Jump to content

Market Sentiment As Usual Is Running In Wrong Direction!


Parsad
 Share

Recommended Posts

"Among professional money managers, the shift back into stocks has been more dramatic. A February survey by Bank of America-Merrill Lynch of 270 top investment managers found them more bullish about stocks than at any time in the past decade."

 

Nice.

Link to comment
Share on other sites

Quite funny in a pathetic sort of way.  In sum, I have been very slowly selling since the New Year, virtually every day.  From what other board members have been indicating many have been doing the same.  I am not rushing out of the market but would like to be positioned safely for any pull backs.  In addition I have almost cleared my exposure to long options - dont have any short exposure, either, unless you count FFH.  I am not nervous but would rather wait for cash to build up and opportunities to arise as they will.

Link to comment
Share on other sites

I'm not participating on the upside anymore. Haven't been since about a few months before Watsa hedged his portfolio. Am fully hedged and intend to profit when opportunities arise. I can't wait till the day where I feel comfortable investing without hedging, when the excesses are finally flushed out of this dysfunctional system.

Link to comment
Share on other sites

I'm not participating on the upside anymore. Haven't been since about a few months before Watsa hedged his portfolio. Am fully hedged and intend to profit when opportunities arise. I can't wait till the day where I feel comfortable investing without hedging, when the excesses are finally flushed out of this dysfunctional system.

 

As Myth said, that may be a while. It seems that the small retail investor is always last in and ends up being hurt the most in any correction. If you don't mind my asking, what are you using to hedge? General puts on the S & P?

 

cheers

Zorro

Link to comment
Share on other sites

Quite funny in a pathetic sort of way.

 

 

Bulls make money, bears make money, sheep get fleeced.

The rally may have some legs though -  :) These inflows have to go somewhere.

 

Agreed.  The pedal is to the metal on the money supply.  Market is up, but doesn't look like a bubble. . . . . . .  Yet   :)

Link to comment
Share on other sites

Guest Dazel

 

 

I said before on the board before I have bought puts on a few companies...I mentioned Netflix.

 

does anyone have any other hedging strategies? I do not know how comfortable i am with the Fairfax put of

cpi index...

 

 

Dazel

Link to comment
Share on other sites

Quite funny in a pathetic sort of way.

 

 

Bulls make money, bears make money, sheep get fleeced.

The rally may have some legs though -  :) These inflows have to go somewhere.

 

Agreed.  The pedal is to the metal on the money supply.  Market is up, but doesn't look like a bubble. . . . . . .  Yet   :)

 

There's a pretty big bubble going on right now in private markets, but stocks as a whole don't

look that overvalued yet.

Link to comment
Share on other sites

Hey Guys, be careful on the hedges!

 

It's one thing for Fairfax to be buying swaps on the CPI, but it's another thing for all of us.  These hedges have real frictional costs, especially if you are wrong...take a look at Fairfax's equity hedges over the last six months.  The best strategy to protect investment capital is knowing one's own limitations and circle of competence.  That will save you more money than any hedge.  Cheers!

Link to comment
Share on other sites

Carrying cash ain't a bad hedge! It's cheap too!  ;)

 

Yeah, I just upped my cash on my retirement account where I can only choose amongst index funds.  Had already marked inflows to go to cash a couple months ago.  I'm still more aggressive in my taxable portfolio, but I'm watching closely for when I can take positions off the table...

Link to comment
Share on other sites

Carrying cash ain't a bad hedge! It's cheap too!  ;)

 

Yeah, I just upped my cash on my retirement account where I can only choose amongst index funds.  Had already marked inflows to go to cash a couple months ago.  I'm still more aggressive in my taxable portfolio, but I'm watching closely for when I can take positions off the table...

 

Word.  I'm at 16% cash. 

 

As Myth would say, my peashooter is reloaded!

Link to comment
Share on other sites

does anyone have any other hedging strategies?

 

I was thinking about it..

What about having calls or leaps on a company.   ex:SSW

and to hedge by selling calls on an index ex:S&P500 ?

 

 

 

 

 

Here's how we hedge with a barbell strategy. We have  long term core holdings that are goosed with non-recourse, long term total return or mostly total return derivatives that require no MTM collateral.  These are equivalent to owning the underlying securities with a long term low interest rate loan that doesn't have to be repaid if the market value declines.  This gives the upside of owning certain stocks, but limits the downside to about one third to half the notional value.

 

This frees up cash that averages more than half the amount that would be required if we owned these stocks with no leverage.  The cash is ours no matter what happens to the market or model value of the derivatives on the stocks.  This is our margin of safety, and we usually keep this  in fairly liquid investments such as  near cash, workouts, arbitrage or other situations like deep values with a catalyst that are not very correlated with the stock market.

 

I would not recommend this strategy unless the derrivatives are very long term, and the underlying companies very likely could and would return substantial value to shareholders during and after a market meltdown.  However, if that is the case, I think this strategy will have less volatility and greater upside than being fully invested in equities.  That has been our experience as we survived the 08 - 09 unpleasantness in the markets in very good shape and had cash available to pick up bargains at the market bottom.   :)

Link to comment
Share on other sites

Here's how we hedge with a barbell strategy. We have  long term core holdings that are goosed with non-recourse, long term total return or mostly total return derivatives that require no MTM collateral.  These are equivalent to owning the underlying securities with a long term low interest rate loan that doesn't have to be repaid if the market value declines.  This gives the upside of owning certain stocks, but limits the downside to about one third to half the notional value.

 

How do you get derivatives like these? My knowledge of derivatives equates my knowledge of plumbing. I take it this isn't just a two year call option.

Link to comment
Share on other sites

hedges are for gardeners. The best hedge is time and intelligence.

 

I'm not sure I'd dismiss hedging so easily. Fairfax use of equity hedging has been beneficial for them. I know some people believe they hedge their portfolio because they are an insurance company and hedges may proffer better credit ratings, but I also think they do it because they believe their returns will be better in the long run. I've attached a picture of a page from their 2010 Annual AGM slide where they show an additional gain of 4% percentage points in a fifteen year time frame with their equity hedges.

 

Maybe I'm deluding myself, but intelligent hedging based on valuation might not only help to relax portfolio volatility but also increase overall returns. 

 

link to the 2010 Annual Report: page 23 http://www.fairfax.ca/Assets/Downloads/2010_AGM_Slide_Presentation.pdf

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...