason, but how much time do I have and let's be honest, do I know enough about people to make a wholly comprehensive list?

 

You've got me totally confused... what idea are you confusing me of dismissing?  I feel like I am doing my best here to answer a cryptic question -- get a lot more explicit if you feel like people are brushing you off.

 

 

FWIW in another thread to these boards in a discussion you were having with someone else I agreed with you and and summarized that agreement by saying you were "spot on."  So please don't think that my reply here is some sort of attack on your person.

 

I remember that comment "spot on" and I think you've always been polite.  But look, I'm not trying to summarily dismiss you or anything -- I feel like you are short on words and if you think I'm dismissing you I don't get it because I've spent a lot of time replying, but it might not be to the question you think you are asking clearly but is embedded in a very short question with perhaps not enough emphasis for me to understand what you really want answered.

[Parsad]

Hey Folks,

 

These debates often can get heated based on the subject matter, and sometimes just on the minor difference in context in which individuals read the writings of others...I'm as guilty of that as the next guy! 

 

Time to let your cooler heads prevail on the subject.  Next topic please!  ;D  Cheers!

[oec2000]

Time to let your cooler heads prevail on the subject.  Next topic please!    Cheers!

 

Sanjeev, guess I'm not getting a job at the UN now! ;D

 

If it's OK with you , I would like to make a post to clarify matters, not to pour more oil on the fire but because I think I owe Ericopoly an explanation as he seems pretty upset.

 

First of all, I would like to say to Ericopoly that you have interesting, innovative and intelligent ideas and I think you are one of the best posters on this board. But because you are at times pushing the envelope, the ideas sometimes are a little wobbly - from my point of view, anyway. I enjoy vigorous debates and maybe there is a prblem with my writing style but I have not had any problems with anyone else on this board apart from you - I'm just making an observation, not drawing any conclusions here.

 

I think/notice that you do misread the intention or tone of some posts because you read them quickly, get an emotional reaction, and don't do second reading to reassess whether you had misread the post originally. The way you misconstrued Jack's post is a case in point.

 

Somebody always gets hostile.  Now, what are you suggesting?

Man... insinuation that I may be artificially strengthening my assertion.  Can a conversation be had without so much hostility?

 

I was not trying to be hostile, just asking you to be fair. It's tough to have a debate when someone asks you to adopt a standard that they are not prepared to live up to. In case you forget, you were the one who first insinuated that, by bringing in the tax issue, I was "artificially strengthening my assertion (your words, not mine)." In my view, tax is a very legitimate (as opposed to artificial) issue for most of us. If you put yourself in my position, would you not consider your original remarks hostile?

 

Can I handle two issues at a time?  I think I've already suggested that you are hostile.  Now, if I remember correctly, you are the one with the Investing 101 remarks, am I right? 

 

I am not surprised that you took offence to my following remark:

 

If you cannot handle two issues at a time, then you can ignore my tax comment - my second point does not rely on it.

 

But, I ask you to consider whether my remark is any more hostile than your original remark to which I was responding:

 

the conversation can me moved into that sandbox if it makes you more comfortable (if you cannot have a theoretical discussion on the logic of "hold" without the distraction of taxes). 

 

Again, all I ask if for you to be fair.

 

OEC2000 is off discussing short selling for all I can tell, nowhere in the intellectual vicinity of my post.  Then, he starts trying to chew it apart and is simultaneously wanting me to agree with him on some short selling thesis of his that I'm unconcerned about except that he is really pushing it on me hard, so I reply that I don't want to invest without the tailwind of business earnings backing me up if my anticipated speculative gains never show up.

 

I'm the one who ought to feel roughed up -- I never once replied to criticise anything he said unless first spoken too.  Why he or you think my post about buy/hold had anything at all to do with OEC2000 is leaving me scratching me head.  

 

As Jack has already pointed out, my remarks were aimed directly at your thesis of hold=buy; my comment on short-selling was just a logical add-on, not to get you to agree with any short-selling thesis of mine (I don't have any), but to show you that your thesis, if carried on to its logical conclusion, would require you to also accept short-selling - in other words, if hold=buy, then sell=short purely from the theoretical logic exercise that you were espousing.

 

However, I feel that your last comment on feeling roughed up perhaps says it all - that it is about criticism. Perhaps, it is the criticism that you subconsciously don't like; it being aggravated by my writing style perhaps.

 

To me, criticism is what this board is all about. I learn lots more from people who criticise me than from those who agree with me. This is why I frequent this board - to learn from others. Equally, I find that I contribute most to this board when I challenge other people's ideas. When I challenge, I do it not to win an argument at all costs; certainly not to put anyone down (and if I have done so, it is not intentional and I apologise to to anyone I may have offended in the past). As I implied in my response to Tooskinneejs recently, I will give as good as I get and as long as both sides can engage in a true spirit of give and take, there is no need to take offence.

 

Ericopoly, you may not realise it but you can be pretty caustic in your remarks (please reread your posts on FFH underwriting recently if you want to know what I mean - you even excused yourself by saying you were in a bad mood because of a cold (?)). This is fine with me - as long as you can accept that it cuts both ways. Give and take, as I said.

 

We will do well to heed Voltaire's advice: I do not agree with what you have to say but I will defend to the death your right to say it." That should be the spirit upon which this board should be based.

 

Hey Sanj, am I back in the UN or am I now an ex-member of this board? ;)

 

My apologies to everyone who read this entire post and as disappointed to find out that there was absolutely nothing worthwhile about investing in it!

[Guest ericopoly]

 

In case you forget, you were the one who first insinuated that, by bringing in the tax issue, I was "artificially strengthening my assertion (your words, not mine)." In my view, tax is a very legitimate (as opposed to artificial) issue for most of us. If you put yourself in my position, would you not consider your original remarks hostile?

 

WTF?  My original remarks hostile?  I most certainly wasn't talking about you when I mentioned "artificially strengthening"... I was explaining that I wanted to put aside taxation for now and just focus on sell/buy as if tax were not in play... this is another way of saying "you are right, taxes can alter the decision process, so let's assume they don't exist and continue the discussion... and a real world case for this does exist in a deferred-tax account).  It is not an attempt to argue that you are wrong, but rather "point taken, but let's continue because your point isn't always applicable".

 

Here is the flow of logic:

1)  I first agreed that it was fair to assume taxes

2)  I explained that I didn't want it to complicate the discussion, and that I would be okay with just moving it into a special case (a sandbox).

3)  I stated that I wasn't asking you to ignore the tax issue as a means of artificially strenthening my points (because I concede that taxes can be a big factor), but rather just to keep things simplified in the discussion as we can still think about the cases where taxes don't play a big role (I already agreed it was fair to assume taxes so I'm not trying to ignore your point).  Maybe even change the title to "in a tax-deferred account" --- that's what I mean by saying I'm happy to accept your concerns and move it into a sandbox.

 

Here is the quote (emphasis on the word "my") -- in no way am I saying you are doing anything!

 

Yes, it is fair to assume taxes.  However, most of us also have accounts with deferred taxation and the conversation can me moved into that sandbox if it makes you more comfortable (if you cannot have a theoretical discussion on the logic of "hold" without the distraction of taxes).  One might say, in a tax-deferred account, to hold and to buy are the same choice; then we can continue without the distracting tax concern.  I try to keep things simple in order to focus in on the basic idea, not to artificially strengthen my assertion.

 

 

It's pretty clear that I agree that taxes are a concern, but that I want to discuss the topic without taking taxes into consideration as a means of keeping things on a simple track of just the buy-is-hold.  Yes, there are a cases where the tax burden can be so big that holding is really equivalent to buying at a much lower price (after paying taxes), and that price may not come back again, so it changes things.  But that kind of a conversation is what I wanted to avoid because we all understand it already... the interesting concept can be discussed outside of that without even engaging in fantasy, because in the real world tax-deferred accounts exist as do low-tax jurisdictions.  Fairfax operates in some low tax jurisdictions for example.

 

 

 

 

[Guest ericopoly]

I think/notice that you do misread the intention or tone of some posts because you read them quickly, get an emotional reaction, and don't do second reading to reassess whether you had misread the post originally. The way you misconstrued Jack's post is a case in point.

 

Anybody in my position should have misconstrued Jack's post, given that he said it's hard to have a conversation with somebody lobbing non sequiturs at you.

 

There were so thick it was like trying to avoid buckshot.

 

You could tie up my argument for years in court with all of these, can't you sympathize that I simply (until now), have not been properly motivated to address them all?  It's like being run over by a propaganda campaign of false insinuations about what points I'm trying to make, or false insinuations of what my hold-is-buy statement logically implies.

 

I mean, here are the non sequiturs that you have committed (listed in the order I'm finding them, not necessarily in chronological order).  Some of them are just repeats using different words:

 

#1  "After all, using your logic, every sell should also be a short, right?"

 

-- (does not follow) shorting offers 100% returns at best.  It ties up your capital for limited upside.  So, no!  I can quote you if you like "There is also an upward bias in markets", that in itself (your own words no less) should be enough to make you think twice about thinking that short offers the same returns as long.

 

#2  "If they are buys, then you should use any cash that you have to keep on buying your holds. "

 

--  (does not follow) Asserting that hold-is-buy is not a suggestion that you ignore portfolio allocation best practices

 

#3  "am I correct to assume that you think that buy and trade will produce superior returns to buy and hold?"

 

-- (does not follow)  You are only correct to assume that I assert that holds are logically equivalent to buys.  The rest of your question is one that asks my opinion on outcomes that will vary based on investor skill, and it does not logically follow that my assertion would suggest buy and hold is better or worse than buy and trade, because I am not advocating one of them versus the other.  I am simply asserting "hey, you know, it's important to realize that considering a stock a "hold" is logically equivalent to considering it a "buy", tax excepted.

 

 

#4  "Secondly, the risk of error in investing is high. Your estimate of IV could be wrong."

 

I am not making an assumption of investor skill in executing trades, but, to humor you, if a person has enough skill to decide that their money is best placed in XYZ shares the timeframe of whether or not they've held it for a long time (already a hold), or if they are buying it anew (a buy), is irrelevant.  Either way, if there is any problem stemming from investor uncertainty surrounding valuation it afflicts both parties exactly the same (the returns hurt/benefit them equally on a going-forward basis, which is all that matters).  (and yes, except for tax concerns if any exist, which is getting so tiresome to repeat, perhaps you can understand better now why I wanted to exclude that for simplicity).

 

 

#5  "Yet another complication is that a hold decision only requires that decision to be right; a sell decision requires you to be right when selling, and then again when buying back."

 

It does not follow that a hold decision only requires that decision to be right, because it is logically a sell/cash/buy.  The two situations are logically the same.

 

#6 "Since it was a hold, and therefore also a buy, at that price, you should have kept on buying as long as you had cash. You should not have had any idle funds to buy more FFH when it fell to $220."

 

(does not follow)  You are suggesting that if a hold is a buy, then one cannot increase allocation size of the holding as margin of safety increases.  I say that margin of safety increasing compensates me for the risk of having a higher concentration, but at all those prices FFH was a hold and by implication a buy. 

 

 

#7  "I find it difficult to believe that you have a precise point, say $350.37, at which FFH morphs from a buy into a sell with no grey area in between. Surely you can see the validity of a view that holds that FFH is a screaming buy at $150, a strong buy at $200, a buy at $250 and a hold at $350."

 

(does not follow)   I believe in hold-is-buy, it does not follow that I therefore don't understand the concept of margin-of-safety (inherent in buy/strong buy/hold).  I am simply saying that a hold is really logically a buy, that's all.   (tax excepted)

 

 

#8  "It is the sell decision that I question and doubt because of upward biases working against the seller. This is why I pointed to the dearth of successful value short sellers around. If "value selling" were as easy as "value buying," we should expect to see a lot more value sellers since the space is clearly less crowded and potentially more profitable than the buy space. "

 

(does not follow)  Valuation mistakes in holding are the same as in buying.  Your forward gains are the same as they would be if you were buying. (tax excepted)  I suggest you read up on Mohnish's views against short selling if you want to learn more about why good value investors stay away from shorting.  Things like "100% upside at best" come to mind (quoting myself, not him).

 

 

#9 "Ask yourself why you are a not a long-short investor. After all, using your logic, every sell should also be a short, right?"

 

(does not follow)  For God's sakes, how could anything I said advocate short selling or even suggest that short selling has anywhere near the upside as buying or holding (which is buying) long positions?  How could you possibly argue that there isn't more upside in long than short positions?

 

 

#10  "I think this is what Jack meant by non-sequitur. You don't directly address my question as to whether there is a precise point ($350.37!) at which FFH changes from a buy to a sell for you."

 

(does not follow)  You imply that I evaded some question of yours, but it does not follow based on the facts of what has actually happened.  The particularly HILARIOUS aspect of this is that you DIDN'T ask me a question!  Let me remind you of what you said  "I find it difficult to believe that you have a precise point, say $350.37, at which FFH morphs from a buy into a sell with no grey area in between."

 

In what part of the world is that a question that begs a direct answer?

 

I will repeat it one more time, in what way is the following line a question?  And how can you get on my case for not answering it?

 

I find it difficult to believe that you have a precise point, say $350.37, at which FFH morphs from a buy into a sell with no grey area in between.

 

Fine, you find it difficult, so be it (that's what went through my head the first time I read it).  I let it rest, I don't want to just argue with all of your musings.  It does not follow that by ignoring your statement of opinion I've committed some attempt to dodge you.

 

Here's the part that "does not follow"... I consider holds to be buys, and yes there is a definite gray area in my buys!  You seem to be suggesting that if I think of holds as a sell/cash/buy sequence then I cannot have a gray area.  Rubbish!  In no way does that follow.

 

 

 

Okay, I'm getting tired of this and I'm going to eat lunch now (it's getting cold).

 

 

 

 

 

 

 

 

 

 

 

[nodnub]

Eric,

 

Based on your background, I believe you were using the term "sandbox" as per the software development definition. There is no similar definition outside of the IT/software world and may have been easily misunderstood by oec (as it was by me).

 

A general language reference to a sandbox might be more readily construed as an insult---an invitation to go play with kiddy toys in the sandbox and come back when you are a big kid.

 

 

[Guest ericopoly]

Eric,

 

Based on your background, I believe you were using the term "sandbox" as per the software development definition. There is no similar definition outside of the IT/software world and may have been easily misunderstood by oec (as it was by me).

 

A general language reference to a sandbox might be more readily construed as an insult---an invitation to go play with kiddy toys in the sandbox and come back when you are a big kid.

 

 

Yes, and I didn't think of it in the kiddie play way.

 

For those who don't know, sandboxing is when you put an application into an isolated environment. 

 

Whoops.  This is what happens when you talk to non-Microsoft people.

 

[Guest ericopoly]

Back from lunch.  Let's just finish this off shall we so that I don't feel like there are things left unsaid?

 

 

As Jack has already pointed out, my remarks were aimed directly at your thesis of hold=buy; my comment on short-selling was just a logical add-on, not to get you to agree with any short-selling thesis of mine (I don't have any), but to show you that your thesis, if carried on to its logical conclusion, would require you to also accept short-selling - in other words, if hold=buy, then sell=short purely from the theoretical logic exercise that you were espousing.

 

However, I feel that your last comment on feeling roughed up perhaps says it all - that it is about criticism. Perhaps, it is the criticism that you subconsciously don't like; it being aggravated by my writing style perhaps.

 

 

My "roughed up" comment was to Jack -- he was saying something in defense of you because he thought that you were being roughed up.  He even mistakenly thought I was part of some group that was roughing you up.  I was letting him know it was you that been heavy handed with the non sequiturs, and so if anyone was having a hard time putting up with them it was certainly me.  He made a mistake as far as I can tell, oh well.  Not every witness gets it right, and there is much research on that.  Don't presume he did.

 

 

Perhaps, it is the criticism that you subconsciously don't like; it being aggravated by my writing style perhaps.

 

Perhaps, then again, perhaps it says nothing at all.  Perhaps instead your criticisms didn't make logical sense.  They were refuted not because I can't accept a well placed criticism, but rather because I can't accept a misguided one.

 

 

 

But, I ask you to conider whether my remark is any more hostile than your original remark to which I was responding:

 

In this quote you were referring to sandboxing.  I make a comment about sandboxing, which is not a hostile comment (but you thought it was), and then it motivated you into getting into a tit-for-tat exchange (you cite it as a reason for your hostility, as you ask me to empathize with you).  So maybe I should feel "roughed up" after all now that I'm learning you were being hostile after feeling that I offended you.  The first time I read your hostile comments, it was bewildering in real time because it was (from my point of view) clearly an unprovoked escalation (I assumed you were trying to distract my attention from your weak criticisms, a more elaborate ploy), but I can see now (with help from nodnub)  that I've enveloped myself in a circle of friends that knows what sandboxiing is, and it's daily vocabulary practically within that circle...  the Java Virtual Machine is a sandbox, the Visual Basic Runtime Environment is a sandbox... etc...  It is an environment with constraints (for example, you can configure the sandbox to prevent an application from destroying files on the disk).  I was suggesting we run the logical flow of sell/cash/buy in an environment (sandbox) that doesn't consider taxation on trades (tax deferred account).  This is what scientists like to do -- run experiments in controlled environments, not because they want to ignore reality, but simply because they want to study something in particular without interference.

 

I don't mind being "criticised" based on reasoned logic (I want somebody to show I'm wrong if they can do it without relying on arguments that don't logically flow).  None of your criticisms made any sense to me, and I explained ,in each case, that they are an  ineffectual attempt at discrediting the notion that people who hold get the same returns as people who are buying anew, and thus holding is buying and holding is indistinguishable from a continuous flow of sell/cash/buy.

 

 

Ericopoly, you may not realise it but you can be pretty caustic in your remarks (please reread your posts on FFH underwriting recently if you want to know what I mean - you even excused yourself by saying you were in a bad mood because of a cold (?)). This is fine with me - as long as you can accept that it cuts both ways. Give and take, as I said.

 

Yes, I try to make good by calling myself out (I know when I am being hostile).  If I recognize the other person was not acting in kind, I (although embarrassed) own up to it (like in that underwriting thread).  This time though, you misunderstood me as being hostile, and you retaliated with hostility.  I have nothing to own up to.

 

Your advice though for me was to practice what I preach, so let me quote something else that you said:

 

I think/notice that you do misread the intention or tone of some posts because you read them quickly, get an emotional reaction, and don't do second reading to reassess whether you had misread the post originally. The way you misconstrued Jack's post is a case in point.

 

After taking that quote in, consider more of your advice (again, quoting you):

 

It's tough to have a debate when someone asks you to adopt a standard that they are not prepared to live up to.

 

 

 

 

[Guest ericopoly]

BTW, in the interest of full disclosure...

 

There is a intentionally arrogant tone in my posts on this thread that came about after this quote:

 

Once you accept this inherent uncertainty, you should be able to accept my broader point

 

Ever since then I've been phrasing everything as overconfident.  I won't say "maybe your criticism is illogical", but rather I'll say "given that I've shown they are illogical".

 

Anyways, it was an escalation after reading the arrogance of "once you accept this inherent uncertainty"... as if there is no question... as it is an absolute truth... it was clearly under debate, and it was annoying to read "once you accept it".

 

Hope that helps, anyways.  It was deliberate to prove a point, but the point might not have come across!

 

 

[oec2000]

Jack, just wanted to say thanks for your support. Did not acknowledge it earlier because I felt it might be misconstrued as us ganging up.

 

In deference to Sanjeev, I will stop commenting on this matter.

[Parsad]

Thanks guys!  Cheers!