What are you buying today?

[dpetrescu]

Bought more Autodesk LEAPs expiration in 2025. Price is still so expensive but a lot less expensive after the market didn’t like their guidance. I could care less about guidance for the next quarter or two. This company just keeps increasing revenues and earnings and I think will keep doing so for decades more. Happy to pay for quality, although it would be nice to have a clearance sale….maybe one day, I can hope

 

Might also buy some more Simpson if it dips under $100.

 

Also just started a new position in Tyler Technologies. Owned it for a couple years and was stupid to sell. Every time I listen to Munger at the DJC meeting, I get a renewed excitement about Tyler. Again - expensive - but it will be less expensive in 5 years and beyond.

 

Common theme for both Autodesk and Tyler - public agencies move at the pace of a snail. But once they commit, that snail pace becomes (can’t think of an animal that’s 1% the speed of a snail). 

Edited February 25, 2023 by dpetrescu

[gfp]

On 2/22/2023 at 8:23 PM, stockman500 said:

LUNRW 

The stock is around $100 atm while the warrants are at a dollar. The spac has just merged. 

I repeat, the stock is sitting around $100 while the warrants are at $1.00

 

What am I missing here?

 

From what I've read, redemption is possible within 60 days for the warrants at $11.50. This is basically a bet the stock will stay higher than that price by the time redemption comes around. I think the stock will definitely come down but should still be above $10.00. Parabolic rises don't deflate that quickly imo.

 

Check in with the SKYH and SKYH.wt warrant holders on how this trade worked out for them.  Buyer beware in a SPAC short squeeze.  The warrants *might* be the rationally priced security...

[Red Lion]

@aws @LearningMachine 

 

Thank you so much for teaching me this lesson before I figured it out sometime next tax season! I closed out the 2024 short calls for a small profit and I’ll look for either a higher IRR short term option (still short some August 23 calls) or none at all. 

[lnofeisone]

19 hours ago, aws said:

 

Options writing are short sales, and short sales are always short-term, no matter whether they are puts, calls, or direct short sales of stock. It also doesn't matter if you close the position early, if it gets assigned, or if it expires worthless. For tax purposes the day any of those happen is considered the day you acquired the position for tax purposes. Even if you closed a short position you had for 10 years it would still show on your tax form that it was acquired and closed on the same day.

 

Short puts that get assigned leaves you with stock, but your holding period starts of the day it was assigned and not on the day you originally sold the put, so you have to wait a full year after that to get LTCG treatment.

@RedLion is selling calls against his existing warrants. IRS treats warrants as options, so he is creating straddles. Straddles aren't taxed at short-term gains.

 

To add to this is that he is selling LEAPs that are offsetting his warrants. If he holds those LEAPs and his warrants until June 2024, he will qualify for long-term capital gains tax. 

 

The trick for both is to make sure that number of sold calls doesn't exceed the number of warrants/100. 

 

Pug 550 - section "Short Sales" - https://www.irs.gov/pub/irs-pdf/p550.pdf

 

[aws]

3 hours ago, lnofeisone said:

@RedLion is selling calls against his existing warrants. IRS treats warrants as options, so he is creating straddles. Straddles aren't taxed at short-term gains.

 

To add to this is that he is selling LEAPs that are offsetting his warrants. If he holds those LEAPs and his warrants until June 2024, he will qualify for long-term capital gains tax. 

 

The trick for both is to make sure that number of sold calls doesn't exceed the number of warrants/100. 

 

Pug 550 - section "Short Sales" - https://www.irs.gov/pub/irs-pdf/p550.pdf

 

 

I could be out of my depths a little since I've never dealt with straddles, but my understanding of straddle rules were that they are to prevent you from getting a more favorable tax treatment than you would otherwise be entitled to by using offsetting positions. Such as going long and short the same stock or option and closing only the losing side right before the end of the year and keeping the winning side for a tax deferral, or by doing the same right before one side becomes long-term to have a low tax rate gain and an ordinary loss. So if he closed the short call at a loss he could not deduct the loss until he sells the warrant, and the short-term loss might be converted to a less favorable LT loss.

 

So are you saying you basically treat the short call and long warrant as a single transaction with whatever the net cost basis is? It would be great if it works, I'm just not understanding the mechanics of it. Do both legs of the position have to be opened on the same day?

 

 

[Red Lion]

I’m going to ask my cpa and just sit on the long warrants right now. I’ve done this before with bull leap spreads and I believe had lt treatment but now I just don’t know. 

[lnofeisone]

2 hours ago, aws said:

 

I could be out of my depths a little since I've never dealt with straddles, but my understanding of straddle rules were that they are to prevent you from getting a more favorable tax treatment than you would otherwise be entitled to by using offsetting positions. Such as going long and short the same stock or option and closing only the losing side right before the end of the year and keeping the winning side for a tax deferral, or by doing the same right before one side becomes long-term to have a low tax rate gain and an ordinary loss. So if he closed the short call at a loss he could not deduct the loss until he sells the warrant, and the short-term loss might be converted to a less favorable LT loss.

 

So are you saying you basically treat the short call and long warrant as a single transaction with whatever the net cost basis is? It would be great if it works, I'm just not understanding the mechanics of it. Do both legs of the position have to be opened on the same day?

 

 

If you sell the losing leg, you can't use that loss to offset anything until you close all legs of your trade. It was updated that way for the very reason you called out (and traders used to do just that). Timing and option pricing (atm, itm, otm,) nuances can matter in some cases but doesn't look like it in this case. For example, married put implies you buy the atm put the same day you buy the stock and if you lose $ on the put, you have to add the cost of the put to the cost basis of your stock. In other words, can't take capital loss on the put. There is lots to keep track off and you can designate all the tax lot assignent with your broker as you trade but most just defer to defaults. 

[Red Lion]

New position in NTDOY. In at 9.52. 

[Castanza]

BRK.b

[Red Lion]

GOOGL leaps 

[Gregmal]

Nintendo 

[CorpRaider]

LUV und PARA und SLG

Edited February 28, 2023 by CorpRaider

[Saluki]

Sold some of my ATCO (if I don't wait until the freezeout happens, I will  only miss one dividend payment) and bought more TV. Put in a limit order for SWBI but I didn't get a fill

 

(thinking of adding to some of my underwater positions and selling 31 days later to keep my same position but offset some of the gains from the ATCO forced sale. Whenever I try to time things it doesn't usually work out in my favor though).   

[Viking]

Cash. Back up to 50% cash weighting. Opportunity to lock in a 12% gain YTD. Collect 3.5% while i wait in the weeds for Mr Market to serve up the next fat pitch.
—————

i was listening to a podcast today and the host was talking about why Buffett likes to hold so much cash - he likes the optionality it provides. Except today, he is getting paid 5%. Making it even more valuable. 
—————

Warren Buffett's Unique Way Of Thinking About His Cash - Cash As A Call Option

- https://www.businessinsider.com/cash-as-a-call-option-2012-9

 

“Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

 

“He thinks of cash differently than conventional investors,” Ms. Schroeder says. “This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”

It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

 

Suddenly, an investor’s asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?”

[Castanza]

2 hours ago, Viking said:

Cash. Back up to 50% cash weighting. Opportunity to lock in a 12% gain YTD. Collect 3.5% while i wait in the weeds for Mr Market to serve up the next fat pitch.
—————

i was listening to a podcast today and the host was talking about why Buffett likes to hold so much cash - he likes the optionality it provides. Except today, he is getting paid 5%. Making it even more valuable. 
—————

Warren Buffett's Unique Way Of Thinking About His Cash - Cash As A Call Option

- https://www.businessinsider.com/cash-as-a-call-option-2012-9

 

“Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

 

“He thinks of cash differently than conventional investors,” Ms. Schroeder says. “This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”

It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

 

Suddenly, an investor’s asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?”

It’s easy to hold cash when you’re already rich, own cash producing companies and hold billions in assets that spit out millions in dividends every year. 
 

How much cash did WB hold in his early days? 

Unless you already have a solid portfolio to hold cash on top of; its just a more eloquent justification for trying to time the market no? 

 

Edited February 28, 2023 by Castanza

[hasilp89]

1 hour ago, Castanza said:

How much cash did WB hold in his early days?

pretty sure it was negative (ie. leverage).

 

 

 

[aws]

From an early Buffett letter regarding work-out positions: 

 

 

"This category will produce reasonably stable earnings from year to year, to a large extent irrespective of the course of the Dow. Obviously, if we operate throughout a year with a large portion of our portfolio in work-outs, we will look extremely good if it turns out to be a declining year for the Dow or quite bad if it is a strongly advancing year. Over the years, work-outs have provided our second largest category. At any given time, we may be in ten to fifteen of these; some just beginning and others in the late stage of their development. I believe in using borrowed money to offset a portion of our work-out portfolio since there is a high degree of safety in this category in terms of both eventual results and intermediate market behavior. Results, excluding the benefits derived from the use of borrowed money, usually fall in the 10% to 20% range. My self-imposed limit regarding borrowing is 25% of partnership net worth. Oftentimes we owe no money and when we do borrow, it is only as an offset against work-outs."

 

 

However I'm also pretty heavy in cash at the moment, about 33%, as I'm not as confident in my own abilities as Buffett might have been in my shoes. A large part of that is tax related though and will come down a lot by April 15th.

[Paarslaars]

Added some more BRK.B

[Dave86ch]

Added 9988hk Alibaba

[Spekulatius]

In his early days, his fund was small and the environment was opportunity rich. Valuations overall were fairly low back then as well.

 

Now Berkshire is huge and he has a significant operating business with large pot. Liabilities  in his insurance business. He is also more in wealth preservation than wealth building , the last letters make this fairly clear. That’s why he holds more cash now than in his early years.

 

Different size, different business (investing vs operating business), different environment,  different goals.

[Xerxes]

13 hours ago, Viking said:

Cash. Back up to 50% cash weighting. Opportunity to lock in a 12% gain YTD. Collect 3.5% while i wait in the weeds for Mr Market to serve up the next fat pitch.
—————

i was listening to a podcast today and the host was talking about why Buffett likes to hold so much cash - he likes the optionality it provides. Except today, he is getting paid 5%. Making it even more valuable. 
—————

Warren Buffett's Unique Way Of Thinking About His Cash - Cash As A Call Option

- https://www.businessinsider.com/cash-as-a-call-option-2012-9

 

“Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

 

“He thinks of cash differently than conventional investors,” Ms. Schroeder says. “This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”

It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

 

Suddenly, an investor’s asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?”

 

If Christopher Blomstran were to read this he would say: "The Media and Viking are having a field day about Mr. Buffett's headline cash position, ignoring the liabilities"

 

 

[Castanza]

2 hours ago, Spekulatius said:

In his early days, his fund was small and the environment was opportunity rich. Valuations overall were fairly low back then as well.

 

Now Berkshire is huge and he has a significant operating business with large pot. Liabilities  in his insurance business. He is also more in wealth preservation than wealth building , the last letters make this fairly clear. That’s why he holds more cash now than in his early years.

 

Different size, different business (investing vs operating business), different environment,  different goals.

 

Yeah I saw that in the letter. Sounded like holding large amounts of cash to reduce any risk to the underlying businesses is the plan moving forward. Can certainly see the benefit at the scale of Berkshire.

 

@Viking I can see your point though and how cash can be like a "non-expiry" call option. I'd say that line of thinking can lead to underperformance though as it leans towards market timing. Can't remember who posted this last week, but this article was pretty interesting from a performance viewpoint.

 

https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

[Xerxes]

To be fair to Viking, I think while his post put up references about a podcast and the call-option framework, the reality is that he is (i think) retired from working for somebody else (an employer). Therefore, he has to think about his family needs in the short term as well as the long term. And not just long term.

 

Whereas the "time in the market beats timing the market" is valid more for someone who has steady flow of cash coming and just investing the surplus, knowing that he/she does not need them.

[Castanza]

5 minutes ago, Xerxes said:

To be fair to Viking, I think while his post put up references about a podcast and the call-option framework, the reality is that he is (i think) retired from working for somebody else (an employer). Therefore, he has to think about his family needs in the short term as well as the long term. And not just long term.

 

Whereas the "time in the market beats timing the market" is valid more for someone who has steady flow of cash coming and just investing the surplus, knowing that he/she does not need them.

 

Good points Xerxes, investment approach and how you handle your resources definitely changes with time and your situation. 

[CorpRaider]

Buffett talked about that option value of bills/cash stuff a fair amount during 2020 AM, if I recall.