Guest Hester Posted February 11, 2012 Posted February 11, 2012 Parsad, But it's still a bet. If it involves putting up capital, wagering on an uncertain outcome, it's a bet. Even if the outcome seems certain to you, nothing is certain. Rummaging through garage sales for hidden treasures is a bet you can sell that item to someone else for a higher price. So both gambling and investing are betting. Gambling is more the excitement of betting on a random outcome, whereas investing is a less emotional betting, when you think the risk adjusted odds are in your favor. The desired outcome of gambling and investing is the same, it's the process that differentiates the two. I think you can find a few investors in some corners of the casino (probably poker) and plenty of gamblers in the stock market. I disagree. If you see a company that has $10M in cash, no debt, no other liabilities and is not losing money, but its market capitalization is at $6M, how is that gambling? There may be gamblers in the stock market, and investors in casinos, but they don't look for the same thing as the intelligent investor, nor do they conduct themselves in that manner. Cheers! lol, well if you carefully read my post we are saying the exact same thing. My only different point is that buying that hypothetical company is still a bet. I never said it was gambling. An intelligent bet, but still a bet. Nothings a sure thing, uncertain outcome plus risk capital equals bet.
Guest Posted February 11, 2012 Posted February 11, 2012 eric, is bac your largest holding? I could've sworn (maybe I'm wrong) that AIG was your biggest.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 while BAC will be like a premiere US utility, generating piles of cash for its shareholders. This is why I intend to hold onto what I can in my taxable account. Tons of dividends (and buybacks that can be tapped) that I can use to buy puts to fund purchase of long term stable growers like BRK.
DCG Posted February 11, 2012 Posted February 11, 2012 I have to admit that after the the thread a few months ago celebrating Eric calling the bottom in BAC after a 1-2 day move, only to have BAC shares fall by another 30-40% afterwards, the optimism in this thread worries me a bit.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 I have to admit that after the the thread a few months ago celebrating Eric calling the bottom in BAC after a 1-2 day move, only to have BAC shares fall by another 30-40% afterwards, the optimism in this thread worries me a bit. Actually, it only fell another 22%. $15.31 high for the year... low of $6.31 for a day where I call the bottom, then it hits $4.92. Okay, so it fell $10 bucks and I called it after 87% of the decline had happened. August 8th: Low $6.31 Close $6.51 December 19th: Low $4.92 Close $4.99 Jan 14th: High $15.31
DCG Posted February 11, 2012 Posted February 11, 2012 Actually, it only fell another 22%. Still...that's like calling a bottom on the Dow at 10,000 and then it falling below 8,000 in the next couple months. My point is more that people shouldn't judge positions based on a very short term move in the stock price.
enoch01 Posted February 11, 2012 Posted February 11, 2012 Actually, it only fell another 22%. Still...that's like calling a bottom on the Dow at 10,000 and then it falling below 8,000 in the next couple months. My point is more that people shouldn't judge positions based on a very short term move in the stock price. On the first point: if it had fallen from 25,000 (which would be analogous), the call at 10,000 would actually look pretty good. On the second point: I kind of doubt anyone on this board does this.
Valuebo Posted February 11, 2012 Posted February 11, 2012 Actually, it only fell another 22%. Still...that's like calling a bottom on the Dow at 10,000 and then it falling below 8,000 in the next couple months. My point is more that people shouldn't judge positions based on a very short term move in the stock price. That would be a pretty good call if the Dow came from 25,000. :) (edit: woops, too late!) But you are totally right on the second part, I agree. We'll have to see how it turns out but I do believe there are near term catalysts and that BAC is sufficiently armored against possible bad outcomes. Overall, I felt saver with BAC at $5 than now and will be glad to liquidate some of my position around TBV.
txlaw Posted February 11, 2012 Posted February 11, 2012 On the second point: I kind of doubt anyone on this board does this. Oh, people on this board definitely do that. Several times I have had to push back after some claim that the price action of a particular stock accurately reflected the economic prospects of the security. I've also had to push back on people who contended the opposite -- that board members who were increasingly optimistic about the economic prospects of an investee company were actually fooling themselves because of the upward price action.
enoch01 Posted February 11, 2012 Posted February 11, 2012 On the second point: I kind of doubt anyone on this board does this. Oh, people on this board definitely do that. Several times I have had to push back after some claim that the price action of a particular stock accurately reflected the economic prospects of the security. I've also had to push back on people who contended the opposite -- that board members who were increasingly optimistic about the economic prospects of an investee company were actually fooling themselves because of the upward price action. Interesting, thanks for that. I see tombrgt mentioned it as well. I must not be paying enough attention. :D
biaggio Posted February 11, 2012 Posted February 11, 2012 On the second point: I kind of doubt anyone on this board does this. Oh, people on this board definitely do that. Several times I have had to push back after some claim that the price action of a particular stock accurately reflected the economic prospects of the security. I've also had to push back on people who contended the opposite -- that board members who were increasingly optimistic about the economic prospects of an investee company were actually fooling themselves because of the upward price action. -those emotions are natural to most of us -I find myself fighting them in both directions at times appreciate and thank Ericopoly for sharing his convictions in this security. He is a lot more courageous than I could ever be , especially with the amount of $$ we are talking about. i.e I could never, I don t think, invest so much in one security to risk having to go look for a job. It makes reading this thread + watching BAC that more interesting.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 I once recommended The Coldest Winter by David Halberstam under the "books" section of this board. I think you guys should think about this kind of thing for what it is. I'm only risking money here folks. Just money.
moore_capital54 Posted February 11, 2012 Posted February 11, 2012 I can completely relate to Eric here and think he epitomizes the way an individual value investor should run his book.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 Actually, it only fell another 22%. Still...that's like calling a bottom on the Dow at 10,000 and then it falling below 8,000 in the next couple months. My point is more that people shouldn't judge positions based on a very short term move in the stock price. Uh huh... yeah, right. Getting the most volatile stock in the market at 88% accuracy is like being wrong on the index by the same amount?
biaggio Posted February 11, 2012 Posted February 11, 2012 The Coldest Winter by David Halberstam I've put it on my list (you can never have enough perspective + you re right its only money). I have been trying to be more focused...getting down to one investment or security is inspiring but for me I would be happy being down to 5-10 holdings . Moore what is your ideal or avg # of securities or bets?
Valuebo Posted February 11, 2012 Posted February 11, 2012 The only reason I didn't own any AIG up until now is because I was trying to time a shift of capital to AIG after BAC and MBI "worked out." Was trying to do the same here with other stocks, waiting to put it all in AIG and BAC when they cashed out. Investing is a game of regrets, balancing what and when to buy and sell. If I did not buy BAC and AIG at those prices, and many in this board probably thought the same, and they run afterwards, as it happened, I would have kicked myself for eternity. Some stocks are on third, others on second, all ready to run to home. But it is hard to predict which ones are going to get their single first. Did I get my baseball right? "Investing is a game of regrets." Well said! Exactly my reasoning for not putting it all on one or two stocks, even if it has more (assuming we can measure it) upside potential. If your "one pick" lags all your other high (but lower in comparison with your best) conviction stocks, you have a huge opportunity cost. I'd rather spread my bets at least a bit for that reason.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 My bet was initially 100% notional BAC upside without any BAC downside whatsoever. I was buying BAC calls and writing puts on other names to finance the calls. So there you go. Later I bought the puts back in and added to BAC (it was already on the way up then).
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 Overall, I felt saver with BAC at $5 than now and will be glad to liquidate some of my position around TBV. I know what you mean but I actually feel safer now because there are some things back then which I hadn't considered. Like: 1) I hadn't realized how another $3b would be coming in annually from New BAC phase 2 cost savings. 2) Never really had realized that $6b of annual costs would be saved from getting legacy asset services run off over next 2 years 3) Had never dreamed that the recently announced settlement would be immaterial 4) Didn't realize how much Tier 1 capital would go up 5) It's obvious to me now that the market participants have let it converge with peers in value (risk premium coming down). During July to December what happened is that all banks fell, but BAC fell hardest. And the gap doesn't widen when the market has a down day. There were all these rumors about the FDIC protesting the movement of Merrill derivatives into the FDIC protected bank. William Black was fear mongering over this. There were liquidity concerns surrounding the credit downgrades -- bank executives spent a lot of time on the phone calming clients.
ERICOPOLY Posted February 11, 2012 Author Posted February 11, 2012 And I don't think the convergence with peers is done yet. Per Uccmal it will get there by my birthday. JPM trades at 20% to tangible book but has the earnings power today that BAC won't be fully at for another 2 years. So it's okay to give JPM the 20% premium to BAC. But the spread between the two today is just plain ridiculous.
alertmeipp Posted February 11, 2012 Posted February 11, 2012 I don't think it's ridiculous given the execution risks in the next 2 years.
Ben Graham Posted February 12, 2012 Posted February 12, 2012 I can completely relate to Eric here and think he epitomizes the way an individual value investor should run his book. It appears that ERICOPOLY is adhering to what Warren Buffett thinks as well. * Warren Buffett believes that it is most important to invest with a strong conviction. * Diversification is a foolish idea if it means buying with low conviction. * Wide diversification is only required when investors do not understand what they are doing. * Diversification may preserve wealth, but concentration builds wealth. * I put heavy weight on certainty. It's not risky to buy securities at a fraction of what they're worth. - WEB I'm looking forward to ERICOPOLY taking advantage of Mr. Market big time!
Ben Graham Posted February 12, 2012 Posted February 12, 2012 Bank of America - Buffett Intrinsic Value Analysis NOPAT + Depreciation - CapEx - Net Working Capital Change. The risk free rate is the US treasury rate, a standard risk free measurement. http://www.wikiwealth.com/buffett-intrinsic-value-analysis:bac
ERICOPOLY Posted February 12, 2012 Author Posted February 12, 2012 I don't think it's ridiculous given the execution risks in the next 2 years. I'll admit I haven't a precise formula for calculating what the risk premium ought to be. Do you? Or are we just talking our emotions here. BAC's discount is 50% relative to JPM (comparing tangible book valuations). Expressed differently, in two years time BAC can haul in $30b plus after-tax (due to the NOLs). Yet a whole lot has to go terribly wrong between now and then to prevent that from happening. To me it just feels like the nasty "what if's" are discounted far too heavily.
Ben Graham Posted February 12, 2012 Posted February 12, 2012 I don't think it's ridiculous given the execution risks in the next 2 years. I'll admit I haven't a precise formula for calculating what the risk premium ought to be. Do you? Or are we just talking our emotions here. BAC's discount is 50% relative to JPM (comparing tangible book valuations). Expressed differently, in two years time BAC can haul in $30b plus after-tax (due to the NOLs). Yet a whole lot has to go terribly wrong between now and then to prevent that from happening. To me it just feels like the nasty "what if's" are discounted far too heavily. Keep it simple. Compare tangible book value - I love NOL's like the LUK boys. I get it -VALUE
PlanMaestro Posted February 12, 2012 Posted February 12, 2012 1) I hadn't realized how another $3b would be coming in annually from New BAC phase 2 cost savings. 2) Never really had realized that $6b of annual costs would be saved from getting legacy asset services run off over next 2 years 3) Had never dreamed that the recently announced settlement would be immaterial 4) Didn't realize how much Tier 1 capital would go up Supposing is good, but finding out is better. - Mark Twain
Recommended Posts
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 accountSign in
Already have an account? Sign in here.
Sign In Now