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  • Calculation Of Remaining Whiting USA Trust I Distributions [View article]
    Thanks to all the authors for their writeups updating on WHX valuation.
    Dec 26, 2014. 12:51 PM | Likes Like |Link to Comment
  • A Soldier Returns From War And Faces His Financial Future In 8 Steps [View article]
    Here are some fascinating examples of wealth destruction (or conversely, how to avoid wealth destruction). An article about lottery winners who turned their millions into bankruptcies in surprisingly short periods of time:

    Additional counter-examples found in the article:
    1. Do not spend more than you make
    2. Do not attempt to murder people
    3. Do not speculate/gamble by buying assets that are worth far less than they cost
    4. Do not buy exotic cars that depreciate quickly
    5. Avoid costly one-time activities like exotic vacations, drugs, and hookers
    6. Avoid storing nearly a million dollars of cash in your newly purchased exotic car
    7. Do not give all of your money to other people or charities
    8. Avoid communicating with people who constantly ask you for money
    9. Do not lie to your partner about financial matters
    10. Do not put yourself in a risky position by giving people who might be inclined to hire hit-persons* a reason to hire such hit-persons
    11. Do not liquidate your capital by turning it into clothing
    12. Do not have many marriages
    13. Do not marry sketchy and lazy people
    14. Even if you do all of the above, just do not deceive the IRS.

    * It is an equal opportunity profession.
    Dec 25, 2014. 03:05 PM | 1 Like Like |Link to Comment
  • Why Write On Seeking Alpha? [View article]

    "There are, it has been said, two types of people in the world. There are those who, when presented with a glass that is exactly half full, say: this glass is half full. And then there are those who say: this glass is half empty. The world belongs, however, to those who can look at the glass and say: What's up with this glass? Excuse me? Excuse me? This is my glass? I don't think so. My glass was full! And it was a bigger glass! Who's been pinching my beer?" - Terry Pratchett
    Dec 21, 2014. 11:19 PM | 8 Likes Like |Link to Comment
  • The Great Debate Winner - Bull Vs. Bear On Gramercy Property Trust [View article]
    To add to TMF's comment:

    "I find it preposterous that a single number reflecting past price fluctuations could be thought to completely describe the risk in a security." - Seth Klarman
    Dec 17, 2014. 05:46 PM | 3 Likes Like |Link to Comment
  • Turn Steel Into Gold With ALJ Regional Holdings [View article]
    Watch out -- mac and cheese is getting expensive these days. I thought most value investors stuck with ramen. While sitting on glittering piles of solid gold coins. ;-)
    Dec 15, 2014. 10:55 PM | Likes Like |Link to Comment
  • Sittin' On The Bid Side Of The Market [View instapost]
    Very cool!
    Dec 14, 2014. 07:14 PM | Likes Like |Link to Comment
  • Recent News From Xinyuan Real Estate Not Good, But... [View article]
    @Tony Pow: I think so. On their assets they list "Real estate property under development" as USD 1,599.106 million. Obviously selling those can be used to reduce debt if needed. My main concern over the long term is that total debt ($1391.5 million) divided by equity ($937.5 million) is ~1.5, so if something happened to go wrong the real estate assets could be overstated or need to be sold in a hurry. The P/B of 0.22 certainly compensates for a lot of bankruptcy risk (if there were no risk I'd argue P/B should logically be above 1). But the question I've struggled with is what is the bankruptcy probability? (Even I think some rough upper or lower bounds on bankruptcy probability would I think be useful for valuing Xinyuan).
    Dec 12, 2014. 10:03 PM | Likes Like |Link to Comment
  • Recent News From Xinyuan Real Estate Not Good, But... [View article]
    What is your estimate of the probability of bankruptcy in the next 1 year, and 5 years? Their current portion of long-term debt and loans from Sept 30 (from the SEC 6-K filed on Nov 12) is USD 359.553 million, their total debt is USD 1,391.5 million, and their cash, cash equivalents, and restricted cash total USD 553 million.

    To me it seems their bankruptcy probability is low in the next year, but significant in the long term if their cash flow or income are low or negative, since they have to pay back a net USD 838.5 million. Now hopefully they would start selling off many of their projects to prevent bankruptcy from happening, but past actions leave me questioning management's abilities to carry out common sense actions like that. If they don't support their common stock or reduce the debt load then this could potentially worsen the situation, because lenders might get more frightened and demand higher rates.
    Dec 11, 2014. 07:09 PM | Likes Like |Link to Comment
  • Seven Fat Years Of Event Driven Investing [View instapost]
    Regarding statistics, personally I label each investment with a category label, and track within each category base rate statistics including win rate, expected value E per capital risked, Kelly betting fraction (actually I use the Taylor expansion E/Variance which is more stable and easier to compute), IRR, and so forth. (Of course you have to label the category when you first start the investment to avoid hindsight bias.) I also track similar statistics for each investment. Then I upweight future investments that have higher base rates with respect to their category, and also early terminate investments that are realized early because their performance is several sigma out.

    My worst investment category is called "speculative." I spent a summer between jobs writing thousands of lines of code and crunching the returns of stocks at the level of days, minutes, and seconds. I called it that because it is completely worthless, loses money, and is now deprecated because I learned about value investing. The only technical indicator that works above chance level is momentum, which continues at the 1 year level and mean reverts at the 5 year level, and can be implemented in value investing by just scaling in and out gradually. I'm sure it's possible to do much better in quantitative short-term trading by using information other than technical analysis but I don't want the stress, and I also consider the robustness of those methods highly questionable.
    Dec 11, 2014. 11:41 AM | 1 Like Like |Link to Comment
  • Seven Fat Years Of Event Driven Investing [View instapost]
    Fun post. Speaking of sympathetic sell offs, you might like HCLP (N.B. insider buy prices).

    I find it strange that folks like Chris think most people are rational.

    My experience of corporations growing up was seeing my Dad's employer Hewlett-Packard of 26 years get destroyed by MBAs so they could get bonuses and try to sleep with contractors. I entered the workforce, was hired by Adobe and told, "you're just a 2 year temporary hire, unless you make us many more millions like you did as an intern." So I figured I couldn't understand this level of irrationality and there was nothing in it for me, so I went back to academia. Then my wife's startup was acquired and then liquidated a few months later because the MBA who championed buying it realized the due diligence was no good (gee, look at the cash flow...). Thus, he liquidated it to make himself look better to the private owners, and then specifically went around denying rehiring lines for former employees like my wife, who seemed to have some kind of Stockholm Syndrome for a while of wanting to work there.

    Despite these experiences I like free markets. I just mostly want to insulate myself off from people, because I don't trust people, but I like markets. It's fun to walk around malls and think about how all the companies are competing to self-destruct through an orgy of irrational decisions and spendthrift acquisitions. Aeropostale. Sears. It's like watching teenagers play with flamethrowers between piles of money.

    It's such a fun game to find the few companies that won't catch on fire soon, or else are mispriced enough to merit investment despite the problems. It's as if most everything is a Through the Looking Glass world, but under it all there is still rationality.
    Dec 10, 2014. 09:40 PM | 3 Likes Like |Link to Comment
  • Some Thoughts On Markel's Intrinsic Value [View article]
    Well to clarify (1) I am a value investor and would prefer to hold a high quality company for a longish period, if I can find one that is bargain priced enough, and (2) Many different valuation models can provide for safe investment, i.e. purchase at a discount to intrinsic value. I wouldn't argue that my methodology is better than others', although in the extreme case if the market discounts every instrument at much higher or lower than the inflation rate then it permits time arbitrage between real dollars and the market's subjective fear or greed.

    I personally like to probability weight future events to compensate for risk and rewards, discount at inflation, and calculate both intrinsic value and after-tax IRR since that allows me to compare many different investments of different time horizons on an equal basis. (Usually I just mentally calculate these to a digit or two of precision since I don't need them to be highly accurate). For long-term holdings I typically just assign an appropriate multiple of earnings or assets after 5 years, since that can be more reliable than explicitly averaging different DCFs with different probability weightings because one can easily feed a wrong value into a DCF. After 5 years, well I'm not sure I can figure out what many businesses will do for longer than that, so I would just have to re-evaluate then!
    Dec 10, 2014. 10:57 AM | Likes Like |Link to Comment
  • Some Thoughts On Markel's Intrinsic Value [View article]

    Interesting. During this discussion, I did not realize that most people discount at rates that are higher than inflation. I think you are right then for most people. For their utility the intrinsic value should compound.

    Personally I discount at the rate of inflation. This appears to make me view things somewhat differently so that some intrinsic values to me are more static where to others they compound at a higher rate. That appears to be the cause of our mutual misunderstanding above.

    The reason I prefer to use the rate of inflation for a discount rate is it makes me not really care about time but only rate of return between nominal dollars in different years. It just seems more intuitive to me to not care when exactly something happens, and not to care that much about the volatility, but just to primarily care about the IRR. If I needed the money in the next couple years for a personal reason then I suppose I would use a higher discount rate.

    I think the intrinsic value of Buffett's personal capital in 1967 was around his net worth in 2014, if he wished to keep compounding his capital all those years. If he wanted to do that, then he could rationally trade every 1967 $20 Berkshire A share for say a low-risk 2014 bond worth $1 million in 2014 dollars. And he could rationally refuse the trade if you offered him a bond worth only $10k, since he would know he could do better.

    Of course if you suddenly quoted Berkshire for $200,000 in 1967 then if Buffett were rational, he could immediately do a dilution arbitrage to put that money in his company's coffers. So the potential dilution arbitrage event would prevent Buffett's stock in 1967 from being worth as much as his personal capital. And therefore the business's intrinsic value would compound even for agents who discount at very low rates (e.g. inflation), because of the dilution arbitrage event.
    Dec 8, 2014. 12:10 AM | Likes Like |Link to Comment
  • Some Thoughts On Markel's Intrinsic Value [View article]
    Intrinsic value is the discounted sum of all future cash flows, multiplied by the probability that each cash flow occurs. Therefore in a Universe where we know with certainty that the management will grow their investment portfolio at X% per year for the next 5 years, that would get factored into the intrinsic value. Therefore, intrinsic value would remain constant over the years (excepting other adjustments like inflation and taxes). In contrast, book value would grow over those 5 years.
    Dec 7, 2014. 11:34 AM | Likes Like |Link to Comment
  • Some Thoughts On Markel's Intrinsic Value [View article]
    Is it really fair to say that the intrinsic value grows at X% per year? Isn't the intrinsic value by its very nature supposed to integrate over all future cash flows under all probabilistic circumstances? (Including the probability that the management compounds the investment portfolio).
    Dec 5, 2014. 12:51 AM | Likes Like |Link to Comment
  • Seadrill Ltd. Collapses After Suspending Its Dividend [View article]
    @th3decider: You have some great cynical, amusing, and accurate comments. I can tell you're long far OTM AMZN and SDRL options.
    Nov 26, 2014. 04:08 PM | 1 Like Like |Link to Comment