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Nat Stewart

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  • Winmark Corporation: A High Margin, Owner-Operator Small Cap That Is Breaking Out [View article]
    I have a brief update on Winmark that can be read here:
    Feb 5 11:37 AM | Likes Like |Link to Comment
  • Dumb Investment Of The Week: Commodity Funds [View article]
    I agree that the idea of "investing" in commodities is a bad idea.

    Even if an investor were to do it directly, what sense would it make to stockpile things like corn and wheat, where storage and insurance must be paid, and spoilage eventually sets in? The entire notion makes no sense.
    However, the good news is that for those who trade individual commodity ETFs or futures, some of the info can be taken and used for advantage.

    I wrote an article with a simplified example of how contango/backwardation analysis can be used by speculators, which can be found here:
    Jan 30 04:29 PM | Likes Like |Link to Comment
  • How To Retire At 30! [View article]
    The notion that they "retired" at 30 is a just a marketing hook/publicity stunt for their blog business. If they had really done this with only 600K invested they would be complete fools.
    Jan 30 09:54 AM | 3 Likes Like |Link to Comment
  • Why Leverage Is Pointless [View article]
    I will give you a few very simple examples.

    First is that when the system comes under stress, the exchanges, regulators, and brokers tend to change the rules in order to protect the system - and this tends to happen in a way that is detrimental to many existing investors/traders (raised margin requirements and short sell restrictions are two potent tools for doing this).

    The short sale restriction on Financial stocks in 2008 (changing the rules) was devastating to many hedge funds that would have otherwise had a sure thing, "hedged" position. Those "hedged" short positions blew up in their face.

    Then you have events like The Porsche short squeeze of Volkswagen stock, which once again blew up many hedge funds with their "hedged" positions.

    Or even better, study what happened to long-short equity funds in August of 2007. As stated in this paper by Andy Lo (PDF)

    "Based on TASS hedge-fund data and simulations of a specific long/short equity strategy, we hypothesize that the losses were initiated by the rapid “unwind” of one or more sizable quantitative equity market-neutral portfolios. Given the speed and price impact with which this occurred, it was likely the result of a forced liquidation by a multi-strategy fund or proprietary-trading desk, possibly due to a margin call or a risk reduction."

    The leverage of many players who all had similar bets using similar base line assumptions added risk to the system. In trading we call it a "stop run" or "squeeze". It takes many forms but the ultimate result is always the same - Push the over-leveraged out of their positions at exactly the wrong time, often resulting in massive, unexpected losses.
    Jan 24 12:33 PM | 2 Likes Like |Link to Comment
  • Why Leverage Is Pointless [View article]
    I would like to be positive on an article that features a highly useful trading metric -ATR- but do to the many erroneous, bizarre conclusions, I can't.

    Using "ATR" to measure risk without any notion of expected value is dangerous. Unlike with decent stocks, there is not a positive expected value from owning futures contracts. In many cases it is negative, particularly when transaction costs and negative roll yield are factored in. Given this, simply owning contracts, even if volatility between positions is equalized, is most likely a negative expectation bet and therefor automatically risky as it is a money loser over time.

    A leveraged portfolio will require continually adjusting exposures as market volatility, equity, and correlations change, as they always do in the real world. And when and if market conditions make these adjustments impossible, one can run into serious trouble - margin calls and blow-ups if one is not prudent and fails to understand the potential pitfalls of leverage. Ignoring leverage or considering it "pointless" or "not related to risk" is quite frankly a dangerous mentality. The use of leverage can over time make one very wealthy or lead one to quick ruin - ignoring it or thinking it is pointless is an extremely odd and inaccurate viewpoint.

    In 2007 and 2008, many super low volatility, "AAA rated" securities blew up in investors faces. Investors who simply looked at the historical volatility and chose to "leverage up" their positions because "Volatility matters, leverage does not" were annihilated. Some of the big banks that used this exact same risk mentality were annihilated. Everyone knows this. It is amazing to me after the events of 07 and 08 people will so quickly revert to this dangerous mentality.

    The article would have been much more useful if it had not made outrageous claims about leverage and had simply stuck with showing how to use ATR to size positions in a no leverage, long-only stock portfolio - that would have been far more relevant to the readers on this site.

    Your futures examples (as you yourself mention) were not realistic, and as this is not a futures oriented site only served to confuse things.
    Jan 24 09:07 AM | 3 Likes Like |Link to Comment
  • PotBelly: More Downside Ahead [View article]
    I agree with Mr. Wither. Potbelly lines (Chicago market) are intense during lunch hour. Turn-over is super fast/efficient and the sandwiches are value priced. I believe the concept and execution is more compelling and unique than this author gives them credit for. People don't just go to Potbelly, they REALLY like potbelly. When I first moved to Chicago 8 years ago, I was blown away by the place - I immediately looked to see if it was a public company. It might be overvalued on a short or intermediate term basis, but I think it is highly likely that it will end up being a nice ride for investors as they build out thousands of units in the coming years.
    Jan 24 07:55 AM | 2 Likes Like |Link to Comment
  • A 'Special Situation' Opportunity At National Beverage Equals Low Risk With High Reward [View article]
    For interested FIZZ followers, it looks like they just completely redesigned their web site. It looks terrific!
    Jan 23 05:54 PM | Likes Like |Link to Comment
  • Why Bother Diversifying, Just Buy Berkshire Hathaway [View article]
    Any investor who wants to track portfolio performance the way Larry suggests here (against benchmarks, risk measures, etc) and receive free, very detailed and sophisticated portfolio reporting (return attribution, etc) should strongly consider opening an account at Interactive Brokers.

    Their portfolio analysis tools are awesome, and make it easy to have real accountability with your results. For anyone who makes use of leverage it is also the best brokerage in terms of margin rates. I can borrow at institutional (libor +) rates which I have never seen at any other brokerage that takes retail clients. One of the best credit ratings too.
    Jan 23 07:15 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    "VIX, namely VXX, when the market is at all-time highs. The VXX"

    Ouch. I urge you to reconsider this strategy - VIX products are horrendous hedging tools with massive economic carrying costs. I have a seeking alpha article on the products here:
    Jan 18 12:42 PM | Likes Like |Link to Comment
  • Why Bother Diversifying, Just Buy Berkshire Hathaway [View article]
    Great answer Larry. Much appreciated.
    Jan 15 05:45 PM | Likes Like |Link to Comment
  • Why Bother Diversifying, Just Buy Berkshire Hathaway [View article]
    Yes, but are 5, 10, and 15 year rankings useful prospectively for making investment choices in the present moment?

    The fact that one asset or asset class has been recently outperforming might not say all that much about future relative returns.
    If it is being proposed that it does, that hypothesis should be stated plainly and evaluated as such.
    Jan 15 01:36 PM | Likes Like |Link to Comment
  • Berkshire Hathaway Will Likely Acquire USG [View article]
    I appreciate your reply, thank you
    Jan 15 10:13 AM | Likes Like |Link to Comment
  • Berkshire Hathaway Will Likely Acquire USG [View article]
    Unless one is buying in a distressed situation at the bottom of the cycle, I don't see why anyone would view this as a great company to own over the long term. A commodity product in a boom-bust industry with extremely volatile performance. Share price was about 30 in 1995, is 31 now, which is a significant loss in real purchasing power. I don't see evidence that it has succeeded in building shareholder wealth over multiple cycles. Much better places to park cash, in my opinion.
    Jan 14 10:05 PM | 1 Like Like |Link to Comment
  • A 'Special Situation' Opportunity At National Beverage Equals Low Risk With High Reward [View article]
    I see it this way. If there is indecisiveness on the part of interested acquirers it will simply be leaving room open for a competitive bidding situation to develop - and once that starts no party wants to be the loser. As it is, it is a good company to sit with - there is no rush in my opinion.

    The market is ripe with opportunity for this brand portfolio on a global level. The firm that acts quickly to secure all or some of these great brands will reveal itself as tomorrow's winner, able to spot and seize entrepreneurial opportunities, rather than one of the followers. The Beam transaction was highly instructive.
    Jan 14 10:49 AM | Likes Like |Link to Comment
  • Should Berkshire Hathaway Finally Pay A Dividend? [View article]
    The estate tax is the operating financial capitalist's best friend, unfortunately. It is also heavily lobbied for by the insurance industry.

    It is what causes many closely held and family owned businesses to end up selling out to private equity firms and the like. It works to redistribute ownership from operating businessmen to financial capitalist and large corporations.
    Jan 13 09:48 PM | Likes Like |Link to Comment