How much are you allocated in cash?

[no_free_lunch]

0% cash.

 

Got about 2% in deep OTM puts that will pay off enormously in event of systemic failure.  On the other hand if there is a 10-20% drop they're probably worthless.

 

This is not greed but fear of price inflation.  There is till a lot of money on the sidelines.  Stocks look expensive when you look at their charts and everything is up 50%+.  If you ignore the chart and look at the valuation there are still a lot of deals out there.

[Olmsted]

Isn't one of the salient points of Buffett's teachings that one should make investment decisions only on micro factors and NOT on macro factors?

 

"I make no attempt to forecast the general market - my efforts are devoted to finding undervalued securities.

 

-Warren Buffett, February 11, 1959

 

I suppose you could say that securities that fall into your circle of competence are overvalued and you are simply waiting for their prices to fall back to earth.

 

I think your last sentence rectified your micro/macro question adequately.  Even the good Mr. Buffet himself "sold out" when he couldn't find enough undervalued businesses to invest in:

 

http://www.distressed-debt-investing.com/2013/02/one-of-warren-buffetts-greatest-trades.html

 

"The investing environment I discussed at that time (and on which I have commented in various other letters) has generally become more negative and frustrating as time has passed. Maybe I am merely suffering from a lack of mental flexibility...

 

However, it seems to me that: (1) opportunities for investment that are open to the analyst that stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years...

[Palantir]

I am 24% cash, however not based on any macro factors. I cannot find any securities worth investing in, as the undervalued ones that I bought all went up.  8)

 

I hunt elephants, and I'm willing to wait. I'm looking for firms whose customers have high switching costs.

[bmichaud]

Massively net short. This market is crazy within the context of a secular bear market. Sentiment is at extreme optimism, VXO is at multi-year lows, valuations are at extreme highs and the Citi econ surprise index has rolled over substantially. I can't think of any reason why this market should decline....typically a sign the market is peaking. Can't wait to be able to pick up AIG at $30 and BAC at $9 again...

[ERICOPOLY]

I can't think of any reason why this market should decline....typically a sign the market is peaking. Can't wait to be able to pick up AIG at $30 and BAC at $9 again...

 

Last year the Euro was going to collapse and there was to be a daisy chain domino effect on global banking.

 

So now if the "Euro is here to stay" it might mean that BAC and AIG will be spared this year.

 

http://www.bloomberg.com/news/2013-01-24/soros-says-euro-is-here-to-stay-with-two-tense-years-ahead-2-.html

 

[Guest deepValue]

100% cash. What can I say? I'm selective.

[twacowfca]

About 140% to 180% long depending on the timing of rolling over BRK calls. We added a lot of non recourse leverage to our BRK position through cheap calls and leaps over the last year.  This now more than matches the long term non recourse leverage we have had for many years in our Lancashire holding.  Yet we still have about half of the cash left over from the Lancashire dividend  as we've begun to nibble at two new positions. 

 

We hedged somewhat the last week of December with S&P puts, but bailed out quickly after reading the tea leaves on the developing resolution of the fiscal cliff stalemate.  Amazingly, we actually made a small profit on some of these, exiting before the market took off at the end of the year.

 

Were it not for the free put on BRK, we would be holding more cash because the market could be on the last lap of its bull run. 

 

We continue to monitor a few key macro gauges: change in gov/private savings, M2, WSbase, margin debt.  These all look very positive.  We also note the US unemployment rate and CPI.  When these approach Bernanke's threshold for ending QE and allowing interest rates to rise, we will delever and look for more downside protection.

[siddharth18]

 

Got about 2% in deep OTM puts that will pay off enormously in event of systemic failure.  On the other hand if there is a 10-20% drop they're probably worthless.

 

 

Regarding your Puts - Klarman does this too, right? From June 25, 1998 Baupost letter:

 

We also have substantially increased our position in disaster insurance (out of the money U.S. equity market put options, as well as various protections against rising interest rates and fluctuating currencies.) We continue to be willing to give up a portion of our upside to protect against serious downside exposure.

[moore_capital54]

Really surprised Moore that you went to 60% cash based on a macro call: interest rates direction and their effect. As you probably know, 1994 showed some pretty steep declines in bonds and long term treasuries while the S&P still went up 1.3%.

 

I find it also surprising since just over a year ago you kind of implied that anyone moving heavily to cash in his or her portfolio was most likely an amateur managing a few thousand dollars. You sounded very convinced that one should always stay invested if opportunities are found despite macro. Is BAC not a deal under $12 and under tangible book, not even book? If you still like precious metals, there must be tons of bargains in that field. No?

 

Cardboard

 

My dear friend Cardboard maybe I need to reiterate that my fund was up nearly 60% in 2012 and over 3% FY2013 already. Between my various fees and my aggressive allocation my net worth increased by nearly 80%. To compare last year to this year is a comparison of apples to oranges. I am not sure where you stood but you may have missed the run up I know people like myself and ericpoly did not miss. BAC @ 12 might seem like a bargain to you but I liked it much more at 6 and 7 same with RIMM and same with about 5-6 other names I pounded the table on for almost 2 years on this message board.

 

You have to know when to sell too.  I did not sell due to Macro reasons I sold because we made an incredible amount of money as our thesis played out and can now afford to sit back and wait for a fat pitch.

 

As for my house I am excited to hear about your new house Eric once you sell some of those warrants ;)

 

 

[bmichaud]

I can't think of any reason why this market should decline....typically a sign the market is peaking. Can't wait to be able to pick up AIG at $30 and BAC at $9 again...

 

Last year the Euro was going to collapse and there was to be a daisy chain domino effect on global banking.

 

So now if the "Euro is here to stay" it might mean that BAC and AIG will be spared this year.

 

http://www.bloomberg.com/news/2013-01-24/soros-says-euro-is-here-to-stay-with-two-tense-years-ahead-2-.html

 

Very likely - thus why I would love to buy more at 30 and 9 again, versus 25 and 7.

[bmichaud]

http://theshortsideoflong.blogspot.com/2013/02/equities-in-euphoria.html?m=1

[Charlie]

Thanky ERICOPOLY for the Soros interview. Always a good read.  :)

 

I am 0% cash, 100% Berkshire.

 

I agree with Mohnish Pabrai:

 

Do you feel better about 2013 than you did 2012?

 

His basic answer was yes. "People will be surprised at how robustly the U.S. economy comes back," he said.  :)

[giofranchi]

28.5% FFH

48.5% Owner-operators

13% Short positions

6.5% Gold

3.5% Silver

 

All equity, no use of leverage. And I expect to receive a 10% fcf from my operating businesses through this year.

 

Actually, not much changed from last year. I clearly don’t understand all the small nuances of the markets, so I guess I will have to wait for some “big change”. When that happens (and it will happen, as it always does), I think I will have the wherewithal to take advantage of it.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[Cardboard]

Hi Moore,

 

I hope that you won't dislike me going forward because of these comments. It is just what I consider honest feedback related mainly to some of the fairly harsh comments that you made last year to some guys who would not buy BAC for example, due to macro fears such as a Euro collapse which sounded quite plausible. It could still happen by the way.

 

Regarding last year, I was up 99% (just shy of the magic number) on a 7 digits portfolio, so times have been good. I also bought my initial stake in BAC last december in the mid $5's. However, despite this and the market being euphoric and only looking at positives currently, I still find big bargains out there. At least enough to fill a diversified portfolio.

 

While I have a decent size short position on what I consider very overvalued names with so so fundamentals, my current cash position is quite light. It will increase a bit in February with one and hopefully two deals getting done, but nowhere near your level. If you had said 20 or 30% cash, I would not have mentioned a word, but 60% certainly sound like a major market call. Despite the market advance, it still does not feel like 1999 or 2007. Many things are now turning positive such as housing and autos which are major forces, but I agree that other things could derail all that. I just find it hard to predict with any certainty.

 

Anyway, you have a fiduciary duty to your investors and it looks like that you are delivering big time to them so great job. However, if there are bargains that you like and that you pass on them because of a strong opinion on macro or because 2012 was such a great year then I am concerned.

 

Cardboard

[Uccmal]

120% long there abouts.

 

Cognizant as always of the quick run up, I have sold nearly all of my 2014 BAC and AIG calls into the rally.

 

However, These stocks are still insanely cheap.  I just dont like holding durations of less than a year.  It has turned against me too often. 

 

If you look at the business/stock cycle the first part is a rally in the financials.  That rally has started.  If the rises of the past months are any indication we may be in for the mother of bull Markets.

 

I expect the fed will raise interest rates much sooner than anticipated, and back off any further QE.  This should have a net positive effect as peoples incomes improve. 

 

Good news from California... gotta wonder how many other lower jurisdictions are getting their houses in order.  Certainly not Ontario, after two decades of bad management. 

 

I am sure, at some point during the year we will get a major pullback due to some thing or other, probably Europe.  Perhaps an opportunity to reload. 

[StubbleJumper]

I'm about 110 percent long, with the leverage coming from BAC warrants. 

 

Despite the run-up, I'm having a great deal of difficulty convincing myself to part with ANY of my exposure to BAC.  For those who have dumped some warrants in recent weeks, at what level do you expect BAC to trade in January 2019 when the warrants expire?  I am having trouble inventing any plausible scenario where BAC shares are worth less than $30 in 2019, meaning the warrants still look like a three-bagger over 6 years.  It's not Cardboard's 99% return, but I'm happy with the notion of three bags in 6 years.

 

I also have a great deal of difficulty convincing myself to dump any FFH at current prices.  I just can't do it, the future looks too good!

 

Strangely enough, following the run-up of BRK, I'm beginning to think about trimming the position, but it's been so far from IV for so many years that the idea of selling strikes me as a knee-jerk reaction to a nice run-up that has taken us part of the way to IV.

 

Nope, I think I'll just keep looking for cheap stuff and not fuss about DJIA 14000.

[finetrader]

I have about 7% cash, another 8% in a special situation, and 21% in lvlt bond.

 

I haven't heard this argument yet so I will go out and say that S&P500 is at 1500 for the third time in 12 years and  this is the right one. No big decline in sight this time.

[ERICOPOLY]

As for my house I am excited to hear about your new house Eric once you sell some of those warrants ;)

 

In Montecito it's impressive just to be able to buy a 2,000 sqft "Mansion".  I need to scrape together nearly $2.5m just to buy the house I'm renting, which is 2,300 sqft.

 

Keep in mind that this is post-collapse pricing  :-[

 

 

 

 

[ericd1]

I'm also having trouble lowering exposure to BAC and AIG, which make up a substantial allocation of the portfolio. Smarter guys may be able to rinse and repeat,but I'm not very good at it. If the dumb money is 'beginning' to flow into the market seems like there's still 12-18 months upside ahead. Bumps in the road ahead-yes, but this isn't '08. I have some tax-free bonds that could be used if a fat pitch presents itself.

[Olmsted]

0% cash 20% in a situation that will be complete before May 1st.  Plan on moving that to cash and suck my thumb until prices come to inline with the watch list.

 

0% cash 35% in special situation closing in March..I consider this as cash and move it to cash if gap closes or find a deep value

 

I have about 7% cash, another 8% in a special situation, and 21% in lvlt bond.

 

I haven't heard this argument yet so I will go out and say that S&P500 is at 1500 for the third time in 12 years and  this is the right one. No big decline in sight this time.

 

Okay, special situation people: you must have full allocations by now, so hook us up!  What looks interesting?

[nkp007]

As far as $BAC and $AIG are concerned, I still think they are cheap. Used the rest of my cash yesterday to close out my Salesforce short at a loss :( and plug the liquidity into more warrants.

 

Virtually no excess cash, and just waiting and holding.

[moore_capital54]

Hi Moore,

 

I hope that you won't dislike me going forward because of these comments. It is just what I consider honest feedback related mainly to some of the fairly harsh comments that you made last year to some guys who would not buy BAC for example, due to macro fears such as a Euro collapse which sounded quite plausible. It could still happen by the way.

 

Regarding last year, I was up 99% (just shy of the magic number) on a 7 digits portfolio, so times have been good. I also bought my initial stake in BAC last december in the mid $5's. However, despite this and the market being euphoric and only looking at positives currently, I still find big bargains out there. At least enough to fill a diversified portfolio.

 

While I have a decent size short position on what I consider very overvalued names with so so fundamentals, my current cash position is quite light. It will increase a bit in February with one and hopefully two deals getting done, but nowhere near your level. If you had said 20 or 30% cash, I would not have mentioned a word, but 60% certainly sound like a major market call. Despite the market advance, it still does not feel like 1999 or 2007. Many things are now turning positive such as housing and autos which are major forces, but I agree that other things could derail all that. I just find it hard to predict with any certainty.

 

Anyway, you have a fiduciary duty to your investors and it looks like that you are delivering big time to them so great job. However, if there are bargains that you like and that you pass on them because of a strong opinion on macro or because 2012 was such a great year then I am concerned.

 

Cardboard

 

Precisely, I don't see any bargains and am beginning to worry that the tailwinds you speak of will become headwinds when interest rates normalize.

 

At this point its all about interest rates for me.  I am being a value investor with interest rates and choosing to keep my capital as liquid as can be given I have already generated out-sized returns that would suffice for even 2-3 years. We buy/short stocks almost every week and will continue to do so but there are no clear bargains currently as far as I am concerned. I am looking to Mr. Market of interest rates and seeing valuations (rates) that are bubbly and investors allocating long-term capital at these valuations.

[moore_capital54]

As for my house I am excited to hear about your new house Eric once you sell some of those warrants ;)

 

In Montecito it's impressive just to be able to buy a 2,000 sqft "Mansion".  I need to scrape together nearly $2.5m just to buy the house I'm renting, which is 2,300 sqft.

 

Keep in mind that this is post-collapse pricing  :-[

 

Montecito is definitely expensive but you should spoil yourself with a nice home after your score on BAC. It will be a legacy asset that will last forever.

 

The Canadian market is softening but not in the ultra-high end I still do not see a slow down there. We are considering a move to London as I believe a combination of weaker pound and peaking real estate market may provide an opportunity to make a good purchase over the next 12-36 months.

[Packer16]

I am glad to see a few others long.  I am 100% long but am looking at rolling some gains into FFH and other special situations (AIG, HNR and CXPO) for example as some of my holdings approach fair value.  For those who don't hold alot of cash, what was your performance in the last decline (08) and those who hold alot of cash what was it?  I got clobbered with a decline of about 50% that I would not like to repeat.

 

Packer

[nkp007]

Massively net short. This market is crazy within the context of a secular bear market. Sentiment is at extreme optimism, VXO is at multi-year lows, valuations are at extreme highs and the Citi econ surprise index has rolled over substantially. I can't think of any reason why this market should decline....typically a sign the market is peaking. Can't wait to be able to pick up AIG at $30 and BAC at $9 again...

 

We're still relatively close to those levels for AIG and BAC. If they're worth multiples of current price, a 20% move still leaves plenty of a margin of safety.