What are you buying today?

[gfp]

7 minutes ago, Dynamic said:

It is interesting how different people feel about their portfolio construction and approaches, patience, concentration vs diversification and so on.

 

I very rarely get very high conviction about a new company and a price with a margin of safety that makes me excited, but I'll then go very concentrated and put a serious proportion of my capital into it, the amount I'm willing to risk depending on how much I'm continuing to invest and how much risk of long-term loss of capital I view the position to have. It has helped that Berkshire Hathaway has nearly always been available as a default investment with good return, extreme safety of intrinsic value and hardly ever overvalued. These big concentrated positions at back-up-the-truck prices where I might sell out of other positions to buy more are fairly rare for me.
Feb 2016 - BRK.B to 100% of portfolio.
May 2016 - AAPL to 25% of portfolio and happy for it to grow to over 50%, but concerned over the small chance of it doing-a-Nokia to not start above 25%, the rest remaining in BRK.B.

2018 a private opportunity which I eventually put about 35% into.

Sep 2023 to Aug 2024 FFH.TO / FRFHF initial 17% position, grew to 35-40% then to 50% but willing to let it grow and dominate my portfolio. Still had over 20% uninvested cash.

I have also done some merger arbitrage, a little dabbling in bank stocks and buying and selling via writing short-term Puts and Calls, but nothing with this high level of conviction to back up the truck in a big way.

 

That's great Dynamic - and a perfect illustration in real-time of the fact that you do not need very many great ideas in an investing career to really shoot the lights out.  There are a bunch of different ways to play this game but the way you played it has worked phenomenally, with little real risk - even with "unconventional concentration."  It was available to basically any value bro that hangs out on message boards like this.  And it outperforms the index.

[Blake Hampton]

40 minutes ago, gfp said:

This is bonkers.  I really get the feeling that you aren't listening to anybody here and your mind is so made up that it could take an entire 15 year market cycle to give you back the humility to realize you have a lot of things backwards.  If you are trying to do this for a living, that puts you out of business and into a different industry.

 

As a side note... for the 10th time or whatever it is...  your understanding of the Federal Reserve's role in influencing inflation is likely wrong enough to be closer to 180 degrees backward.  And if the all powerful Federal Reserve gets a handle on this raging inflation you think is right around the corner, you want to own "cash" in that scenario?

What is the role of the Federal Reserve in handling inflation then gfp?

[gfp]

1 minute ago, Blake Hampton said:

What is the role of the Federal Reserve in handling inflation then gfp?

 

Here's one small example of how your understanding of the Fed's primary tool - short term interest rates - could very well be close to 180 degrees backward.  Remember that around 80% of the US debt is owned by the private sector and the rate of interest paid on this primarily short term debt increases or decreases the level of deficit stimulus -

---

 

Here’s the scenario.  You have a stable company that doesn’t make much of anything over time but also doesn’t lose value either.  It isn’t a great investment but the share price, intrinsic value, etc, is basically stable.  Trades at $100 per share.  You own 100 shares, $10,000.  [for the dense, I am going to spell it out - this is US Dollar cash in this metaphor]

 

This company decides to implement an all stock dividend of $5 per share annually.  Not a cash dividend, a stock dividend, which is more like a tiny stock split.  Let’s say they target 5% annually for this stock dividend.

 

Next year you have 105 shares but everybody else also has 5% more stock, the company is identical to the earlier scenario and the share price starts to drift down by about 5% per year, leaving the market cap of the company essentially unchanged.

 

Each year they do this, and low and behold, the “inflation” – the rate at which the value of one share loses value, is basically gravitating towards the “interest rate”.

 

If the all-stock dividend is targeted at 7% annually, the stock in the above example will start to experience a loss of value, per share, of around 7% annually.

 

If the all-stock dividend is targeted at 2% annually, the loss in per share value due to this “inflation” will tend to gravitate towards 2% annually.

 

Do you see what I am pointing out?

 

There comes a point in the sovereign interest rate setting game, where the interest rate on government borrowing is materially effecting the size of the deficit (because the majority of the borrowing is done at the short end, where rates are not set by market forces), and a large enough share of the government debt is “owned by the public,” – there comes a point where the artificially set interest rate from the Fed starts to act like a magnet to the inflation rate just like the stock dividend example above.  They are giving you more of the same instrument.

[Gregmal]

The other problem is one we’ve seen from time to time on here, and that’s sitting around playing the “guess what the Fed is gonna do” game thinking it’s some macro fortune tellers crystal ball. 

[gfp]

28 minutes ago, Blake Hampton said:

What is the role of the Federal Reserve in handling inflation then gfp?

 

Here's another example:

 

The Fed wants to stimulate the economy by doing "QE."  So they buy up interest bearing coupon securities from the private sector and now that interest income is being earned by the Fed, on the Fed's big old balance sheet.  In place of the securities they bought, the private sector got bank reserves at the Fed, which at the time didn't pay interest and where of little to no use in the real economy.  There was a surplus of bank reserves in the system and they are all parked at the Fed and the level of private bank lending is not constrained by the amount of bank reserves in the system - it is constrained by other regulations and market demand for new loans, credit quality, etc..

 

So during this period, the Federal Reserve earns a profit on their balance sheet - look it up - big profit.  It remits this profit to the Treasury.  What do you call it when interest income that would have gone to the private sector is instead not earned by the private sector and remitted to the Treasury, reducing the deficit?  That's essentially a tax.  Revenue to the government that reduces the deficit.

 

What did QE do that was stimulative?  It barely had any effect on Government bond rates.  The Fed has studied this themselves and found a few basis points, maybe...  They expanded it to MBS and it, along with very short durations of mortgages during the refinancing booms, led to tighter spreads on MBS over treasuries - that was stimulative.

 

Was it more stimulative than the counter-stimulative effect spelled out in the first paragraph?  I doubt it, but it is impossible to say for sure since we don't know what the spreads on MBS over treasury securities would have been without the Fed expanding QE to MBS.

 

** remember, "QE" and "QT" are just swapping one form of federal liability (what we call "money") for another.  swapping in a bank reserve, even though those do now pay interest (new feature..) but removing a highly useful treasury security - the base highest quality collateral for the entire global financial system's transformation, leverage and exchange engine, is not a stimulative swap for the private sector

Edited January 26, 2025 by gfp

[gfp]

16 minutes ago, Blake Hampton said:

What is the role of the Federal Reserve in handling inflation then gfp?

 

Just remember - for the most part - the Federal Reserve doesn't really have the ability to create new money.  Private banks and the Federal Government do - but basically the "Fed" does not.  The Fed can use their tool-kit to try to influence the amount of credit extended by private banks - but they are often simultaneously working against their goals.  Demand for credit and creditworthiness are the primary drivers of private bank money growth.  The government's deficit stimulus is obviously the primary driver of "new dollar money" into the system and the Fed's main tool, hiking up interest rates at the end of the curve the government primarily borrows at - increases the deficit stimulus into the private sector.  

[brobro777]

10 hours ago, Gregmal said:

Yup, it’s about putting in the work and being able to find advantages. 
 

And even if that fails, you can always just trade yourself into a decent return. In fact, for people whom are allergic to actually investing, trading is probably the way to go. 

 

I’ve never seen the point in sitting around doing absolutely nothing while underinvested and pretending like it’s the smart thing to do. I get guys like Klarman and Einhorn, because they’re already wealthy, but the average investor or fund manager? What’s your consolation prize? The Einhorns and Klarmans hob knob like billionaires while masquerading as successful investors, and periodically get to write condescending know it all letters making excuses, but everyone else? You simply have to keep your day job longer? 

 

Yea and trading now is much better compared to the past. Cheap or free data, access to all kinds of markets from your phone, massive liquidity in futures and options, more newbies entering the markets due to increased accessibility keeping the game soft, and they're going to roll out 24 hour trading. 

 

Pretty great really

 

[Gregmal]

28 minutes ago, brobro777 said:

 

Yea and trading now is much better compared to the past. Cheap or free data, access to all kinds of markets from your phone, massive liquidity in futures and options, more newbies entering the markets due to increased accessibility keeping the game soft, and they're going to roll out 24 hour trading. 

 

Pretty great really

 

You can probably make 10-15% a year just shorting OTM puts on stuff you want to own but think is too expensive lol. 

[DooDiligence]

3 hours ago, KPO said:

Insurance. Railroad. Energy. But is he really?
 

Patience seemed to work for Buffett and Munger. Study when Munger bought Wells Fargo and let me know if you disagree. There’s nothing wrong with waiting for a fat pitch or two, even if you have to wait several years. I think many of us (me included) have forgotten about the importance of patience in investing. 

 

Yup.

 

"The big money is not in the buying or selling, but in the waiting"

 

When I was searching for this quote, this clip popped up. I believe it's on point wrt the recent discussions here. Patience, coupled with recognizing the importance of errors of omission (within your circle of competence) and open, honest humility with a generous dose of self deprecating humor.

 

The quote is not included in the clip but it's worth watching to the end anyway. Repetition of things I already know used to annoy me, but now they just reinforce the ideas.

 

I'ma stay damn near fully invested, minus 2 years of cash for expenses plus a generous allotment for travel. I did a little house cleaning this year to consolidate into what I consider my best ideas, so I do have about 5% investible cash.

 

 

[james22]

48 minutes ago, DooDiligence said:

"The big money is not in the buying or selling, but in the waiting"

 

Is it 1960? Am I Warren Buffett?

[Gregmal]

9 minutes ago, james22 said:

 

Is it 1960? Am I Warren Buffett?

This quote also, if I’m not mistaken, also references the buy and hold aspect, in terms of letting your assets work. Not trading every news point or sitting on cash forever. 

[cubsfan]

On 1/24/2025 at 9:23 PM, Gregmal said:

Much like @james22 sounding a whole lot like @Blake Hampton 12 years ago on this board, I am quite certain if you shared some of the details and personal experiences you had that you shared with many of us(I’ll refrain from hash-tagging like 15 COBF members here) on the yatch at the St Joe AGM, many would appreciate your journey and take that wisdom with more than a grain of salt. It was awesome and quite entertaining to say the least. 

 

I posted in the wrong spot, so cross post here:

 

https://thecobf.com/forum/topic/10047-klarman-holding-50-percent-cash/page/7/#findComment-597304

 

[Blake Hampton]

18 hours ago, gfp said:

There comes a point in the sovereign interest rate setting game, where the interest rate on government borrowing is materially effecting the size of the deficit (because the majority of the borrowing is done at the short end, where rates are not set by market forces), and a large enough share of the government debt is “owned by the public,” – there comes a point where the artificially set interest rate from the Fed starts to act like a magnet to the inflation rate just like the stock dividend example above.  They are giving you more of the same instrument.

 

While these two factors can end up influencing each other, inflation and government deficits are not the same thing. Simply increasing our government's interest expense on its debt wouldn't itself cause inflation, though it could if it were to somehow become cash. This could happen through a bond auction failure, liquidity crisis in treasury markets, or just straight up money printing to fund the government.

 

The Fed is an independent entity and they have only two mandates: Full employment and price stability. And that's it. They don't have any mandate that says to cater to the government's budget pitfalls.

 

18 hours ago, gfp said:

What did QE do that was stimulative?  It barely had any effect on Government bond rates.  The Fed has studied this themselves and found a few basis points, maybe...  They expanded it to MBS and it, along with very short durations of mortgages during the refinancing booms, led to tighter spreads on MBS over treasuries - that was stimulative.

 

This is not true. QE most definitely lowered long-term rates as there is now HUGE additional demand for long-term treasury securities. This had incredibly stimulative effects in the credit markets and also lowered the discount rate for every asset. When nearly your entire economy is powered by consumer spending, I'm sure the wealth effect has a strong impact on business generally.

 

18 hours ago, gfp said:

Just remember - for the most part - the Federal Reserve doesn't really have the ability to create new money. Private banks and the Federal Government do - but basically the "Fed" does not.  The Fed can use their tool-kit to try to influence the amount of credit extended by private banks - but they are often simultaneously working against their goals.  Demand for credit and creditworthiness are the primary drivers of private bank money growth.  The government's deficit stimulus is obviously the primary driver of "new dollar money" into the system and the Fed's main tool, hiking up interest rates at the end of the curve the government primarily borrows at - increases the deficit stimulus into the private sector.  

 

They create new money every single time they buy an asset. All of the liabilities of the Fed are base money. Now if they come into the picture as reserves and banks decide against lending it out, then it may never reach the system. But that is still in-effect money creation.

 

Edited January 26, 2025 by Blake Hampton

[Blake Hampton]

Also, just because we disagree about something doesn’t mean I didn’t read or consider what you said. It just means I think you're wrong.

[gfp]

1 hour ago, Blake Hampton said:

Also, just because we disagree about something doesn’t mean I didn’t read or consider what you said. It just means I think you're wrong.

 

You're smart and I'm right so sooner or later you will come around to the truth.  Basically everything you wrote above is incorrect.  ( but extremely conventional )

Edited January 26, 2025 by gfp

[LC]

20 hours ago, gfp said:

there comes a point where the artificially set interest rate from the Fed starts to act like a magnet to the inflation rate just like the stock dividend example above

 

Which is the leading indicator here?

Is it that inflation eventually migrates to the fed funds rate, or does the fed set its rates to manage existing inflation?

 

How do you reconcile this statement with the inflation diverging from fed rates during COVID? Obviously inflation caused by idiosyncratic factors -> but the FRB then comes in behind and raises rates to meet inflation.

 

[Gregmal]

Contrary to what a lot of people think, inflation is largely caused by short term disruptions that in time alleviate. Think commodities, you spike, then production adjusts, prices drop. Think housing, prices warrant more building, more building puts a cap on prices. The Fed really has nothing to do with this in a productive way anymore, which is what’s even more amusing about the idea that they need to adhere to this “mandate”. 

[boilermaker75]

20 hours ago, Gregmal said:

You can probably make 10-15% a year just shorting OTM puts on stuff you want to own but think is too expensive lol. 

 

I do a lot of this. KO is a good example when it is around $60. On 1/23 I wrote Feb 21 60-strike puts for a little over $0.60 per share. If I get put to I will write $60-strike calls. If KO goes up in price I will wait till it comes back down to do it again, and again, and again...

 

Also all the stuff I do own I got my positions by being put to. That helps me to be patient and get a better price.

[brobro777]

11 minutes ago, boilermaker75 said:

 

I do a lot of this. KO is a good example when it is around $60. On 1/23 I wrote Feb 21 60-strike puts for a little over $0.60 per share. If I get put to I will write $60-strike calls. If KO goes up in price I will wait till it comes back down to do it again, and again, and again...

 

Also all the stuff I do own I got my positions by being put to. That helps me to be patient and get a better price.

 

KO is good, I do this stuff with tobacco stocks

 

But this month, MSTR puts were stone groove my man!

 

 

[Munger_Disciple]

@gfp I understand & agree with your explanation of how the monetary system works and that only private sector banking system and federal deficits can create new money/assets in the private sector plus only the govt deficits create net new assets in the private sector. 

 

 

Assuming higher Fed rates actually increase inflation by pumping more interest payments into private sector from the govt if the govt debt to GDP is too high (as it is now), should the rate be 0%? Wouldn't such a low rate cause a lot of bubbles in the private sector?

 

[Gregmal]

It’s definitely not helping with inflation or getting folks desperate enough to lower prices by giving them 5% freebies/handouts. And it’s certainly not reducing valuations or multiples. Seems like the only ones surprised are the academics. It’s fairly obvious why, but I guess for many reasons it’s easier to just lazily whine about bubbles or valuations. 
 

Higher rates just make the biggest impact things more expensive and incentivizes those whom already have assets to do less with them. 

[gfp]

The Warren Buffett's of the world need a turn getting stimulated!  Poor people had their 6 months in the sun

[Saluki]

I'm selling more than buying, but small adds to a few micro/nano caps.  TAYD, and starter positions in Virtra and TBTC while I study them.  

[Gregmal]

HIMS starter at the open. 

[Eng12345]

MGM - share cannibal over the past couple years. Priced low - may trade out of it, or may decide to make a bigger position. 

 

 

Looked for a thread on this one and find it hard to believe there isn't one, but I didn't see anything!

Edited January 27, 2025 by Eng12345