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#41
10-17-2007, 01:52 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Buffetesque small/micro cap arb plays? Krishan [/ QUOTE ] Pretty much. I don't feel that moving up in limits is going to help my game  [/ QUOTE ] Do you tend to towards short term gains as part of the nature of the universe of stocks you are looking at? I think it's an interesting space and can see how structurally excess returns would be consistently possible. Krishan [/ QUOTE ] Yes all the best "special situations and workouts" (Buffetts term for arbs, and similar deals) are short term. Sometimes you are stuck in one longer than you planned and it turns into long term capital gains. I've had deals where ex-insiders are selling and I still made outsize returns because usually the deals are scary. Most people, even execs, dont want to hold a stock if its delisted and stops filing financials and has a big risk outstanding (lawsuit, environmental, bankruptcy). Its just unfamiliar territory and your first inclination is to say why take a risk? But Ive been through dozens of deals (50-60 at least) and my skill and experience is handicapping outcomes. I can usually discern which risks that seem benign are actually very dangerous, and those that look scary but have little real risk of costing you significantly. 
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#42
10-17-2007, 02:05 PM
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Re: 50% returns on small amounts?
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[ QUOTE ] Pig4bill, I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between [/ QUOTE ] Long Term Capital Management was formed by the smartest people in the investment business including Nobel Peace prize winners. Initially they raked up returns approaching 40% per year using bond arbitrage strategies. The Russian Financial crisis led to a flight to quality and their arbitrage positions rather than converging, actually diverged. Exacerbated by heavy leverage huge losses ensued and the fund eventually failed. These guys were very smart until the unforeseen (variance) happened. [/ QUOTE ] Dcifrthis explained it very well, I think LTCM was just way overleveraged. But let me make it clear that Buffetts guarantee likely involves little to zero leverage. My record was done without leverage, unless you count my home equity line (about 1/8th of my account balances) and the fact that I have a loan against my wifes car instead of paying cash. Lately I have started using margin, to the tune of about 5% of account balances but only for short periods. As an aside, I also qualified for a $50k business credit card from Capital One but couldn't bring myself to use it as the interest rate was 12% and it seemed too much hassle for the excess returns. But I wonder why a professional player wouldn't use something like that to help ride out bankroll swings and move up faster.
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#43
10-17-2007, 02:28 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] Buffetesque small/micro cap arb plays? Krishan [/ QUOTE ] Pretty much. I don't feel that moving up in limits is going to help my game [/ QUOTE ] Do you tend to towards short term gains as part of the nature of the universe of stocks you are looking at? I think it's an interesting space and can see how structurally excess returns would be consistently possible. Krishan [/ QUOTE ] Yes all the best "special situations and workouts" (Buffetts term for arbs, and similar deals) are short term. Sometimes you are stuck in one longer than you planned and it turns into long term capital gains. I've had deals where ex-insiders are selling and I still made outsize returns because usually the deals are scary. Most people, even execs, dont want to hold a stock if its delisted and stops filing financials and has a big risk outstanding (lawsuit, environmental, bankruptcy). Its just unfamiliar territory and your first inclination is to say why take a risk? But Ive been through dozens of deals (50-60 at least) and my skill and experience is handicapping outcomes. I can usually discern which risks that seem benign are actually very dangerous, and those that look scary but have little real risk of costing you significantly. [/ QUOTE ] I wish this was a teachable skill. What would help one leanr that? Looking through history or is it more of a feel thing/common sense
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#44
10-17-2007, 02:32 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] Pig4bill, I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between [/ QUOTE ] Long Term Capital Management was formed by the smartest people in the investment business including Nobel Peace prize winners. Initially they raked up returns approaching 40% per year using bond arbitrage strategies. The Russian Financial crisis led to a flight to quality and their arbitrage positions rather than converging, actually diverged. Exacerbated by heavy leverage huge losses ensued and the fund eventually failed. These guys were very smart until the unforeseen (variance) happened. [/ QUOTE ] I don't think any of those people did anything to help World Peace.
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#45
10-17-2007, 03:31 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
As an aside, I also qualified for a $50k business credit card from Capital One but couldn't bring myself to use it as the interest rate was 12% and it seemed too much hassle for the excess returns. But I wonder why a professional player wouldn't use something like that to help ride out bankroll swings and move up faster. [/ QUOTE ] It's basically a myth that bankroll constrains a pro poker player. Generally skill is a far more limiting factor. By the time you have the skill you have more than enough roll. Krishan
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#46
10-17-2007, 03:56 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
I wish this was a teachable skill. What would help one leanr that? Looking through history or is it more of a feel thing/common sense [/ QUOTE ] I think it's a learnable skill. You examine lots of potential ideas and learn what's worked and what hasn't. You learn to be less afraid of words like bankruptcy, liquidation, recapitalization, and think of them less as failures, and more like opportunities (while their current shareholders can only think failure). In the end, handicapping is all about odds given. I have one stock that has $1.50 in net cash assets minus all liabilities. The problem is that it's liabilities are environmental cleanups associated with any of it's former properties. So if they are mis-estimating their cleanup costs, it could easily be a zero. But it's trading for 25 cents, so if it's a zero less than 5/6 times you could show a profit. Now I don't know anything about environmental laws and cleanups, other than what the company documents in their very detailed financial reports. But taking the companies worst case estimates makes me think I'm getting a really good price unless management is just deluded (and if mgmt is being conservative, the liabilities could be less and the stock worth more than $3). So I bought a small amount (Bankroll managment precludes buying too much of any position that is potentially a zero). This isn't the best example since I try to actively avoid stocks that have real risks of going to zero, but it's a good example to illustrate how to think about deals in terms of the odds they are giving you. I've found that many of these deals the markets act as if a 20% risk you will lose 50% is priced as if it's a 80% chance of a 50% loss. You don't have to be an expert in a specific area, as long as your research makes you confident the risk is much closer to 20% than it is 80%. Most investors don't even take the time to make these estimates, any risk of a 50% loss just means sell immediately to them.
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#47
10-17-2007, 04:06 PM
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Re: 50% returns on small amounts?
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It's basically a myth that bankroll constrains a pro poker player. Generally skill is a far more limiting factor. By the time you have the skill you have more than enough roll. [/ QUOTE ] Actually your explanation is the myth. The top players in the world will go broke playing outside their bankroll, two little details called SD and ROR get in the way of skill. Jimbo
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#48
10-17-2007, 04:14 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] It's basically a myth that bankroll constrains a pro poker player. Generally skill is a far more limiting factor. By the time you have the skill you have more than enough roll. [/ QUOTE ] Actually your explanation is the myth. The top players in the world will go broke playing outside their bankroll, two little details called SD and ROR get in the way of skill. Jimbo [/ QUOTE ] You misunderstand. People move up all the time without the skill. I'm saying by the time you truly develop the skill to beat a higher limit you will have generated enough cash to play that limit. I'm not saying you should play outside your roll. You would have a hard time finding someone more conservative than I am with bankroll. Krishan
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#49
10-17-2007, 04:42 PM
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Re: 50% returns on small amounts?
50% return is not hard at all for an intelligent investor with less than $1,000,000 in his portfolio. Like i stated in my "How much money will I have in 3 years" thread, the reason why people think 50% is so hard is because these hedge funds, firms,and other extremely talented investors are happy with 20% per year. This is because they are controlling so much money (BILLIONS of dollars) that they need to diversify as much as possible. Generally, the more you diversify, the lesser the risk. The best hedge fund managers in the world (Steven Cohen, Carl Icahn)usually have 50+ stocks in their portfolios.
However, 50% returns per year for a small, but intelligent, investor is not hard. The more time you spend researching stocks, the greater chance you're going to find a stock where it is so blatantly obvious its going up. I gave a great example of a stock i discovered a week ago, FTEK, and wrote about it with support evidence in the "How much money will I have in 3 years" thread. FTEK was up 16% today. I'm up 45% on it since last week.
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#50
10-17-2007, 05:08 PM
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Re: 50% returns on small amounts?
Carl Icahn's hedge fund was up 56% last year and he took 50% profits. He is on pace to break that this year. He owns more than 13% in BEAS, which just recieved a buyout offer from Oracle. Icahn is up more than 50% in this holding since taking a stake in that company. This should boost his whole portfolio up by 3-4%.
You're stupid if you don't think Icahn can average 50% returns over any period of time(even 50+ years) if he was controlling a more modest amount, like 1,000,000. And you don't just have to be a hedge fund manager or insanely talented. Look for emerging markets, learn T/A, learn F/A, seek undervalued stocks, insider buying, listen to the conference calls, learn options, and always follow the global/domestic economy. Averaging 50% per year is DEFINITELY sustainable.
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