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Warren's Secret AAA Fixed Income Strategy


jay21
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From the 2003 Annual Report:

 

I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years.  These opportunities come and go – and at present, they are going.  We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.

 

Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities.  We therefore finance the positions almost entirely with borrowed money.  As the assets are reduced, so also are the borrowings.  The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly.  It was fun while it lasted, and at some point we’ll get another turn at bat.

 

Anyone know what he is talking about?

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From the 2003 Annual Report:

 

I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years.  These opportunities come and go – and at present, they are going.  We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.

 

Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities.  We therefore finance the positions almost entirely with borrowed money.  As the assets are reduced, so also are the borrowings.  The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly.  It was fun while it lasted, and at some point we’ll get another turn at bat.

 

Anyone know what he is talking about?

 

Cayale,

 

You got it! 

 

That's what John Meriwether's team was known for at Salamon Brothers when Warren and Charlie came in to clean house.  That strategy later blew up at Long Term Capital along with other strategies during a flight to safety.  Never the less it is a virtual sure thing if leverage is kept low so that the position can be held until the spread narrows.

 

It's just the sort of thing Warren would do the right way with low leverage that wouldn't blow up.

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From the 2003 Annual Report:

 

I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years.  These opportunities come and go – and at present, they are going.  We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.

 

Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities.  We therefore finance the positions almost entirely with borrowed money.  As the assets are reduced, so also are the borrowings.  The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly.  It was fun while it lasted, and at some point we’ll get another turn at bat.

 

Anyone know what he is talking about?

 

 

 

You got it! 

 

That's what John Meriwether's team was known for at Salamon Brothers when Warren and Charlie came in to clean house.  That strategy later blew up at Long Term Capital along with other strategies during a flight to safety.  Never the less it is a virtual sure thing if leverage is kept low so that the position can be held until the spread narrows.

 

It's just the sort of thing Warren would do the right way with low leverage that wouldn't blow up.

 

Can i get more than that ? details ? cases ? techniques ? application ? theory ?

 

Please  ;D

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From the 2003 Annual Report:

 

I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years.  These opportunities come and go – and at present, they are going.  We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.

 

Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities.  We therefore finance the positions almost entirely with borrowed money.  As the assets are reduced, so also are the borrowings.  The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly.  It was fun while it lasted, and at some point we’ll get another turn at bat.

 

Anyone know what he is talking about?

 

 

Caylay,

You got it! 

 

That's what John Meriwether's team was known for at Salamon Brothers when Warren and Charlie came in to clean house.  That strategy later blew up at Long Term Capital along with other strategies during a flight to safety.  Never the less it is a virtual sure thing if leverage is kept low so that the position can be held until the spread narrows.

 

It's just the sort of thing Warren would do the right way with low leverage that wouldn't blow up.

 

Can i get more than that ? details ? cases ? techniques ? application ? theory ?

 

Please  ;D

 

Read Roger Lowenstein's book, When Genius Failed.  :)

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From the 2003 Annual Report:

 

I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years.  These opportunities come and go – and at present, they are going.  We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.

 

Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities.  We therefore finance the positions almost entirely with borrowed money.  As the assets are reduced, so also are the borrowings.  The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly.  It was fun while it lasted, and at some point we’ll get another turn at bat.

 

Anyone know what he is talking about?

 

 

Cayale,

You got it! 

 

That's what John Meriwether's team was known for at Salamon Brothers when Warren and Charlie came in to clean house.  That strategy later blew up at Long Term Capital along with other strategies during a flight to safety.  Never the less it is a virtual sure thing if leverage is kept low so that the position can be held until the spread narrows.

 

It's just the sort of thing Warren would do the right way with low leverage that wouldn't blow up.

 

Can i get more than that ? details ? cases ? techniques ? application ? theory ?

 

Please  ;D

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Thanks You your guidance is much appreciated (don't read too much into things.)

 

Thanks you vikx01

 

I will enjoy this greatly.

 

Sorry, my answer didn't  connect.  Good background on the trade can be found in Roger Lowenstein's book: How Genius Failed.

 

Best wishes.

 

 

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