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精华 苦辣酸甜难书尽，成败得失笑谈中
- 主题发起人 加京游子
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lazycatcat
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Jia Jin You Zhi
We are actually talking about same thing as far as Buffett is concerned but from different angles.
The objective is to become wealthy via investment. My approach is to understand the thinkings of people like Buffett. Then, we go ahead and study companies of different industries. We come up a list of companies that are really good and a list that are really bad. In the mean time, we also gain understandings of different economics.
After this step, we just watch and wait for market opportunities. Wether using options or stocks etc are upto each one's methods.
So, I still think we can cooperate to go through each industry. With your PhD in economics, there might be some industries that your skills are more useful etc.
There is only one Buffett. However, there are many approaches to gain Buffett-like results. I mean by increasing asset by 10 times etc.
We are actually talking about same thing as far as Buffett is concerned but from different angles.
The objective is to become wealthy via investment. My approach is to understand the thinkings of people like Buffett. Then, we go ahead and study companies of different industries. We come up a list of companies that are really good and a list that are really bad. In the mean time, we also gain understandings of different economics.
After this step, we just watch and wait for market opportunities. Wether using options or stocks etc are upto each one's methods.
So, I still think we can cooperate to go through each industry. With your PhD in economics, there might be some industries that your skills are more useful etc.
There is only one Buffett. However, there are many approaches to gain Buffett-like results. I mean by increasing asset by 10 times etc.
lazycatcat
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Techniques on options etc
Personally, I think using long-term call option at $40 for BAC is a bit arguable. I prefer using call options for short-term and buy put options for long-term. I will use WFC as an example as BAC is too hard to analyze.
Is WFC worth $100 per share in 10 years ? My answer is most likely and here is the calculation.
WFC has pre-tax and pre-provision of roughly $40 B per year. In normal times, charge-off is around 1.5% of loans and this is about $12 B per year. At 30% tax rate, net earnings of WFC should be $20 B.
We will ignore potential growth of WFC and its synergy achieved from WB combination to account for potential hit to earnings.
In 10 years, total net earning would be $200 B. Assuming market value of $160 (P/E of 8), total norminal value of WFC is $360 B and this is about $80 per share.
Now, when WFC's share price will go to $50 (BAC goes to $40) ? Nobody knows. However, if you discount all the cash flow back to today with a discount rate of 10% with 0% growth, you will get around $35 per share.
Mr. Market knows about above information and applies a discount for margin of safety.
Now, if WFC reports return of TARP by the end of this year and reports level-off of charges, it is possible its share price will rise to $30 per share. The short-term call option is cheaper, especially closer to the expiry date.
Personally, I think using long-term call option at $40 for BAC is a bit arguable. I prefer using call options for short-term and buy put options for long-term. I will use WFC as an example as BAC is too hard to analyze.
Is WFC worth $100 per share in 10 years ? My answer is most likely and here is the calculation.
WFC has pre-tax and pre-provision of roughly $40 B per year. In normal times, charge-off is around 1.5% of loans and this is about $12 B per year. At 30% tax rate, net earnings of WFC should be $20 B.
We will ignore potential growth of WFC and its synergy achieved from WB combination to account for potential hit to earnings.
In 10 years, total net earning would be $200 B. Assuming market value of $160 (P/E of 8), total norminal value of WFC is $360 B and this is about $80 per share.
Now, when WFC's share price will go to $50 (BAC goes to $40) ? Nobody knows. However, if you discount all the cash flow back to today with a discount rate of 10% with 0% growth, you will get around $35 per share.
Mr. Market knows about above information and applies a discount for margin of safety.
Now, if WFC reports return of TARP by the end of this year and reports level-off of charges, it is possible its share price will rise to $30 per share. The short-term call option is cheaper, especially closer to the expiry date.
Personally, I think using long-term call option at $40 for BAC is a bit arguable. I prefer using call options for short-term and buy put options for long-term. I will use WFC as an example as BAC is too hard to analyze......quote]
You are confusing me!
Since you seem to be interested, let me let you why I long BAC Jan. 2011 40 calls. I actually started with 20 calls when I was mostly done with short-term calls. I sold those after trippling and rolled into 30 calls. Then sold those after more than doubling and rolled into 40 calls. 1) I do really expect BAC to be over 40 by the end of next year, but that is not the point because I don't intend to exercise them. I only want to trade them. 2) Why did I go higher and higher strikes? After a certain price is reached, higher strikes move more in %age terms. I don't need to wait for BAC to reach over 40 to be profitable. I will probably have doubled my money if BAC can reach 20-22 within the next few months.
I only own short-term options for announced special events with my expectations such as biotech's trial results/FDA PDUFA actions or in BAC's case, the M2M Accounting Rule Change Congressional Hearing back in March, or ER. I am not a specific market timer, and I don't attempt to predict stock movements on a daily basis. Long-term options give me the luxury of being patiently waiting for movements.
"Buying put options" is equivalent to shorting the underlying stock. Are you telling me you want to go short for long-term?
My hands are tight and I don't want to own too many stocks at any given point in time. I have BAC, DNDN, DVAX and MGM for the long holding already. How I will go with ARNA depends on how BLOSSOM results shape up this month. And I have a long list of biotech lining up to acquire for the next few months already. I do, though, intend to find a tech and a retailer to own for the long term for diversifications. Like I have stated many times before, I am strongly biased towards biotech, but not early stage ones.
Your vision is really grand and I admire you a lot for having that. But Mr. Market has cycles. Last March presented one of the best entry points in history. And I am not sure if I will witness another great entry point like that in this life. My own readings of the economic picture are that the recession is over, recovery is around the corner, and all the pieces needed for an expansion are already in place. Mr. Market will trend up in the long run along with corrections in the way.
You keep referring to Buffett's approach. Of course, B is one of the best, if not THE best, in the human history. But please dig deeper to find out how he changed management after buying undervalued companies, especially in his earlier years. Without his changing management, those "undervalued" companies may have indeed gone under. He not only owned those companies stocks but also ran them through the management he installed. His approach is one of the most successful, if not THE most successful. But my friend, it may not be applicable to just anyone. I am only a small player and I will be done if and when my goals are reached. I just want to ride the forthcoming bull run and that is probably it. I will just keep what has so far been working for me.
Again, theoretically your vision is grand and admirable. Practically, I just don't feel it realistic. If you have your DD on companies, I would love to hear. But to go through all the companies that trade on the market and find your next "Fairfax" as you suggested is simply not my cup of tea. And besides, why are you so fixated on Fairfax? It is a good company, but far from being the best of the best!
lazycatcat
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We should probably take this off-line and discuss via emails.
With 200K of BAC options at $40, how that can make you $2M when BAC hits $40 ?
Using option for event driven speculation is smart. I agree with you and would appreciate your sharing of information.
You still mis-understood me on Buffett. Studying all companies is not realistic but studying each industry and the leading companies are possible. I am not boasting but I knew well of Buffett's experiences since I read all available letters/books etc on him. We could discuss if you like - just to gain understandings etc.
Retail is an interesting area. I used to follow a company Couche Tard (ATD.TO ?) and it could be interesting. JC Chrew and Gap can also be interesting. I haven't looked into retails for sometime and become interested in insurance. Both retail and insurance requires good management (which one doesn't ?).
In general, merchandising is the most important factor in retailing. This is how Buffett missed WalMart and he regretted. A business model that preys on the weak ones also works (without high degree of skills in merchandising). ATD.TO may be in that mode but I lost track.
Insurance depends 100% on management and thus this is the area that has a lot opportunities for using options. Not now but will be.
Fairfax is worth following to learn what the guys are thinking about the market. They have been very good and shouldn't be ingored. Who would buy CDS in 2003 or 2004 ?
With 200K of BAC options at $40, how that can make you $2M when BAC hits $40 ?
Using option for event driven speculation is smart. I agree with you and would appreciate your sharing of information.
You still mis-understood me on Buffett. Studying all companies is not realistic but studying each industry and the leading companies are possible. I am not boasting but I knew well of Buffett's experiences since I read all available letters/books etc on him. We could discuss if you like - just to gain understandings etc.
Retail is an interesting area. I used to follow a company Couche Tard (ATD.TO ?) and it could be interesting. JC Chrew and Gap can also be interesting. I haven't looked into retails for sometime and become interested in insurance. Both retail and insurance requires good management (which one doesn't ?).
In general, merchandising is the most important factor in retailing. This is how Buffett missed WalMart and he regretted. A business model that preys on the weak ones also works (without high degree of skills in merchandising). ATD.TO may be in that mode but I lost track.
Insurance depends 100% on management and thus this is the area that has a lot opportunities for using options. Not now but will be.
Fairfax is worth following to learn what the guys are thinking about the market. They have been very good and shouldn't be ingored. Who would buy CDS in 2003 or 2004 ?
We should probably take this off-line and discuss via emails.
With 200K of BAC options at $40, how that can make you $2M when BAC hits $40 ?
Using option for event driven speculation is smart. I agree with you and would appreciate your sharing of information.
You still mis-understood me on Buffett. Studying all companies is not realistic but studying each industry and the leading companies are possible. I am not boasting but I knew well of Buffett's experiences since I read all available letters/books etc on him. We could discuss if you like - just to gain understandings etc.
Retail is an interesting area. I used to follow a company Couche Tard (ATD.TO ?) and it could be interesting. JC Chrew and Gap can also be interesting. I haven't looked into retails for sometime and become interested in insurance. Both retail and insurance requires good management (which one doesn't ?).
In general, merchandising is the most important factor in retailing. This is how Buffett missed WalMart and he regretted. A business model that preys on the weak ones also works (without high degree of skills in merchandising). ATD.TO may be in that mode but I lost track.
Insurance depends 100% on management and thus this is the area that has a lot opportunities for using options. Not now but will be.
Fairfax is worth following to learn what the guys are thinking about the market. They have been very good and shouldn't be ingored. Who would buy CDS in 2003 or 2004 ?
Making a mill or two off BAC is a grand ambition over a far longer time period than the end of next year. With my little position at the moment, I am giving myself far more than a year or two to shoot at that ambition. If I could long 2K BAC Jan. 2011 20 or 30 calls, I would be quite confident that BAC will hit 40 before expiration and 2M profits will be there to enjoy. But I cannot long that at the moment. Instead, I long 40 calls. I would be extra happy if I can get a 5-10 bagger off my current BAC calls. Should BLOSSOM hit and ARNA repeat DNDN's rochet ship performance, I will use some of the profits to get back to BAC Jan. 2011 20/30 calls. My DD on ARNA were posted earlier.
1 mill or 2 of profits are undoubtedly great. But that needs to be accumulated with 1K, 2K, 3K at a time. I don't aim to make that kind of profits with one or two shots!
The more I read your writing, the more I get to understand your thinking. You want industry leaders? Let me suggest you first work to find out which sectors will lead the next wave of bull run. IMO, insurance is definitely one but I am sorry, I don't think Fairfax will be a leader. I felt sorry for myself too that I found GNW but being a weak hand in that, I let it go. However, Mr. Market is full of opportunities and I am confident if I am patient enough, I will find a replacement. I feel I have done enough homework to find BAC, a banking leader, and DNDN, a biotech leader. I shall stay with them for years to come! With the little play money I have on hand, I can't spread too thin.
My MGMAC expires next January. I will wait for a good opportunity to roll that into longer-term calls. But that was bought for the opening of City Centre and I have taken enough profits off it to sit tight and wait.
Your earlier posts regarding options really confuse me badly, owning short-term calls and long-term puts. I simply don't get it. I don't know how old you are but I am getting no younger. I don't have the luxury of many years to sit around waiting. The next forceful bull run is shaping up. You let me know of your DD, and thanks a lot in advance.
lazycatcat
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What is DD ? I will elaborate on the study and options a bit later today...I agree with you that next Bull is born but not sure when it will run. The guys in Fairfx has figure dout
ottawabigboy
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请欣赏一个千万富翁的好习惯
2009年的一个新产品.新的千万富翁,他的人生格言是:
"老子以前也曾经风光过,老子以前从15亿开始做的".
(解读,我TM的以前还有50万亿的.现在都亏光了.我是不是很有钱??? )
千万富翁说.
"你连kiss my a**的资格都没有"
(解读,是富豪都很节约的.一个有1000万美元的富豪来说.每天给洋人打工.每小时赚他个20来个美金.那折合人民币可是100多呀.去中国买猪肉够千万富翁吃2个星期的了,看.kiss洋人a**的味道多好呀.好极了.)
千万富翁说
"看你那小气样,就知道没钱"
(解读,会赚钱的人一定要气粗.尤其是越没品位钱越多,腰最好是下水道那种.脸最好是缺乏营养的纯白色,什么时候给展示一下??)
今天游戏完毕,谢谢大家欣赏.
88
2009年的一个新产品.新的千万富翁,他的人生格言是:
"老子以前也曾经风光过,老子以前从15亿开始做的".
(解读,我TM的以前还有50万亿的.现在都亏光了.我是不是很有钱??? )
千万富翁说.
"你连kiss my a**的资格都没有"
(解读,是富豪都很节约的.一个有1000万美元的富豪来说.每天给洋人打工.每小时赚他个20来个美金.那折合人民币可是100多呀.去中国买猪肉够千万富翁吃2个星期的了,看.kiss洋人a**的味道多好呀.好极了.)
千万富翁说
"看你那小气样,就知道没钱"
(解读,会赚钱的人一定要气粗.尤其是越没品位钱越多,腰最好是下水道那种.脸最好是缺乏营养的纯白色,什么时候给展示一下??)
今天游戏完毕,谢谢大家欣赏.
88
What is DD ? I will elaborate on the study and options a bit later today...I agree with you that next Bull is born but not sure when it will run. The guys in Fairfx has figure dout
DD --- due diligence.
If you are so confident that Fairfax has figured out exactly when the next bull run will start, may I suggest you own it to the best ability you possibly can? Of all the insurance providers I know, Fairfax is solid but far from being a leader, leaving along the best of the best! There are a good number of undervalued companies out there with little risk of going belly up and do possess the potentials to become leaders.
As for retailers, I am watching GAP, Costco and Home Depot.
For biotech in Canada, I am watching ONT.TO and TTH.TO. ONT's Stimuvax Phase III trial for NSCLC will take another couple of years to complete (ONT has sold the global rights to Merck and will receive royalty payments should Stimuvax gain market approval) and a couple of years are a long time in the biotech space. Merck has also initiated a Phase III Stimuvax breast cancer trial and will take a lot longer to complete. TTH's ELND005 trial is in Phase II, in partnership with ELN, quite a few years to go.
Here you have them. Please do some DD with your criteria and tell me what you come up, along with my BAC, DNDN and MGM. DVAX is a side --- I am in it because of its rich cash position with no debt and its rich pipeline and partnerships. I will either make a killing off ARNA or lose it all, and that will happen this month. All depends on BLOSSOM.
lazycatcat
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I will talk about DD in the next post and will make some comments here.
By studying leaders, I don't mean just them. In general, it is easier to start from them to gain some understanding on the industry. What insurance companies you feel good about ? I can take a dive there. I looked at IIC.TO (ING insurance) and Progressive before. Of course, brkb is also mainly insurance.
For ARNA, I took a quick look and found the brossom is actually a weight-control drug. Not sure how much splash that can make unless the results are really revolutionary.
I studied big pharma's before and had to admit I couldn't value them. The one I am most impressed is Novartis, which controls Roche and Genetech. Its pipeline and financials all seem to be good. J&J is another one. Its drug line seems to be weak and could take a hit in next two years. However, its other business is rather impressive.
For retailers, I couldn't figure out how good GAP, American Eagles and J.C. Crew etc could be. American Eagle was doing good for quite few years but I couldn't figure out when I was in their stores. I think these retailers rely heavily on merchandising skills. One probably needs good insight to figure out their profitability. Indeed, there is a lady analyst who frequent visited their stores and could predict their profitability by looking at the height of T-shirt stacks etc.
Another category of retailer is more business model based. COST, WMT and HD belong to this category. One interesting one is Couch Tard, which is a corner store chain. The beauty of its model is to utilize the zeals of each store owners. Corner store market is rather fragmented and there might be some gold to dig here. I wanted to take another look but haven't found time yet.
As to buying long-term put, I think this tool is powerful when one detects obvious craziness in the market or management. Qualitative negative events normally could invoke instant market reaction, whereas qualitative positive events may take the market awhile to react.
In the current market, selling long-term put may also make sense but this is another topic.
By studying leaders, I don't mean just them. In general, it is easier to start from them to gain some understanding on the industry. What insurance companies you feel good about ? I can take a dive there. I looked at IIC.TO (ING insurance) and Progressive before. Of course, brkb is also mainly insurance.
For ARNA, I took a quick look and found the brossom is actually a weight-control drug. Not sure how much splash that can make unless the results are really revolutionary.
I studied big pharma's before and had to admit I couldn't value them. The one I am most impressed is Novartis, which controls Roche and Genetech. Its pipeline and financials all seem to be good. J&J is another one. Its drug line seems to be weak and could take a hit in next two years. However, its other business is rather impressive.
For retailers, I couldn't figure out how good GAP, American Eagles and J.C. Crew etc could be. American Eagle was doing good for quite few years but I couldn't figure out when I was in their stores. I think these retailers rely heavily on merchandising skills. One probably needs good insight to figure out their profitability. Indeed, there is a lady analyst who frequent visited their stores and could predict their profitability by looking at the height of T-shirt stacks etc.
Another category of retailer is more business model based. COST, WMT and HD belong to this category. One interesting one is Couch Tard, which is a corner store chain. The beauty of its model is to utilize the zeals of each store owners. Corner store market is rather fragmented and there might be some gold to dig here. I wanted to take another look but haven't found time yet.
As to buying long-term put, I think this tool is powerful when one detects obvious craziness in the market or management. Qualitative negative events normally could invoke instant market reaction, whereas qualitative positive events may take the market awhile to react.
In the current market, selling long-term put may also make sense but this is another topic.
lazycatcat
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DD - Banks etc - Part I
Our interest overlaps in banks and I will share my DD in this area on JPM, WFC, USB, BAC, C, STI and BK. Maybe Canadian banks also a bit later.
JPM has an outstanding leader - Jamie Dimon (not sure if you followed him or not). However, JPM is very complicated and I don't believe anyone can really understand it. Its exposure to credit derivative is enormous. One has to completely trust Jamie and his team. So far, their performance is superb.
JPM has very high provision for credit loss. I think its allowance is at around 5% of its total loans in Q2 of 2009. Therefore, I don't think it needs to futher increase allowance in Q3. Plus, JPM is very very skillful in picking WM and Bear Sterns. Its pre-provision and pre-tax profit is at around $15 B - $60 B annualized. So, it won't be a stretch for its market cap to reach $200 B.
So, JPM is a well managed bank but is too hard to figure out.
WFC attracts a lot of doubt after WB take-over. The strength of WFC is focus on servicing clients. Its derivative exposure before WB take-over to credit derivative market is only $7 B notional and its off balance exposure is also small.
WB purchase is definitely worthwhile at $22 B but integration may take sometime. WFC's management has a lot of experiences in this area and I think their capability should be given proper credit. If you look back to early 1990, you will find WB and WFC were on roughly same starting line at that point. However, WB drifted outside traditional banking while WFC has sticked to it.
WFC's deposit size and cost are comparable to that of JPM but WFC's total asset is at roughly 1/2 of JPM's. WFC also has the highest net interest spread in the industry, for many years. I couldn't figure out why except that WFC's sharp focus on customer service etc.
WFC's challenge is to integrate WB and eventually return TARP. I don't know how it can return TARP in short-term but I believe it should be able to return it in one-year with internally generated fund. WFC's pre-tax and pre-provision profit is around $40 B.
All the banks need to consolidate QSPE by Jan 2010. WFC's size is about $40 B risk weighted. Thus, it may need $4B additional capital - not a problem but something to note.
WFC's allowance is at around 3% total loans. The highest charge-off in 1990 cycle was 3%. So WFC may still need to build up allowance in the next two quarters but shouldn't be by very much.
3% charge off is equal to 10% loans default with 30% loss of principals. WFC's operating profit is able to absorb 5% charge-off and still break even.
Our interest overlaps in banks and I will share my DD in this area on JPM, WFC, USB, BAC, C, STI and BK. Maybe Canadian banks also a bit later.
JPM has an outstanding leader - Jamie Dimon (not sure if you followed him or not). However, JPM is very complicated and I don't believe anyone can really understand it. Its exposure to credit derivative is enormous. One has to completely trust Jamie and his team. So far, their performance is superb.
JPM has very high provision for credit loss. I think its allowance is at around 5% of its total loans in Q2 of 2009. Therefore, I don't think it needs to futher increase allowance in Q3. Plus, JPM is very very skillful in picking WM and Bear Sterns. Its pre-provision and pre-tax profit is at around $15 B - $60 B annualized. So, it won't be a stretch for its market cap to reach $200 B.
So, JPM is a well managed bank but is too hard to figure out.
WFC attracts a lot of doubt after WB take-over. The strength of WFC is focus on servicing clients. Its derivative exposure before WB take-over to credit derivative market is only $7 B notional and its off balance exposure is also small.
WB purchase is definitely worthwhile at $22 B but integration may take sometime. WFC's management has a lot of experiences in this area and I think their capability should be given proper credit. If you look back to early 1990, you will find WB and WFC were on roughly same starting line at that point. However, WB drifted outside traditional banking while WFC has sticked to it.
WFC's deposit size and cost are comparable to that of JPM but WFC's total asset is at roughly 1/2 of JPM's. WFC also has the highest net interest spread in the industry, for many years. I couldn't figure out why except that WFC's sharp focus on customer service etc.
WFC's challenge is to integrate WB and eventually return TARP. I don't know how it can return TARP in short-term but I believe it should be able to return it in one-year with internally generated fund. WFC's pre-tax and pre-provision profit is around $40 B.
All the banks need to consolidate QSPE by Jan 2010. WFC's size is about $40 B risk weighted. Thus, it may need $4B additional capital - not a problem but something to note.
WFC's allowance is at around 3% total loans. The highest charge-off in 1990 cycle was 3%. So WFC may still need to build up allowance in the next two quarters but shouldn't be by very much.
3% charge off is equal to 10% loans default with 30% loss of principals. WFC's operating profit is able to absorb 5% charge-off and still break even.
lazycatcat
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DD - Banks etc Part II
BAC's leader did a terrible job in this crisis by buying Countrywide and MER at a premium. I was completely puzzed at MER buy at $50 B.
BAC's book is as complicated as JPM's but BAC doesn't have a strong leadership team. BAC's strength is in its size. However, its core deposit base seems to be weaker than that of WFC and JPM. BAC has slightly higher total deposit ($726 B) versus JPM ($680 B) and WFC ($630 B). However, it has much higher deposit cost at 1.15% versus JPM at 0.70% and WFC at 0.60%. BAC relies heavily on whole sale deposit (saving certificates).
The total funding cost of BAC is much higher at 1.85% versus 1.04% at JPM and 0.91% at WFC.
It is not clear to me how strong BAC's earning power is but it is definitely a dorminant player in banking in US.
C is the weakest among big banks. Its core US deposit is small and its business is scattered around the world. This was considered a strong point before but I figured it probably spreaded itself too thin everywhere.
In other words, it looks good on book and bad in reality. C's book is as complicated as JPM and BAC. Plus, Prince (former CEO) did a terrible job by allowing free lunches at all levels of C. Its off balance sheet book is very large and rotten. I don't really know how it would take it back in Jan 2009.
If asset prices rise quickly, C may rise back by luck. Otherwise, a lot of hardwork.
USB is a different model. It is of low risk versus large banks and its book is rather clear to outsiders. It should go back to 30's when all dusts settled.
BK is totally on wealth management and trust. I don't know why its share price is relatively low. Frankly speaking, I haven't fugured out what is its competitive edge. Maybe its size. Also, its risk to litigation is also unclear. In theory, it shouldn't have any exposure to credit loss.
BAC's leader did a terrible job in this crisis by buying Countrywide and MER at a premium. I was completely puzzed at MER buy at $50 B.
BAC's book is as complicated as JPM's but BAC doesn't have a strong leadership team. BAC's strength is in its size. However, its core deposit base seems to be weaker than that of WFC and JPM. BAC has slightly higher total deposit ($726 B) versus JPM ($680 B) and WFC ($630 B). However, it has much higher deposit cost at 1.15% versus JPM at 0.70% and WFC at 0.60%. BAC relies heavily on whole sale deposit (saving certificates).
The total funding cost of BAC is much higher at 1.85% versus 1.04% at JPM and 0.91% at WFC.
It is not clear to me how strong BAC's earning power is but it is definitely a dorminant player in banking in US.
C is the weakest among big banks. Its core US deposit is small and its business is scattered around the world. This was considered a strong point before but I figured it probably spreaded itself too thin everywhere.
In other words, it looks good on book and bad in reality. C's book is as complicated as JPM and BAC. Plus, Prince (former CEO) did a terrible job by allowing free lunches at all levels of C. Its off balance sheet book is very large and rotten. I don't really know how it would take it back in Jan 2009.
If asset prices rise quickly, C may rise back by luck. Otherwise, a lot of hardwork.
USB is a different model. It is of low risk versus large banks and its book is rather clear to outsiders. It should go back to 30's when all dusts settled.
BK is totally on wealth management and trust. I don't know why its share price is relatively low. Frankly speaking, I haven't fugured out what is its competitive edge. Maybe its size. Also, its risk to litigation is also unclear. In theory, it shouldn't have any exposure to credit loss.
lazycatcat
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DD - Banks etc Part III
I though Canadian banks were good but their exposure to credit derivatives is huge. Notional amount was at hundreds of billions even for all big five and in tens of billions for National Bank.
The strength of Canadian banks is that they are able to fund almost all of their assets by deposits. Thus, these banks don't have large debt for additional funding. I think each bank has probably $7 B in debt.
The pre-tax and pre-provision profit is at around 2% of total loans. Given the conservative nature of lending in Canada, this is probably not bad. However, if a crisis similar to US happens, results could be rather bad but this is probably a small probability.
Maybe buying xfn.to is a good way to get exposure to the banks and also to spread risks. CND banks have almost monopoly on CND markets and it is hard to foeigners to come in. Thus, they may be safe as a whole.
Another way is the preferred shares of the banks. I won't elaborate here since you may not be interested. One should be familiar with Graham's theory on investment in preferred's before going into them.
On monoploy, another company is x.to. This is the owner of TSX and Montreal exchange. I have never seen a company with such huge profit margin. I think its after tax net margin is almost at 35 - 40%....
I though Canadian banks were good but their exposure to credit derivatives is huge. Notional amount was at hundreds of billions even for all big five and in tens of billions for National Bank.
The strength of Canadian banks is that they are able to fund almost all of their assets by deposits. Thus, these banks don't have large debt for additional funding. I think each bank has probably $7 B in debt.
The pre-tax and pre-provision profit is at around 2% of total loans. Given the conservative nature of lending in Canada, this is probably not bad. However, if a crisis similar to US happens, results could be rather bad but this is probably a small probability.
Maybe buying xfn.to is a good way to get exposure to the banks and also to spread risks. CND banks have almost monopoly on CND markets and it is hard to foeigners to come in. Thus, they may be safe as a whole.
Another way is the preferred shares of the banks. I won't elaborate here since you may not be interested. One should be familiar with Graham's theory on investment in preferred's before going into them.
On monoploy, another company is x.to. This is the owner of TSX and Montreal exchange. I have never seen a company with such huge profit margin. I think its after tax net margin is almost at 35 - 40%....
Thanks a lot for sharing your DD on ARNA and the banks
You are good and I greatly appreciate your time, efforts and sharing!
Now on ARNA, BLOSSOM is one of the two Phase III trials whose results will be released this month. The drug is Lorcaserin for weight loss. I can tell from your DD that you don't understand much of the market potentials herein. And you did not even read my earlier posts on ARNA. An earlier Phase III trial is BLOOM, whose results were released last March. The efficacy is in line with FDA guidelines. The safety and tolerability profile is yet truly revolutionary. On BLOOM's results, hedge-fund shortsellers and manipulators took the stock down significantly via fear-mongering and naked shortselling. Should BLOSSOM hit, the expected regulatory pathway is this: NDA filing towards the end of the year and PDUFA action sometime next September to November, along with a marketing partnership announcement in between. Will BLOSSOM hit? I really don't know but my analysis of the BLOOM results tells me that it has a good probability of hitting. And my in-depth DD tells me if approved, Lorcaserin will be a multi-blockbuster. Armed with this judgement, I have made my bet via short-term call options (October 7.5 strike). This is a pure BLOSSOM play. How I go forward with ARNA is completely contigent on BLOSSOM. Two scenarios: BLOSSOM hits, ARNA will be talk of the street and I will cash in 400 calls, leaving 100 to exercise for the long term holding; BLOSSOM misses, I will lose it all and wipe out the ticker.
Turn back to banks now. You did an amazing job and I really appreciate it. Thank you very much! However, I have a lot to disagree with you. Let me just focus on BAC because in my view, JPM and WFC are relatively overvalued. C is another story. I simply don't like the 36% stake the US holds, period. Forget about GS and MS. BAC is such a huge empire that I did not even go through its book. When I did my initial DD back in Feb and that is still going on continuously, I started by breaking down its major components piece by piece. Contrary to your belief that KL did lousy jobs by acquiring Countrywide and Merrill, I truly believe these two major acquisitions were marvelous moves that truly built up the BAC empire. At the first glance, they did appear to be drags, no doubt. But time will convincingly prove that these were two buys that solidify BAC's leadership in the financial world for years and ages to come. Let's start by reviewing why BAC tanked all way down to the high 2's and low 3's back in Feb. and March. It was a doom-and-gloom environment which was full of banking nationalization fear mongering. I think we have way passed that now. My first entry was triggered by the M2M Congressonal Hearing in the following week but I did my DD long before that (the so-called timing thing). Now let's review BAC segment by segment. 1) The tremendous difficulty BAC faced and is still facing is its traditional business segment, i.e., loan and credit losses which will continue for another period of time but its provisions and writedowns are extraordinarily in excess, i.e., too conservative relative to other major banks. I believe the recession is over, recovery has started to take hold, and expansion is to follow. When loan and credit losses start to recover which is inevitable in an improving economy, BAC's huge writedowns will become writeups and provisions earnings/profits. 2) Merrill: the stock market is recovering, trading is taking in huge profits; M&A will return, investment banking will take in tremendous fees; retail brokerage is making huge profits. 3) Countrywide's mortgage service: Re-fi has already taken in huge fees, the housing market is already stabilized and will recover. Who will benefit the most from housing recovery? The mortage owners! Being the largest mortage servicer, BAC will benefit tremendously. 4) Bloackrock: BAC owns 49% of the world's largest wealth management firm. 5) International operations: BAC is relatively a minor player but is expanding quickly.
When I did my initial DD, I started my valuation based on book value and TCE (tangible common equity). After the stress-test mandated capital raising, BAC's TCE comes way ahead of major competitors. Based on my own metric, BAC was incredibly way undervalued and even at 17, it is still incredibly way undervalued. This is simply an unstoppable earnings machine. In my view, it is a financial mutual fund in terms of its underlying diversification.
At the market peak, BAC+ML+CFC=168. Will it ever return to that valuation? I have no idea. But when earnings are normalized, BAC will be a lot higher than its current price. That I am very confident of!
Canadian banks are all very solid. Again, the issue is valuation.
As for insurance, again, Fairfax is solid but valuationwise, it is simply not attrative to me. I am watching Genworth, All State, Prudentials, ABK and MBI. I made a little off GNW and ABK but let them go months ago. I was a weak hand in those and missed the boatload of profits.
And I don't want to spread too thin.
You mentioned those big pharma names. They are all leaders but good growth won't come in those leaders. They can only come from emerging new stars, notably biotech! The key is to spot one or two. The biotech space is huge and it takes a lot of hard work to find just one or two. I have done part of the work to find DNDN and I will stay with it. ARNA is a potential but all depends on BLOSSOM. There will be others emerging and I shall share.
If your premise is stable low returns, those big names are definitely safe and steady. My objective is high growth, exponentially exploding growth, combined with my options multiplying effects. Biotech in combination with options, the mother of all risks! But to me, it is the least risky because of the leverage.
For retail, I like Home Depot the best followed by Costco and then GAP but won't put my feet in that door in a while. So I won't say much for now.
Finally, if you think the market is going up in the long run, longing long-term calls is far better than shorting long-term puts. Both are long plays but shorting puts suffers a number of inherent disadvantages: capping growth and locking in capital! I only short short-term puts when I want to buy the underlying stock (to be put the stock) to reduce cost base. Again, it all depends on individual perspectives.
Best of lucks!
You are good and I greatly appreciate your time, efforts and sharing!
Now on ARNA, BLOSSOM is one of the two Phase III trials whose results will be released this month. The drug is Lorcaserin for weight loss. I can tell from your DD that you don't understand much of the market potentials herein. And you did not even read my earlier posts on ARNA. An earlier Phase III trial is BLOOM, whose results were released last March. The efficacy is in line with FDA guidelines. The safety and tolerability profile is yet truly revolutionary. On BLOOM's results, hedge-fund shortsellers and manipulators took the stock down significantly via fear-mongering and naked shortselling. Should BLOSSOM hit, the expected regulatory pathway is this: NDA filing towards the end of the year and PDUFA action sometime next September to November, along with a marketing partnership announcement in between. Will BLOSSOM hit? I really don't know but my analysis of the BLOOM results tells me that it has a good probability of hitting. And my in-depth DD tells me if approved, Lorcaserin will be a multi-blockbuster. Armed with this judgement, I have made my bet via short-term call options (October 7.5 strike). This is a pure BLOSSOM play. How I go forward with ARNA is completely contigent on BLOSSOM. Two scenarios: BLOSSOM hits, ARNA will be talk of the street and I will cash in 400 calls, leaving 100 to exercise for the long term holding; BLOSSOM misses, I will lose it all and wipe out the ticker.
Turn back to banks now. You did an amazing job and I really appreciate it. Thank you very much! However, I have a lot to disagree with you. Let me just focus on BAC because in my view, JPM and WFC are relatively overvalued. C is another story. I simply don't like the 36% stake the US holds, period. Forget about GS and MS. BAC is such a huge empire that I did not even go through its book. When I did my initial DD back in Feb and that is still going on continuously, I started by breaking down its major components piece by piece. Contrary to your belief that KL did lousy jobs by acquiring Countrywide and Merrill, I truly believe these two major acquisitions were marvelous moves that truly built up the BAC empire. At the first glance, they did appear to be drags, no doubt. But time will convincingly prove that these were two buys that solidify BAC's leadership in the financial world for years and ages to come. Let's start by reviewing why BAC tanked all way down to the high 2's and low 3's back in Feb. and March. It was a doom-and-gloom environment which was full of banking nationalization fear mongering. I think we have way passed that now. My first entry was triggered by the M2M Congressonal Hearing in the following week but I did my DD long before that (the so-called timing thing). Now let's review BAC segment by segment. 1) The tremendous difficulty BAC faced and is still facing is its traditional business segment, i.e., loan and credit losses which will continue for another period of time but its provisions and writedowns are extraordinarily in excess, i.e., too conservative relative to other major banks. I believe the recession is over, recovery has started to take hold, and expansion is to follow. When loan and credit losses start to recover which is inevitable in an improving economy, BAC's huge writedowns will become writeups and provisions earnings/profits. 2) Merrill: the stock market is recovering, trading is taking in huge profits; M&A will return, investment banking will take in tremendous fees; retail brokerage is making huge profits. 3) Countrywide's mortgage service: Re-fi has already taken in huge fees, the housing market is already stabilized and will recover. Who will benefit the most from housing recovery? The mortage owners! Being the largest mortage servicer, BAC will benefit tremendously. 4) Bloackrock: BAC owns 49% of the world's largest wealth management firm. 5) International operations: BAC is relatively a minor player but is expanding quickly.
When I did my initial DD, I started my valuation based on book value and TCE (tangible common equity). After the stress-test mandated capital raising, BAC's TCE comes way ahead of major competitors. Based on my own metric, BAC was incredibly way undervalued and even at 17, it is still incredibly way undervalued. This is simply an unstoppable earnings machine. In my view, it is a financial mutual fund in terms of its underlying diversification.
At the market peak, BAC+ML+CFC=168. Will it ever return to that valuation? I have no idea. But when earnings are normalized, BAC will be a lot higher than its current price. That I am very confident of!
Canadian banks are all very solid. Again, the issue is valuation.
As for insurance, again, Fairfax is solid but valuationwise, it is simply not attrative to me. I am watching Genworth, All State, Prudentials, ABK and MBI. I made a little off GNW and ABK but let them go months ago. I was a weak hand in those and missed the boatload of profits.
And I don't want to spread too thin.
You mentioned those big pharma names. They are all leaders but good growth won't come in those leaders. They can only come from emerging new stars, notably biotech! The key is to spot one or two. The biotech space is huge and it takes a lot of hard work to find just one or two. I have done part of the work to find DNDN and I will stay with it. ARNA is a potential but all depends on BLOSSOM. There will be others emerging and I shall share.
If your premise is stable low returns, those big names are definitely safe and steady. My objective is high growth, exponentially exploding growth, combined with my options multiplying effects. Biotech in combination with options, the mother of all risks! But to me, it is the least risky because of the leverage.
For retail, I like Home Depot the best followed by Costco and then GAP but won't put my feet in that door in a while. So I won't say much for now.
Finally, if you think the market is going up in the long run, longing long-term calls is far better than shorting long-term puts. Both are long plays but shorting puts suffers a number of inherent disadvantages: capping growth and locking in capital! I only short short-term puts when I want to buy the underlying stock (to be put the stock) to reduce cost base. Again, it all depends on individual perspectives.
Best of lucks!
lazycatcat
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I understand your points of using options to bet on bio and I thought about it before. However, there is a big disadvantage for us here.
For the short-term option trading to succeed, the key element is surprise. This means either we have unique information advantage or no one has information advantage.
I am focusing on situations where no one has substantial information advantage. The area I am focusing on is quarterly earning report. Each quarter, there are always earning surprises, either up or down. This is the event driven option operation I am focusing on (Kamikatze operation).
The consensus analyst estimate is available and is more or less reflected in the stock price. Option is normally cheap at around 1 week towards expiry for about $0.10 for strike above 10% of current price. So, if earning surprises show up, you profit from the momentum generated by the surprise. Plus, the downside is much smaller since $500 can buy one 100 calls.
This operation requires understanding of target companies ...
For the short-term option trading to succeed, the key element is surprise. This means either we have unique information advantage or no one has information advantage.
I am focusing on situations where no one has substantial information advantage. The area I am focusing on is quarterly earning report. Each quarter, there are always earning surprises, either up or down. This is the event driven option operation I am focusing on (Kamikatze operation).
The consensus analyst estimate is available and is more or less reflected in the stock price. Option is normally cheap at around 1 week towards expiry for about $0.10 for strike above 10% of current price. So, if earning surprises show up, you profit from the momentum generated by the surprise. Plus, the downside is much smaller since $500 can buy one 100 calls.
This operation requires understanding of target companies ...
