Author Topic: Hedging  (Read 24856 times)

alwaysinvert

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Re: Hedging
« Reply #10 on: September 01, 2013, 09:12:38 AM »
Not much that is as psychologically arbitrary as YTD return. Anchoring in action.


Chris DeMuth Jr

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Re: Hedging
« Reply #11 on: September 01, 2013, 11:17:47 AM »
What to do when stocks are expensive and bonds are crazy expensive?

I think that equity markets are mostly expensivish and credit markets are ultra expensive (although a bit less so in the past few months).  My reaction was to short the leveraged treasury ETF (TMF) coming into this year in order to deal with expensive credit markets.  In order to deal with expensive equities, I am light and selective.  What is worth doing if not broad stock or bond exposure?  Cash.  Here is where I park it.

Cash

I set up about 500 cash accounts invested in money markets, CDs, and savings accounts, all under federally insured caps and some with decent yields, in order to capture the optionality on potential equity conversions. 

Use intramonth credit card debt

In addition to the accounts that I funded with cash, I borrow on credit cards to fund several more – these collect interest on the account side as well as rewards on the credit card side.  When the credit card bills come, I pay them off online from the savings accounts.  Running through $250k/month, this has added up to plenty of AMZN gift certificates, Brooks Brothers certificates, airline miles, and cash back in Charles Schwab and Fidelity.  American Airlines is particularly advantageous as it locks one into the top of their loyalty program after only a year and a half of this strategy.  This strategy is not that scalable, but it has the charm of allowing one to read, dress, travel, and fund tax-advantage retirement accounts with no taxes (since rewards technically are classified as rebates and thus are not taxed), no risk, and no capital.   

Borrow


I want flexibility in addition to liquidity in order to be poised to take advantage of the next downturn.  So, I took out loans against 100% of the value of my home.  Rates are still extremely low and this flexibility could come in handy in the months or years ahead. 

Closed out of short volatility investment

Finally, I closed out my VXX and TVIX shorts last month.  Since late 2011, I had shorted them both as well as written calls and buying puts.  While I still maintain my concern with the securities in terms of their structural flaws, the expensiveness of the markets and the cheapness of the underlying volatility undermined my case for holding onto this potentially problematic investment given the market levels. 
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Packer16

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Re: Hedging
« Reply #12 on: September 01, 2013, 11:25:56 AM »
I like the conversion idea for cash.  Can you share the list of conversion candidates you have compiled? Have you had any conversion opportunities thus far?  TIA.

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Chris DeMuth Jr

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Re: Hedging
« Reply #13 on: September 01, 2013, 11:35:24 AM »
Yes, I have had many conversion opportunities thus far, but I've been at it for a while. 

I am happy to share notes with others working on this strategy or to respond with my thoughts on anyone else's investment ideas.  I am not, however, going to simply publish my portfolio as that would systematically dilute its value for no particular purpose. 

On this site and others, my simply publishing odd lot opportunities has proved to be quite unpopular, but that is nothing to how unpopular it would be and how many friendships I would jeopardize by simply publishing mutual conversion opportunities.
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Parsad

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Re: Hedging
« Reply #14 on: September 01, 2013, 12:38:16 PM »
In addition to the accounts that I funded with cash, I borrow on credit cards to fund several more – these collect interest on the account side as well as rewards on the credit card side.  When the credit card bills come, I pay them off online from the savings accounts.  Running through $250k/month, this has added up to plenty of AMZN gift certificates, Brooks Brothers certificates, airline miles, and cash back in Charles Schwab and Fidelity.  American Airlines is particularly advantageous as it locks one into the top of their loyalty program after only a year and a half of this strategy.  This strategy is not that scalable, but it has the charm of allowing one to read, dress, travel, and fund tax-advantage retirement accounts with no taxes (since rewards technically are classified as rebates and thus are not taxed), no risk, and no capital.

Hi Chris, aren't you charged interest from the day of borrowing, when it comes to cash on your cards?  Even if you pay lower interest...say 9.9% compared to 18.9%...do you still actually make more at the end of the day through the gift cards, etc after the interest rate? 

Or am I missing something here as a Canadian?  Do you guys have credit cards in the U.S. that let you borrow cash and still give you the normal 25 day grace period?  Cheers!
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oddballstocks

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Re: Hedging
« Reply #15 on: September 01, 2013, 12:41:27 PM »
Yes, I have had many conversion opportunities thus far, but I've been at it for a while. 

I am happy to share notes with others working on this strategy or to respond with my thoughts on anyone else's investment ideas.  I am not, however, going to simply publish my portfolio as that would systematically dilute its value for no particular purpose. 

On this site and others, my simply publishing odd lot opportunities has proved to be quite unpopular, but that is nothing to how unpopular it would be and how many friendships I would jeopardize by simply publishing mutual conversion opportunities.

There are places where lists of recent conversions can be found online. New conversions file IPO papers, and it's fairly easy to get a list of non-converted mutuals and MHCs.

There are quite a few newsletters that publish these lists as well. This information isn't quite hidden, but a little legwork is required. Like Chris I'm involved in these, but I prefer to remain tight lipped as well, there is a very close community involved in these things, and they aren't exactly shouting about them from the rooftops.

I as well a, happy to share notes and talk, but over email and not on the board.
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Chris DeMuth Jr

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Re: Hedging
« Reply #16 on: September 01, 2013, 01:43:32 PM »
The cards charge no interest intramonth.  The key is to find an institution that treats money markets/CDs/savings account subscriptions as "purchases" and not as "cash advances".  The rebates generally are worth 1% per month, with some having reached (but then pulled back from) benefits as large as 2% per month.  You are correct that this would not be worth it if you were paying interest.  I never have and never would. 
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Parsad

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Re: Hedging
« Reply #17 on: September 01, 2013, 02:42:03 PM »
The cards charge no interest intramonth.  The key is to find an institution that treats money markets/CDs/savings account subscriptions as "purchases" and not as "cash advances".  The rebates generally are worth 1% per month, with some having reached (but then pulled back from) benefits as large as 2% per month.  You are correct that this would not be worth it if you were paying interest.  I never have and never would.

Ah, I see.  Thanks Chris!  I try to max out all my purchases on my card, and pay the balance every month.  So I rack up quite a few gift cards each year and pay no interest.  But always looking for other ways to use free money and make a buck!   ;D  Cheers!
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giofranchi

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Re: Hedging
« Reply #18 on: September 02, 2013, 12:47:03 AM »
Curious with the run up in the markets. What are some ideas individuals are doing to hedge against a large market correction. I imagine there are some large profits in some stocks that people would rather keep for the long term rather than create a tax event but would like to protect some of their current gains. I kind of understand what someone like Ericopoly is doing but that is out of my league. Yet I would have the same potential tax problem here in Calif as he would.

Personally, I am concentrating my firm’s portfolio on those companies that I think will behave more resiliently, should a recession unfold together with a market correction. I still don’t see how we are going to solve our long-term problems easily or painlessly… And now, besides very high debts in developed nations, we also have high prices for almost all asset classes. Where are we going from high debts – high prices? Well, to low debts – low prices… As far as I am concerned, until I hear someone with a different thesis that is truly convincing, it is as simple as that!

Therefore, I am gradually selling those companies that have handsomely appreciated in share price, and I am concentrating funds basically in 3 companies:
FFH: 30% of my firm’s portfolio,
LRE: 20% of my firm’s portfolio,
BH: 9% of my firm’s portfolio.

A basket of shorts stays at 10% of my firm’s portfolio,
While Cash is around 20% of my firm’s portfolio.

giofranchi
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

watsa_is_a_randian_hero

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Re: Hedging
« Reply #19 on: September 05, 2013, 07:10:18 AM »
The cards charge no interest intramonth.  The key is to find an institution that treats money markets/CDs/savings account subscriptions as "purchases" and not as "cash advances".  The rebates generally are worth 1% per month, with some having reached (but then pulled back from) benefits as large as 2% per month.  You are correct that this would not be worth it if you were paying interest.  I never have and never would.

Where/how do you find these?  Just opening credit cards and trying it (ie trial and error)?  I can't imagine this is a topic in a customer agreement or a topic you could call and ask them.