Where are the original ideas?

[DCG]

Sometimes people post an idea and I'm really happy to see a new idea, and I check it out, but it doesn't quite get through my first line of filters so I never research it quite deeply enough to have something to say about it.

 

Same here. A lot of the ideas posted on here are just out of my circle of confidence/in industries I don't understand well.

[Uccmal]

Here is a real easy one.  I have posted it a few times on the board.  If I had the cash available today I would add to my position in Canfor Pulp.  This is not FBK, ABH, or MERC.  It is a vastly profitable enterprise, pulp prices are rising, and power projects are being completed, and they pay all excess cash to shareholders.  If I had the cash I would reinitiate a postion in parent company Canfor.  CFP gets continuous cash from cfx and are leveraged to the improving housing market. 

 

The other one right now is SSW, just increased their dividend, with the intention of increasing it more. 

 

The only reason for the focus on megacaps is that they are insanely cheap, and you can leverage in a very liquid options market. 

 

I also agree with Parsad.  He and I and others swung at BAC at 5 or below even.  Jpm at 33, AIG around 30.  There is always uncertainty.  These companies are insanely cheap even now, every one of them.  They are under immense pressure and focus to fix everything and they will succeed.  On this board people will be discussing buying $30 Bac at 7 or below one day.

 

 

 

[Uccmal]

When Snowball came out I was surprised by the amount of risk Buffett took prior to the 80s and 90s. 

 

He did not get rich by avoiding risk.  He got rich by taking calculated risks. 

 

Dempster, Sanborn Map, Amex salad oil, Berkshire, Geico (twice), Wesco, Wells Fargo (1990s), Washington Post - during an advertising collapse, Salomon Bros, Buffalo News - everyone of these had risk associated with them at the time - sometimes potentially fatal risk such as Geico, and Buffalo News. 

 

Even in the 2008 collapse he went against the grain and propped up GE and Goldman Sachs - both were extremely risky at the time. 

[portfolio14]

Hi everyone,

 

I'm new here. I can see a couple of familiar "faces".  :)

 

@PlanMaestro: I'm always in awe of your analytic skills on companies/assets heavy in financial engineering. I agree with Nate that those are PhD level materials. I never get comfortable to invest in GKK or Tarp warrants. I don't know when my circle of competence will expand enough to cover this area...

 

@Nate/OddballStocks: How about a really really old idea: MSFT?  8) The more I look at it and compare it to other ideas, the more I think it's great value in plain sight. At the moment, my 2 best ideas are RIMM and MSFT. Btw, I did some more scuttlebutt on RIMM. I like what I found. RIMM's moats in corporates is stronger than I thought.

 

@Uccmal: Calculated risk taking? You mean this?  ::) http://www.heraldsun.com.au/news/breaking-news/skydiver-lands-without-parachute/story-e6frf7jx-1226365466244

[MahOyster]

I think IFT is not extremely original as an investment idea, but could be worth a look anyway.

 

It was written on VIC (http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/64378) and has since appreciated more than 50%. Still, even at +$4/share, there is room to capture, 50-70%, if:

- cash is not wasted (lawyers, SEC settlement)

- Bulldog continues their deed

- the 10-K does not kill the thesis 

 

 

[Green King]

Hi everyone,

 

I'm new here. I can see a couple of familiar "faces".  :)

 

@PlanMaestro: I'm always in awe of your analytic skills on companies/assets heavy in financial engineering. I agree with Nate that those are PhD level materials. I never get comfortable to invest in GKK or Tarp warrants. I don't know when my circle of competence will expand enough to cover this area...

 

@Nate/OddballStocks: How about a really really old idea: MSFT?  8) The more I look at it and compare it to other ideas, the more I think it's great value in plain sight. At the moment, my 2 best ideas are RIMM and MSFT. Btw, I did some more scuttlebutt on RIMM. I like what I found. RIMM's moats in corporates is stronger than I thought.

 

@Uccmal: Calculated risk taking? You mean this?  ::) http://www.heraldsun.com.au/news/breaking-news/skydiver-lands-without-parachute/story-e6frf7jx-1226365466244

 

Can you expand on your view on RIM's moats ? How much are they worth ?

[SharperDingaan]

Most folks see ‘idea’ as ‘what should I buy and hold, & why’.  If the approach, or investment, is good enough for ……. - it is good enough for me.  Anything not a liquid stock or bond is ‘too hard’.

 

Arc or rowboat, your ship goes up or down with the tide (volatility)…..Does anyone really think that volatility is likely to decline before Europe finally settles & the US election(s) are over?

 

View ‘idea’ as a technique, & it is not hard to see why folks are reluctant to give away value proposition. The enlightened will recognize that it is actually very good for long-term business - but it is maybe < 5% of the population.

 

Example: Look at tax. Buy 100 XYZ @ 100, sell 100 XYZ @ 150, & pay tax on 5,000 of gain [100*(150-100)]. But .... if I buy back 100 XYZ @ 50 …. I finish the year with the 100 XYZ that I started with + 10,000 in cash [100*(150-50)] + NO TAX to pay. The cash is a tax free return of principal, & l still have my original holding - but my cost base is zero.

 

At a zero cost base, If I ever have to liquidate the 100 XYZ I will pay tax on the entire proceeds.

Therefore I need to follow WEB; hold XYZ to death, hold something high quality (or going there), something I can margin against (if I need liquidity), something paying a rising dividend (or likely to), & (maybe) some life insurance to pay the eventual tax bill.  If I doubled up on XYZ at 50, the reduction in my tax exposure would offset part of the cost of my additional purchase, & reduce my premium cost.   

 

I got to sell XYZ @ 150, & repurchase XYZ @ 50, because I used the market volatility ….. and the more volatile the market the more, & the better, the opportunities that I get.   

 

[bmichaud]

Pardon the ignorance, but why don't you pay taxes on the $5K? I must be missing something simple because I don't get it.

[Charlie]

"When Snowball came out I was surprised by the amount of risk Buffett took prior to the 80s and 90s.

 

He did not get rich by avoiding risk.  He got rich by taking calculated risks.

 

Dempster, Sanborn Map, Amex salad oil, Berkshire, Geico (twice), Wesco, Wells Fargo (1990s), Washington Post - during an advertising collapse, Salomon Bros, Buffalo News - everyone of these had risk associated with them at the time - sometimes potentially fatal risk such as Geico, and Buffalo News.

 

Even in the 2008 collapse he went against the grain and propped up GE and Goldman Sachs - both were extremely risky at the time."

 

I remember a comment form Buffett when he said he is a "No-Risk Guy".

I also remember Munger discussing the Coca-Cola investment. He said it was extrem low risk.

With Buffett investments/Berkshire Hathaway the perceived risks seems always high, but the real risk is often extremely low, especielly with the big investments. ;)

[SharperDingaan]

Capital can be returned to you in 2 ways. (1) The company paid you a cash distribution. (2) You sold shares at a high price & bought them back at a low one. The result is the same sized holding with a lower cost base. The difference in cost base is your return of capital.

 

Tax authorities do not recognize gains or losses on ‘wash’ trades as they do not reflect the economic intent or substance of the holding. Most tax authorities define a wash trade as a buy & sell of the same number of shares of XYZ, within a 90 day period. The actual gain or loss from the wash trade is simply added to the cost base. By extension – if your cost base was 10,000 & your wash trade gain is 10,000; your new cost base is zero.  Within the volatility text of the posting, wash trades are the norm.

 

To understand the tax assistance, run your own scenarios. We have assumed 50% of the gain or loss is taxable, which is Canadian practice.  Tax varies across nationalities & types of account.

 

The rest is classic WEB

 

[bmichaud]

Makes sense. For some reason I thought the wash rule only applied to losses.

[SharperDingaan]

WEB did nothing more than take on high risk & get paid for it. The positions typically had an inherently significant & material risk which he simply mitigated through various hedge techniques. The end result was a high return on moderate to low risk - that compounded over time. Slick for his time, but ho-hum today.

 

The hedge techniques were MOS, buy & hold forever, growth vs inflation rate compounding, & taxation assistance. WEB look good because few investors take the time to fully understand how the mitigants work, & how to apply them. 

 

[lookingstill]

Maybe I'm not understanding the "wash trade" discussion correctly, but here is what I found.

 

A wash trade (not to be confused with a wash sale) is an illegal form of stock manipulation in which an investor simultaneously sells and buys shares in order to artificially increase trading volume and thus the stock price.

 

The United States Security and Exchange Commission defines a wash trade as "a securities transaction which involves no change in the beneficial ownership of the security."http://en.wikipedia.org/wiki/Wash_trade

 

If you guys ment wash sale, then:

Losses Only

The wash sale rule only applies to losses. You can't wipe out a gain from a sale by buying the same stock back within 30 days. http://www.fairmark.com/capgain/wash/ws101.htm

 

I'd rather be wrong on this though.  :)

 

 

[rmitz]

Maybe I'm not understanding the "wash trade" discussion correctly, but here is what I found.

 

A wash trade (not to be confused with a wash sale) is an illegal form of stock manipulation in which an investor simultaneously sells and buys shares in order to artificially increase trading volume and thus the stock price.

 

The United States Security and Exchange Commission defines a wash trade as "a securities transaction which involves no change in the beneficial ownership of the security."http://en.wikipedia.org/wiki/Wash_trade

 

If you guys ment wash sale, then:

Losses Only

The wash sale rule only applies to losses. You can't wipe out a gain from a sale by buying the same stock back within 30 days. http://www.fairmark.com/capgain/wash/ws101.htm

 

I'd rather be wrong on this though.  :)

 

You are correct for wash sales in the US. Other countries have different rules. There are no wash gains in the US.

[Uccmal]

"When Snowball came out I was surprised by the amount of risk Buffett took prior to the 80s and 90s.

 

He did not get rich by avoiding risk.  He got rich by taking calculated risk......"

 

I remember a comment form Buffett when he said he is a "No-Risk Guy".

I also remember Munger discussing the Coca-Cola investment. He said it was extrem low risk.

With Buffett investments/Berkshire Hathaway the perceived risks seems always high, but the real risk is often extremely low, especielly with the big investments. ;)

 

I believe that is my exact point.  I see very little risk in losing long term money in US megafinancials right now.  The 'market' sees enormous risk in JPM, AIG, BAC.  Same as when we were buying FFH in 2004-2005, and US large caps in spring of 2009.  Many 'investors' get immobilized by fear, and that is why value investing is a "get it or dont get it proposition". 

 

This goes to circle of competence.  I am not advocating outright stupidity, but value investors need to accept uncertainty in their investments, always.  If you want certainty, stay in cash, or pay down

your house.  WEB is very good at determining what uncertainties he can live with, and those he cant.  When he says a company is within his CoC he means he can make a reasonable guess as to its future cash flows, barring the unforeseen. 

[Charlie]

"value investors need to accept uncertainty in their investments, always."

 

If you want certainty buy Berkshire Hathaway at P/B of 1,13 and relax.  :)

[Uccmal]

"value investors need to accept uncertainty in their investments, always."

 

If you want certainty buy Berkshire Hathaway at P/B of 1,13 and relax.  :)

 

Yes, there is the lower return method, especially when your currency appreciates 50% over 8 yrs against the USD.