Hedgephone

Long/short equity
Hedgephone
Long/short equity
Contributor since: 2010
Company: Jaguar Alpha Fund, LLC
Thanks for all of the interesting comments above. I wonder at what point I will be bullish again on equities... A CAPE of 10X would imply a 50% loss from here... Certainly at that point, I'm a better buyer of the index funds... For now, I like cash/short equity... Sad, but it's the way it is...
Great article.
I would argue that selling after a 5% loss to rebalance a portfolio of equities that has recently doubled or tripled from the lows of 2009 is not "panicking." I think rebalancing here makes sense given a 24 CAPE, a sluggish economy, and bad demographic trends. Look at the collapse of the world's most economically sensitive commodity, oil, and you can see that the perm-bull case (while it has worked well historically) may not be the best case for the next three to five years out from a valuation/macro perspective. In other words, even long term investors need some cash.
Good stuff... Well written and presented and without the usual propaganda regarding financial stocks, bubbles, and unlimited paper money manipulation thanks to the TBTF/FED/agency conflict party.
Here's the deal with "conservative" insurers -- most HAVE to own bonds, and bonds are horrible right now. Stick with the oddballs who invest in long short strategies, or with Berkshire, but sell some calls on the B shares... the stock is up a lot, but I LOVE IT.
Hedge funds protect the downside -- IE they don't make much money in up markets but flourish during bear markets. Good hedge funds are like an all weather vehicle. Relative performance is not the goal. Preserving capital is job number one.
Sure, one can argue fees all day. When I ran money I was a zero and twenty. Now I trade only my own money... I am not bullish, IMO except for very few places.... GLRE being one... This should hold up well if the index crowd blows up... indexing is the new crowded deal in my view. Hiring a guy who takes a performance fee is fine just don't be mad at them for being less risky then the herd of lemmings at market tops...
For 40% of your savings, the SPY or other index funds are OK just remember, THIS TIME IS NOT DIFFERENT and valuations are sky high... When/if the market tanks, the long short equity approach works wonders...
bravo... DDS is overbought as well as overvalued... RSI on daily = 75...
good point... I think the market for the yearly replacement of phones may be more a cyclical deal rather than a consumer staple deal. Then again, I'm not "into them" as are most people. Don't like squinting.
Well written/researched and interesting article.
Yes, I am playing dividend devils advocate a bit... Zero interest rates are like beer goggles for dividend stocks.... at least they are better than nothing, lol...
For moderate growth companies dividends are a check on managerial imperative, growth through acquisition, agency conflict, etc... I "like" dividends, but I don't think Berkshire should ever pay one -- the dividend I want from them is a higher share price!
hey bobbobwhite --
Thanks for your comment... We are not worried about it myself -- the same thing could be said about Tim Cook and Apple, and those fears never materialized. Berkshire has a much deeper bench than people realize. It's that they are incredibly humble, so you've not heard much from them... That's what we love about the future the most -- he picks winners, and his strength is in finding managerial and investment management talent.
As for no dividends, that policy is surely the best for in this case because Buffett is a far better allocator of capital than anyone else. If he paid a divvy, it would be because he could not invest profitably into his company.
Dividends generally don't work for growth companies but are more useful for mature, zero growth enterprises. Today, dividend stocks in general are overvalued and we would tread very cautiously in those waters.
Agree that dividends are a nice way for folks to invest and see a "return of capital" from their investments, but some companies borrow money to pay divvies and that's sort of a Ponzi in my view...
If you are making 20% per year on invested capital, paying a dividend is foolish. If you are breaking even in a mature business and the future looks bleak, by all means managers should pay out as much book value as is reasonable given liquidity position.
Thanks all for comments and for reading... We know very little, but at least we know that we know not!
Eye;
I handicap recession risk using skills I learned playing poker off and on for a couple decades semi-professionally against the real pros... lol... Regarded Solutions being one of em... lol...
Valuations are at extremes (27X CAPE -- which Ben Graham pretty much invented the precursor to...), while the FED effectively leveraged 30 to 1 and cannot cut rates if stocks start sliding... liquidity issues (M2 money multiplier, rising debt to GDP, rising and extended market cap to GDP and GNP, NYSE margin debt, Auto loans surpassing mortgage debt, labor force participation, Greece, zombie banking, shadow banking, derivatives growth since 2008, counter party risk, currency wars, the BOJ buying stock, etc... etc...)
Because I am an incredible optimist, 20% seemed like a good handicap, but it's fairly tough to speculate on a "when." All I know is that risks are very elevated so it may be a good time to hold a higher than usual amount of cash (I also think 5-10% in silver and gold in a safe somewhere makes sense after the drubbing since 2011)...
Berkshire is fine for a 10-20% permanent core holding just don't ever look at the stock quote.
Well, the debt to GDP here, margin debt, currency wars, 100 year high valuations, etc... make now a particularly difficult time to be a long only guy.
all that I am suggesting is finding a "hedge" ... Buffett would never do such a thing, but I'm no Warren Buffett...
Paying off debt is almost always a good idea in my view. As Buffett says, you don't want to invest debt into the equity market because someone else can force you to sell.
Thank you for your comments!
He closed his partnerships in 1969 and wrote his first annual letter to Berkshire shareholders in 1970. But you are correct, he had effectively gained control earlier than I mentioned in the article, it's just that the partnerships were likely the center of his career until 1970.
Thank you for your clarification.
Several typos, and edits needed, Thanks Omaha...
Thanks for the comment buy and hold... there are some reasons to avoid taking risks, but the consequences to not taking risk outweigh them more often than not... Appreciate your wisdom on the overall market... I am also looking to buy more on a much overdue correction.
thanks for the comments here all...
Great article Old School.
Hey two investing.... TPRE.. Yes we like it. At tangible book also. Going to write about it we like it so much. The guys doing RE insurance and buying bonds with the float should PM us! we could do so much better.
The price hasn't gone up, but the value of the company has risen an impressive amount. As Buffett says, there are many people who know the price of everything and the value of nothing. We don't care about price so long as the value increases over time. Not saying you are one, but that the market is filled with them, and that may have made the stock cheap.
Fees are a good point, but may also be a reason why value investors may be overlooking the shares (value investors, like us, are notoriously cheap!). David Williams drives a Ford Focus and we respect that.
Momentum investors look at the chart and run away, and growth managers look at the industry. As for combined ratio, We are admittedly not experts on insurance companies, but this is a good point. It is why a 3-8% position in GLRE is all we would suggest holding currently.
As value investors, we like the stock today precisely because the value has gone up since 2010 substantially, but the price has not... Exactly what we want when buying a stock for the long term (as GroVal states) -- an undervalued stock of a company producing long term shareholder value. Think of like a mutual fund at a huge discount. If the stock drops below book, it is in my view a much better investment, so start positions small and add on drops.
The insurance side is the harder part to evaluate, and as I stated, I am not an expert.
Allegheny (Y) is a well run insurance business... Also, NWLI sometimes trades way below book value and is attractive when it gets cheap enough, but they mostly buy bonds, which don't yield much.
Also a good point. Berkshire, however, cannot short anything so they are more market dependent and could have problems in a worst case 1929-2008 scenario. Ben Graham certainly had his share of troubles in 1929, and of course that was before he learned to buy cheap baskets of below book value names. Of course, that "low book" strategy doesn't work well today because the SEC is less likely to bust microcap frauds.
Agree with you that Berkshire is the best company in the world, but looking from a BV/share perspective, GLRE has kept pace with the BRK since 2007. In a crash or an overvalued market, we want someone who can short, but Berkshire is my biggest position.
Good comments, thanks
What I meant by "low fee" is that you don't pay any load, there is a high water mark, and it costs just 7 bucks to buy into the stock. Sure, there are management fees, but high water marks keep you from getting killed when things go south.
Good point, however, traveler
That's what I like the most re silver...... thx for your kind words. Centrally planned command and control economies are simply not my style, sadly. It's a matter of choice and competition.
either are okay... The pre-1963 silver half dollars usually trade close to melt value. If you want bars, Kitco and Apmex are good choices, but they tend to cost about $1 over spot, which should tell you something about the physical market.
Anyway, I'm adding to my small starter position on the dips... just like I said I would... Could it "go" to $10? Sure, but right now it looks to be holding up well given the rally in the Dollar (which will probably continue as a "least dirty shirt" trade.
Anyway, buy and add on the down days.
Dang... should have put my money where my mouth is on this... lol
ah yes, this reminds me.... the real question is, why are aliens so interested in chicken coops in the first place? or are they truly one with the coop, indeed are they actually being the chicken coop...? and are we really not pondering Qua Chicken or Qua Coop? hmmmmmm to a chicken, we must seem like the aliens.
Thx for your clarification on the DXY... much appreciated brk 1787.
scoots -- falling oil prices accelerate the warming trend, no? Maybe that Chinese thin film stock isn't such a bubble after all...
2am: Dollar bid +.50 cents, ES offered -$4 Hate being right about the wrong stuff. Maybe time to buy puts on those divvy stocks...
Thanks for the comment D. -- PM me if u want a PPM!
chicken coops look bullish, but I would have stayed long the aliens hedged w rifles.
haha... last year was worse (GDP down 1.5% -- blame it on the snow), but this year they are def. going to use it again.
It does happen every year, just not in California anymore apparently.
When the market sells off, the whole index sells off with it. If you want to lose 40% of your money, buy now. Otherwise, hold cash or go short index funds and wait for a correction.Word to the wise
thank you for the excellent, well thought out comment somedata1 I am sure you are fabulously wealthy (you should be!) or at least on your way there... much appreciate the friendly reminder Implied in your superb post.