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Have you been selling into the rally? What companies are you waiting on?


Ross812
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What is your allocation of cash after this three month rally?  

170 members have voted

  1. 1. What is your allocation of cash after this three month rally?

    • 10 - 25%
    • 25 - 40%
    • > 40%


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The market has been rallying since the beginning of June and I have been selling on the way up. I've found myself trimming core positions (Bidvest) and selling completely out of Google, Olympus and Petrobakken. I sold ITM options on BAC common 8's and JEF 14's today. I'm 30% cash right now with and could get up to >45% cash if the options expire ITM.

 

I have a short list of companies to buy at the right price. UPS, RLI, MCD, BAC at $7.50, JEF at $12, GOOG back under $600... The only thing I still think is cheap right now is CHKDG.PK and DHR on a historical P/E basis. I'm waiting for Mr. Market to realize he is still upset about Europe before I get back put too much back in.

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Last week the VIX volatility index (aka the "fear index") hit its lowest point since early 2007. Sometime in the next few months we're probably due for another scare of some kind.

 

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=vix&uf=0&type=2&size=2&sid=1704273&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&startdata-ipsquote-timestamp=8/21/2007&enddata-ipsquote-timestamp=8/21/2012&rand=625216843&compidx=aaaaa%3A0&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1

 

That said, do you really mean that BAC at $8 is not cheap? Or just that you think it's going to get cheaper again soon?

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I think BAC at $8 is cheap, but I think it will trade down with the market. I think the chances of this rally continuing for another 3 months with the Eurozone Central Bank resuming debt crisis talks this week and the fiscal cliff resolution relying on a lame duck congress is less than 50%. I still own all of my BAC warrants but selling Sept. calls on the common for .50 today made some sense to me with the S&P at a four year high and the previously mentioned negative catalysts. 

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BTW, I find it strange you think the market is not "upset" about Europe. Have you seen the multiples in european countries? The average is way below 10 even though they're in a recession right now. It hasn't been this low since the 80's.

 

My market valuation rule is that as long as there are very cheap stocks the market is cheap enough to invest in. I remember back in 2007, I was looking at stocks and valued them as having a "15-20% upside" because everything was so expensive. For the last few years, including now, I've been thinking of potential returns in the 100s of percent, so I think the market is cheap, at least at some places, and that's enough.

 

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I've sold out of positions such as WMT, reduced positions such as ATW.

 

For other positions, I've sold the position in my IRA and concurrently purchased it in my taxable account.  I tend to like to reserve the funds in my IRAs for my conviction investments for the largest potential tax-free gains.  If something has risen and I'm unsure if I should sell, I use that as a sign its probably a good idea to sell in the IRA and buy in the taxable account (ie, if I'm questioning if I should sell, its surely no longer a conviction holding). 

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I have a short list of companies to buy at the right price. UPS, RLI, MCD, BAC at $7.50

 

I think BAC at $8 is cheap, but I think it will trade down with the market. I think the chances of this rally continuing for another 3 months with the Eurozone Central Bank resuming debt crisis talks this week and the fiscal cliff resolution relying on a lame duck congress is less than 50%. I still own all of my BAC warrants but selling Sept. calls on the common for .50 today made some sense to me with the S&P at a four year high and the previously mentioned negative catalysts. 

 

Respectfully, I think its stupid to wait to buy a stock at 7.50$ when you think the stock is cheap at 8.00$. You might be right on the stock could it 7.50$, but what if it doesnt and goes to 20$?

 

On one side you could save 10% and on the other side you could miss a 150% gain or more. Buffett has make that mistake with Walmart and it cost him a few billions $. 

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Haven't sold anything nor bought any hedges, if it goes down will ride it through and if it crashes badly will try to exchange cheap stuff for extremely cheap stuff.  Tried this market timing before, doesn't work out too well, at least for me.

 

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Haven't sold anything nor bought any hedges, if it goes down will ride it through and if it crashes badly will try to exchange cheap stuff for extremely cheap stuff.  Tried this market timing before, doesn't work out too well, at least for me.

 

 

Not doing much of anything. This environment is nothing like spring/summer 2008 when no values existed anywhere, and

MBS funds had started unravelling.  It is almost the polar opposite. 

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I find it's a horrible environment, on the macro side it's a freaking non-sense. The S&P 500 is higher then 9 months ago but the prospects are way worse, in January Europe was not in a total recession (it was heading there), the PIGS problems do not look better at all and the American economy has slowed down. Someone correct me if I'm wrong but spreads of all bonds have narrowed which implies a lower risk tolerance but on the other side stocks have gone up by a meaningful amount which means a high risk tolerance. It just does not make sense.

 

Looking to sell Cisco pretty soon to add to my already excessive cash balance...

 

BeerBaron

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I have a short list of companies to buy at the right price. UPS, RLI, MCD, BAC at $7.50

 

I think BAC at $8 is cheap, but I think it will trade down with the market. I think the chances of this rally continuing for another 3 months with the Eurozone Central Bank resuming debt crisis talks this week and the fiscal cliff resolution relying on a lame duck congress is less than 50%. I still own all of my BAC warrants but selling Sept. calls on the common for .50 today made some sense to me with the S&P at a four year high and the previously mentioned negative catalysts. 

 

Respectfully, I think its stupid to wait to buy a stock at 7.50$ when you think the stock is cheap at 8.00$. You might be right on the stock could it 7.50$, but what if it doesnt and goes to 20$?

 

On one side you could save 10% and on the other side you could miss a 150% gain or more. Buffett has make that mistake with Walmart and it cost him a few billions $.

 

I tend to agree with that because I learned the hard way. I still remember vividly having a limit order on MA at $224 a long time ago. That day it got down to $225...but not $224. It basically never came back. I still could have bought it all up through the $200's but my anchoring bias to that price, using a limit order, and only buying stocks on the way down kept me from doing so. Im not suggesting to chase prices, but that was obviously a huge mistake and I've tried my best to remember and learn from that.

 

"I'd rather be roughly right than precisely wrong"

-Charlie Munger

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For other positions, I've sold the position in my IRA and concurrently purchased it in my taxable account.  I tend to like to reserve the funds in my IRAs for my conviction investments for the largest potential tax-free gains.  If something has risen and I'm unsure if I should sell, I use that as a sign its probably a good idea to sell in the IRA and buy in the taxable account (ie, if I'm questioning if I should sell, its surely no longer a conviction holding).

 

I've been successful with this exact strategy the last couple years.

 

Personally, looking for any screaming local real estate deals.  Aside from money that is sort of "earmarked" for that until it does or doesn't pan out, I've been hanging around a ~15% cash buffer since the beginning of the year.

 

I also have a 401k for which I have very limited options, but am 25% in cash there with 75% of it in American Funds EuroPacific Growth.  I've been reallocating into it as a decent proxy during periods of European pessimism (last fall, recent Spain clobbering) with success.  I don't even bother to try to outguess the market's specific reactions - just add automatically on severe pessimism - basically just employing a Shiller CAPE-type theory to long-term return potential.  For some reason, it's so much easier to accept the potential for extreme volatility and an extremely long horizon with my 401k than my self-directed accounts.  I need to start thinking about that as an advantage and not a disadvantage.

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I have a short list of companies to buy at the right price. UPS, RLI, MCD, BAC at $7.50

 

I think BAC at $8 is cheap, but I think it will trade down with the market. I think the chances of this rally continuing for another 3 months with the Eurozone Central Bank resuming debt crisis talks this week and the fiscal cliff resolution relying on a lame duck congress is less than 50%. I still own all of my BAC warrants but selling Sept. calls on the common for .50 today made some sense to me with the S&P at a four year high and the previously mentioned negative catalysts. 

 

Respectfully, I think its stupid to wait to buy a stock at 7.50$ when you think the stock is cheap at 8.00$. You might be right on the stock could it 7.50$, but what if it doesnt and goes to 20$?

 

On one side you could save 10% and on the other side you could miss a 150% gain or more. Buffett has make that mistake with Walmart and it cost him a few billions $.

 

I tend to agree with that because I learned the hard way. I still remember vividly having a limit order on MA at $224 a long time ago. That day it got down to $225...but not $224. It basically never came back. I still could have bought it all up through the $200's but my anchoring bias to that price, using a limit order, and only buying stocks on the way down kept me from doing so. Im not suggesting to chase prices, but that was obviously a huge mistake and I've tried my best to remember and learn from that.

 

"I'd rather be roughly right than precisely wrong"

-Charlie Munger

 

Bac's fundamentals are improving, but the market is not going to reward shareholders until bac shows its earnings power. I agree that bac could run away from me and I may never get my price of 7.5 but I don't see a lot of positive catalysis in the near future that could cause a further run except for further extension of this overvalued market rally. I am still very heavy on bac with warrants a leaps and a big move up will still benefit me very much. The market is hard to time, but it is almost certain their is going to be a pullback given the negative macro  environment. Cash is king and in this environment; I like to have enough to take advantage of fat pitches that come along. Bac is a large cap fat pitch, but by no means is it the only fat pitch out there. Chk, olympus, and pbkef have all far out performed bac in my portfolio this year.

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The highest margin of safety I've found in the past year was on bac preferred l shares which where selling in the 600s last September. At the time their yield was 11% which meant they could be bought on margin and the dividend played the borrowing costs. Chk recently had a similar situation with chkdg which i still believe is undervalued. There are still undervalued companies out there but you have to have a catalyst to realize a good return.

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I've been successful with this exact strategy the last couple years.

 

often I'm able to repeat it through multiple cycles on the same stocks...the stock may be even flat over a holding period, but I end up with gains in the IRA and losses in the taxable account.

 

Just make sure you don't sell in taxable account, then buy immediately in the IRA.  I believe you'd run into the wash sale rule here even though one is in a taxable and one is not.  Not 100% sure but I'm pretty sure...

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I'd bet if we translated all the warrants and options we hold to the equivilant loan+investment, many of us were in the negative cash territory.

 

Yup.  We're about 140% long notionally (non recourse), but have a lot of what I think is a close to but better than cash equivalent: BRK because of the Buffett Put. 

 

Interestingly, Benjamin Graham was over 200% leveraged in 1929 when the market crashed, but lost only exactly 70% of his fund's value by the time the market hit bottom in 1932, thanks to all the ways he arbitraged and hedged, compared to the market's losing 87% of its value.  He never went to cash.  By 1935, he was back up to his high water mark.  :)

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I'd bet if we translated all the warrants and options we hold to the equivilant loan+investment, many of us were in the negative cash territory.

 

Yup.  We're about 140% long notionally (non recourse), but have a lot of what I think is a close to but better than cash equivalent: BRK because of the Buffett Put. 

 

Interestingly, Benjamin Graham was over 200% leveraged in 1929 when the market crashed, but lost only exactly 70% of his fund's value by the time the market hit bottom in 1932, thanks to all the ways he arbitraged and hedged, compared to the market's losing 87% of its value.  He never went to cash.  By 1935, he was back up to his high water mark.  :)

 

Where can one learn how to do that ? :)

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I've been successful with this exact strategy the last couple years.

 

often I'm able to repeat it through multiple cycles on the same stocks...the stock may be even flat over a holding period, but I end up with gains in the IRA and losses in the taxable account.

 

Just make sure you don't sell in taxable account, then buy immediately in the IRA.  I believe you'd run into the wash sale rule here even though one is in a taxable and one is not.  Not 100% sure but I'm pretty sure...

 

http://www.fairmark.com/capgain/wash/wsira.htm

 

This explains it very well.  Sounds like it is perfectly fine to sell in an IRA and buy in taxable, just not to capture losses in taxable and move it into an IRA.  I can't say that I understand PERMANENTLY losing your access to the deduction, but that's the IRS for you.  Overcompensate in severity for what they can't effectively police.

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maybe I not understanding this poll--why is short < 0%? 

 

Someone 100% long is <10% cash, but then someone short is less than 0% cash?  Shouldn't it be greater than 100% cash for shorting?  Or maybe just not a percentage.  Anyway, I've confused myself.

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Short is <0 because when you short you get money which is not really yours, and you invest in as well. It's like taking a loan in a different currency and buying stocks.

 

You're right though, it's not >100% long, it's >100% position.

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Guest hellsten
Valuations remain unusually rich on our measures, and only seem benign to Wall Street because profit margins are nearly 70% above their historical norms as a result of depressed savings rates and unsustainable government deficits (see Too Little to Lock In).

We are presently in an environment that has historically been associated with the overvalued segment of late-stage bull markets. This segment of the market cycle has been frustrating for us before, and that frustration may not be over. Yet in each instance, our defensiveness was overwhelmingly vindicated. The drum-beat of investors is that “this time is different.” Simply put, I doubt that this time is different.

 

http://www.hussmanfunds.com/wmc/wmc120820.htm

 

 

I have not sold anything.

 

You stick to value, to Benjamin Graham, the man who wrote the bible for the market. It’s a mistake to believe you can do more, I warn you. John Maynard Keynes was one of the most famous economists in history. He was a genius, but he failed as a macro investor. It was hard to believe at the time. But when he became a bottom-up value guy, well, he became very successful. With value investing, you don’t have to bend the truth to accommodate periods with derivatives and manias. Value investing will almost always be right.

 

http://www.businessweek.com/articles/2012-04-12/how-to-play-the-market-irving-kahn (thanks NormR)

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I'd bet if we translated all the warrants and options we hold to the equivilant loan+investment, many of us were in the negative cash territory.

 

Yup.  We're about 140% long notionally (non recourse), but have a lot of what I think is a close to but better than cash equivalent: BRK because of the Buffett Put. 

 

Interestingly, Benjamin Graham was over 200% leveraged in 1929 when the market crashed, but lost only exactly 70% of his fund's value by the time the market hit bottom in 1932, thanks to all the ways he arbitraged and hedged, compared to the market's losing 87% of its value.  He never went to cash.  By 1935, he was back up to his high water mark.  :)

 

Where can one learn how to do that ? :)

 

Graham was the first to develop pair trades, long/short strategy, convertible bond arbitrage and behind the scenes activism to release value for shareholders that had been hoarded by corporate managers for their own benefit.

 

These strategies are still mainstays of hedge funds and the trading operations of banks, but the spreads are small, compared to what they were in Graham's day.  :)

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