Forum member's asset allocation

[arbitragr]

 

 

Not at all, I am paying 1.4% interest on the loan.

 

 

How do you get such a low rate?

[scorpioncapital]

 

 

Not at all, I am paying 1.4% interest on the loan.

 

 

How do you get such a low rate?

 

Interactive Brokers Group (in fact if you have enough assets to borow more than $3 million but less than $50 million, the current interest rate is like 0.30%, it's almost like borrowing from the Fed - free money , of course this can't last.

 

Ps. None of these stocks pay dividends at the moment (although they might in the future). However, I am hoping that at some point, Canadian dollars will pay higher interest on cash than margin interest on US dollars, this may be a few years off.

[benhacker]

Arb, where do you work that you have not heard of IB?

 

They **WILL** own the premium brokerage business.  They are simply hands down head and shoulders above everyone else and they are gaining share like wildfire.

 

Their margin loan rate is at cost, because they are the lost cost brokerage business, they do not need to make a profit on their margin loans like other brokers, they can simply use it as a tool to gain active professional traders and crush their competitors.

 

Their business model is not my favorite, but I like the company, and it is currently not richly priced.  I have my personal account at IB, and I have been thinking hard about migrating my RIA business over to them as their offering is stunningly better even with a few drawbacks for small time players like me.

 

I ask why you have not heard of IB not to ridicule you, but because I'm sincerely curious about how many untapped professionals are out there that they have yet to touch.  They just started advertising recently.

 

Ben

[arbitragr]

Arb, where do you work that you have not heard of IB?

 

They **WILL** own the premium brokerage business.  They are simply hands down head and shoulders above everyone else and they are gaining share like wildfire.

 

Their margin loan rate is at cost, because they are the lost cost brokerage business, they do not need to make a profit on their margin loans like other brokers, they can simply use it as a tool to gain active professional traders and crush their competitors.

 

Their business model is not my favorite, but I like the company, and it is currently not richly priced.  I have my personal account at IB, and I have been thinking hard about migrating my RIA business over to them as their offering is stunningly better even with a few drawbacks for small time players like me.

 

I ask why you have not heard of IB not to ridicule you, but because I'm sincerely curious about how many untapped professionals are out there that they have yet to touch.  They just started advertising recently.

 

Ben

 

Yeah I don't use IB, unfortunately. But I do know about them. Lot's of my friends use them.

I use two full service brokers, they're both bulge bracket firms. You can't get access to the over the counter market otherwise (i.e. distressed debt/junk bonds, or even IPOs), well not the best deals anyways. I don't think IB will ever reach that space because they don't have an i-bank department.  ;)

Might be a bit more expensive, however I'm not a frequent trader so doesn't really matter. I care about gaining access to deal flow.

I've only ever used 1 online brokerage.

[Guest kawikaho]

I love IBKR, but unfortunately I don't do enough trading to warrant the monthly fees.  Not only do they have the lowest costs for margin, they usually pay the highest interest rates on deposits.  And they have access to nearly every exchange and market.  By far the best.

[benhacker]

Arb,

 

Thanks for the clarification.  Totally understand.  I was able to buy some OTC junk bonds via IBKR, but I understand that a lot of stuff still requires a full service broker.  I personally believe that IBKR will be an agent of change for continued commoditization and transparency however, and in the long term they will win unless the iBank lobby does (it may).

 

Kawikaho,

 

I don't know your situation, but if you spend more than $50/year in commissions, IBKR is probably a better deal.  Not only is their $120 ($10/month) fee reasonable, it is only charge after your commissions, so you effectively trade for free after the fee unless you are buying a lot in single months.  On top of that, IBKR's executions are noticeably better than other brokers so you will make back a few bucks a year on better fills.

 

I don't own the stock (yet), so my comments should be taken as genuine. :)

 

Ben

[rkbabang]

This is based on the value as of the close yesterday.

 

21.76%  WEST (cost basis $10.83/share)

17.93%  MIDD  (cost basis $6.97/share)

15.78%  ISRG  (cost basis $107.95/share, hoping for a good day today, may sell some)

12.80%  FFH    (cost basis $280.15/share)

About 29% in 20 other stocks including some stocks followed on this board such as BRK-B (3.2%), SNS (1.8%), and CCLR.OB (1.7%).

About 2% cash.

 

 

--Eric (Dammit Jim! I'm an engineer, not a investment professional)

 

[oec2000]

Roughly:

 

33% in preferreds (mostly US financials),

20% in FFH LEAPS/FFH/ORH (notional value approx 60% of portfolio),

10% in various small caps, resource and staples stocks (mostly opening positions, aim is to increase positions as price opportunities present themselves),

5% shorts,

33% cash and arb opportunities.

 

Longer term, aim to allocate capital as follows assuming prices cooperate:

33% in jockey stocks (FFH/BRK, etc),

33% resource (mainly energy related),

33% consumer monopolies;

30% in preferreds (using long term home equity debt as opposed to margin debt; allow cashflows from pfds to self-liquidate debt over time).

Up to 20% in short term high probability arbitrage trades (using margin debt).

[QLEAP]

you got middleby at 6.95$ a share ?

 

sns - 51%

brk.b - 25%

cgx - 10%

mhh - 7%

 

rest cash

[enoch01]

BRKB    14%

WTM    7%

FFH      5%

LUK      2.5%

Y        2.5%

WEST  2%

OTHER  4%

CASH  63% (recently sold some positions)

 

Looking for good jockeys at good prices.

[rkbabang]

you got middleby at 6.95$ a share ?

 

 

 

If my calculations are correct, yes.  I sold all of my Middleby shares and bought OVEN this winter (as well as putting quite a bit of new money into OVEN) which all got converted to MIDD shares after the acquisition plus a good amount of cash.  Taking my number of MIDD shares that I now own and dividing it by the sum of the new money I put into OVEN plus the money my original MIDD shares cost me, minus all transaction costs, I get $6.95/share as my cost basis.  I know at least one other board member thanked me for posting info about this arbitrage situation on the old board, so I'm not the only one here that made out like a bandit on this deal.

 

--Eric

 

[Guest kawikaho]

Hey Ben,

 

Is that fee flat for the whole year?  I thought they charged extra commissions for share lots above a certain size. Might have to switch over soon, then.

[QLEAP]

thanks rkbabang ! That's pure Beethoven to my ears.

 

regards,

qleap

[benhacker]

Kawikho,

 

The fee is $10/month.  Any commissions during the month are deducted from the fee... so if you buy fewer than 2000 shares / month, your total fee for using IB is $120 / annually.

 

There service is shit, and they are only for experienced investors, but they are the best value I think.

 

Ben

[Guest kawikaho]

Thanks, Ben.  Yeah, I've also heard their customer service reeks.  I've tried contacting them about their deposit yields before, and never got a response.  I've also heard some shady things about their margin accounts, and how people have gotten margin called for no discernable reason. 

[yudeng2004]

Mine:

 

85% developing country micro/smallcaps

5% FFH calls

2% mall operator puts

8% cash

 

I expect 75%/year from micro/smallcaps, 40% from calls, puts are for the small chance there is mass fear, so those should make up for the losses in other positions, and cash is not something I really want to own given the kind of printing we have seen.

[ragnarisapirate]

I expect 75%/year from micro/smallcaps, 40% from calls, puts are for the small chance there is mass fear, so those should make up for the losses in other positions, and cash is not something I really want to own given the kind of printing we have seen.

 

75% a year? that is impressive... 2 questions:

 

1) how small are your small caps (for example, when I think small cap, I think DCU, whereas, most would probably think of SNS as a small cap)

 

2) are you investing with a catalyst for your prospective 75% returns in small caps? or are they that undervalued?

[yudeng2004]

1) 10m-50m market caps

2) both catalyst + undervalue, but mainly I trade things that could return 50%, and I get the 25% more from trading.

 

I think in the US market there are some stocks right now that could return in the 35%+ range, with the right option combination you could easily boost that to 50%+ with no added risk (options are still often mispriced).

 

The question is whether you want to be active or lazy.  If you don't mind doing the busywork with options, you can gain 15-20% more per year with option combos than your stocks.  You don't even have to pick obscure stocks, you can do this with large caps like google.

 

My personal idea of investing progress is like this:

 

step 1) passive investing with index funds

step 2) find good jockies (like ffh, markel, brk) and let them invest for you

step 3) learn to value companies properly and train yourself to be able to do buy and hold on undervalued stocks

step 4) learn to calculate risk/reward with option combos and use them to boost your returns

step 5) learn overbought and oversold conditions that often happen with stocks/options and learn swing trade (u must be able to value the underlying security properly, of course)

step 6) do combination of 4) and 5) until you have a ton of money that the liquidity of the stocks and options you are trading are no longer meaningful for the size of your portfolio

step 7) now you have a lot of money and the liquidity no longer exists for you to trade, what can you do? you go back to step 2) or 3) if you want to enjoy life or you advance to the next step 8)

step 8) attempt to understand global macro and learn to trade commodities and currencies, as well as use exotic instruments (such as CDS) to trade on macro scenarios.  Use macro trends to help you get into stocks that will most likely to go from undervaluation to overvaluation (not just fair value)

 

The return you can expect is that it should rise from step 1) until step 5), then it will decrease.  I am pretty happily stuck on step 5)

 

I want to stress that generally speaking the more higher-return methods you seek, the more "inhuman" you have to become.  For example, if you were in Buffett's position in 1999 and you saw Coca Cola at 50 PE, you sell it, irregardless of how many friends you have on the Coca Cola board.  You must not be comfortable with anything at any given time. 

 

Basically, you are on "alert mode" all the time, feel as if you are fighting a war, and operate in a very emotionally detached state.

 

Applying "war mentality" to any activity usually does enhance your results, but in the end since most activities are not war, and the consequences are not life and death, so the effort put forth to put yourself in a "war mentality" while sacrificing the good feelings of life will not justify the results unless you are actually fighting a war.

 

If you will notice that Buffet became more and more human as he aged and is making mistakes a younger version of him would not have made.  He is more experienced and more knowledgeable as an older person, but he now lacks some of the mental toughness he had as a younger person.

 

Mental toughness will decay as people age, this I am certain. So the goal right now is to build it up to a high point so when the eventual decay comes, you are decaying at least from a relatively high point.  I don't have a family yet but the window of building these skills are closing very rapidly, I feel.

 

 

I expect 75%/year from micro/smallcaps, 40% from calls, puts are for the small chance there is mass fear, so those should make up for the losses in other positions, and cash is not something I really want to own given the kind of printing we have seen.

 

75% a year? that is impressive... 2 questions:

 

1) how small are your small caps (for example, when I think small cap, I think DCU, whereas, most would probably think of SNS as a small cap)

 

2) are you investing with a catalyst for your prospective 75% returns in small caps? or are they that undervalued?

[decipher]

FFH - 40%

Jockey stocks (LUK, BRK.B, SHLD) - 20%

TASCX - 10%

Others - 10%

Cash - 20%

[DCG]

I don't have the % breakdowns handy right now, but here are my current stock holdings (held between an equities account and an IRA):

 

AAPL

BRK.B

FFH

GE

GOOG

HANS

LOW

PAYX

USB

USG

V

DIS

PG

 

AAPL & BRK.B are my largest holdings by $.

[Guest kawikaho]

If I returned 75% compounded for the next 2 years, I'm retiring. 

 

DCG, I like your holdings. 

[mpauls]

Beware of falling Apples.

[bargainman]

I think in the US market there are some stocks right now that could return in the 35%+ range, with the right option combination you could easily boost that to 50%+ with no added risk (options are still often mispriced).

 

step 4) learn to calculate risk/reward with option combos and use them to boost your returns

step 5) learn overbought and oversold conditions that often happen with stocks/options and learn swing trade (u must be able to value the underlying security properly, of course)

step 6) do combination of 4) and 5) until you have a ton of money that the liquidity of the stocks and options you are trading are no longer meaningful for the size of your portfolio

 

Yudeng, you always come up with interesting posts. I'm curious, what sorts of option combos do you use, and what sorts of oversold/overbought 'indicators' do you look for?

 

On the combos are you mostly buying options or selling options?  Do you set up synthetic longs, or do ratios/backspreads?  I presume you look more for unlimited upside scenarios than for selling theta decay?  Is that right?  So maybe buying calls and either selling puts to fund them, or selling a fewer number of sooner expiring calls?

 

Then what do  you use to time your exits and entries?  Do you just use the classic 'calculate intrinsic value', buy at a MOS and sell as it gets close to the IV?  Or is there something else you're referring to?

 

Thanks for any insight.

Bargainman.

[arbitragr]

The market is frothy as heck.

 

Be fearful when ... yada yada yada ...

The time to sell is when confidence is on the streets.

[yudeng2004]

I think in the US market there are some stocks right now that could return in the 35%+ range, with the right option combination you could easily boost that to 50%+ with no added risk (options are still often mispriced).

 

step 4) learn to calculate risk/reward with option combos and use them to boost your returns

step 5) learn overbought and oversold conditions that often happen with stocks/options and learn swing trade (u must be able to value the underlying security properly, of course)

step 6) do combination of 4) and 5) until you have a ton of money that the liquidity of the stocks and options you are trading are no longer meaningful for the size of your portfolio

 

Yudeng, you always come up with interesting posts. I'm curious, what sorts of option combos do you use, and what sorts of oversold/overbought 'indicators' do you look for?

 

On the combos are you mostly buying options or selling options?  Do you set up synthetic longs, or do ratios/backspreads?  I presume you look more for unlimited upside scenarios than for selling theta decay?  Is that right?  So maybe buying calls and either selling puts to fund them, or selling a fewer number of sooner expiring calls?

 

Then what do  you use to time your exits and entries?  Do you just use the classic 'calculate intrinsic value', buy at a MOS and sell as it gets close to the IV?  Or is there something else you're referring to?

 

Thanks for any insight.

Bargainman.

 

It is not true that unlimited upside are the best scenarios.

 

I would say generally you want to sell short term and buy long term.  For example say Google, when it was near 300, you would buy in the money or at the money long dated leaps and sell higher strike shorter term calls, and you would repeat selling the short term calls as they expired out of the money.  It was worthwhile to do that.  You could almost have the money you paid for the long term entirely earned back from the selling of the short term over the period - you were going to recover 80%-100% of your money at that point.

 

Generally if you have a good grasp on the value of a stock with low EARNINGS VOLATILITY and likely to be growing earnings steadily and is undervalued, you can buy leaps and then sell out of the strike higher short term ones.

 

Options can also be mispriced on volatility.  I think overall it is more worthwhile to be a net seller of volatility than a buyer of one.

 

It's also good to use very small amounts of money to buy puts on really crappy stuff.  I rather do this than shorting - since my loss is limited with puts.

 

Regardless, I believe these strategies could support you up to 50 million without doing much work.  At 50 million+ I hope you have API's and computer algorithms finding things for you.

 

In fact I say algorithms can help you up to quite a large number.  Computers can improve your filtering and execution by a lot.