General Category > Strategies

BAC leverage

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meiroy:

--- Quote from: Kraven on March 15, 2013, 07:09:37 AM ---Time to start a dead pool for some of the posters on this thread.

--- End quote ---

Look who's talking, the guy who bet his entire life savings against the BAC buyback/dividend outcome.

The way that ERICOPOLY thinks and explains cost seems fascinating to me and worth thinking about.  I have not bought any options and probably will not, at the same time this area is worth understanding, it can be applied to other investments as well.  Cost of leverage and how to compare the different possibilities. It's beautiful. Every choice has a cost. It might seem simple to the pros but not to those who are starting out.

On the other hand, you have all these people who invest in the warrants, thinking that because they have 6 or 8 more years they are magically not really options and do not have a certain leverage cost. So maybe you should invite them to your pool first.

Having said that, I would love to know (seriously) the Kraven Strategy as you have mentioned you invest in about 20 companies and get great results. So can we start an Ask Kraven/grumpy old man thread (sorry)?

oddballstocks:

--- Quote from: meiroy on March 15, 2013, 06:31:42 PM ---
--- Quote from: Kraven on March 15, 2013, 07:09:37 AM ---Time to start a dead pool for some of the posters on this thread.

--- End quote ---

Look who's talking, the guy who bet his entire life savings against the BAC buyback/dividend outcome.

The way that ERICOPOLY thinks and explains cost seems fascinating to me and worth thinking about.  I have not bought any options and probably will not, at the same time this area is worth understanding, it can be applied to other investments as well.  Cost of leverage and how to compare the different possibilities. It's beautiful. Every choice has a cost. It might seem simple to the pros but not to those who are starting out.

On the other hand, you have all these people who invest in the warrants, thinking that because they have 6 or 8 more years they are magically not really options and do not have a certain leverage cost. So maybe you should invite them to your pool first.

Having said that, I would love to know (seriously) the Kraven Strategy as you have mentioned you invest in about 20 companies and get great results. So can we start an Ask Kraven/grumpy old man thread (sorry)?

--- End quote ---

I thought the Kraven strategy (as posted in the annual results thread) was to invest in 100+ companies using Graham/Schloss methods and get 20%+ returns.  To do that Kraven's strategy needs to be just as disciplined as Eric's except there's no sexy factor in buying net-nets, low book value stocks and companies with no brand value.  A muffler companies selling for net cash generates returns but no one is willing to admit they own it..

Somehow as the bull market has taken hold this board has come to worship guys who bet the farm on a handful of stocks with can't lose prospects.  I've honestly believed if something was a no lose then bet everything one owns, Eric has done that successfully.  Of any person on this board who touts concentration he is the only one really walking the walk.  If it's a sure thing bet and bet big, and go levered as well, why wimp out?

Maybe I'm the sap at the table, I'm still looking for "safe" companies and I'm worried about losses.  I've even sold down positions for cash.  Maybe the market will fall and my strategy will pay off, or maybe I'll look back and say I was an idiot for not following everyone along into the hot investments here….time will tell.

oddballstocks:
One other thought, back in 2006 after reading the Magic Formula book I worked on modeling it out using LEAPS instead of common stocks.  With what I had modeled out the returns were over 100% a year, the strategy looked like a winner.  I didn't buy in because the potential for an absolute loss loomed large for me.  If I would have gone with the strategy I would have had a year where I made maybe 100-150%, but then in 2007 I would have lost everything.

meiroy:


Another question:

Some TARP warrants can only be converted to the common via an exchange of a number of warrants for a common.  The common cannot be bought for additional cash.  Is there any chance that in such an exchange there is no capital gain tax?

meiroy:

--- Quote from: oddballstocks on March 15, 2013, 07:03:10 PM ---
--- Quote from: meiroy on March 15, 2013, 06:31:42 PM ---
--- Quote from: Kraven on March 15, 2013, 07:09:37 AM ---Time to start a dead pool for some of the posters on this thread.

--- End quote ---

Look who's talking, the guy who bet his entire life savings against the BAC buyback/dividend outcome.

The way that ERICOPOLY thinks and explains cost seems fascinating to me and worth thinking about.  I have not bought any options and probably will not, at the same time this area is worth understanding, it can be applied to other investments as well.  Cost of leverage and how to compare the different possibilities. It's beautiful. Every choice has a cost. It might seem simple to the pros but not to those who are starting out.

On the other hand, you have all these people who invest in the warrants, thinking that because they have 6 or 8 more years they are magically not really options and do not have a certain leverage cost. So maybe you should invite them to your pool first.

Having said that, I would love to know (seriously) the Kraven Strategy as you have mentioned you invest in about 20 companies and get great results. So can we start an Ask Kraven/grumpy old man thread (sorry)?

--- End quote ---

I thought the Kraven strategy (as posted in the annual results thread) was to invest in 100+ companies using Graham/Schloss methods and get 20%+ returns.  To do that Kraven's strategy needs to be just as disciplined as Eric's except there's no sexy factor in buying net-nets, low book value stocks and companies with no brand value.  A muffler companies selling for net cash generates returns but no one is willing to admit they own it..

Somehow as the bull market has taken hold this board has come to worship guys who bet the farm on a handful of stocks with can't lose prospects.  I've honestly believed if something was a no lose then bet everything one owns, Eric has done that successfully.  Of any person on this board who touts concentration he is the only one really walking the walk.  If it's a sure thing bet and bet big, and go levered as well, why wimp out?

Maybe I'm the sap at the table, I'm still looking for "safe" companies and I'm worried about losses.  I've even sold down positions for cash.  Maybe the market will fall and my strategy will pay off, or maybe I'll look back and say I was an idiot for not following everyone along into the hot investments here….time will tell.

--- End quote ---

What are you talking about?   Eric himself wrote more than once that it is not a sure thing and that it is a gamble.  If I am not mistaken even when he was "all in" he was still hedged with some puts so in fact it was not all in at all, but maybe I'm wrong.  Using options does not mean you have to go 100% all in, but it can be used to increase leverage for small investors.

Below you mention a book by Joel Greenblatt, well this risk:reward guy, wrote about LEAPS in his You Can Be.. and also discusses the weight of the options as part of the whole position.

And lets not mention Buffett in his younger days...


You are right about Kraven:

"Dozens of positions.  No position started at larger than ~1% of portfolio.  I invest like my investing idols, Graham and Schloss.  I buy when things are very cheap and sell when they reach IV.  Cash never less than ~30%.  No leverage."

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