1. “I never ask if the market is going to go up or down, because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: Where is the one that is lowest priced in relation to what I believe its worth?” Like every other great investor in this series of blog posts John did do not make bets based on macroeconomic predictions. What some talking head may say about markets as a whole going up or down was simply not relevant in his investing. John focused on companies and not macro markets. He was a staunch value investor who once said: “The best book ever written [was Security Analysis by Benjamin Graham].
2. “If you want to have a better performance than the crowd, you must do things differently from the crowd. I’ve found my results for investment clients were far better here [in the Bahamas] than when I had my office in 30 Rockefeller Plaza. When you’re in Manhattan, it’s much more difficult to go opposite the crowd.” The mathematics of investing dictate that investing with the crowd means you will earn zero alpha, because the crowd is the market. You must sometimes be willing to take a position that is different from the crowd and be right about that position, to earn alpha. John put it this way: “If you buy the same securities everyone else is buying, you will have the same results as everyone else.”
3. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. People are always asking me: where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable? For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.” To be able to sell when people are most pessimistic requires courage. Being courageous is easier if you are making bets with “house money.” Making bets with the rent money is always unwise. Templeton believed problems create opportunity. For example, it was on the day that Germany invaded Poland that he saw one of his best buying opportunities since prices were so low and values so high. Simply telling his broker that day to buy every stock selling under $1 yielded a 4X return for John. Read More
As if investors and equity holders had enough to worry about with the looming September Fed meeting, reports have just surfaced of mega-investor George Soros making a substantial put order on the S&P 500 ETF (SPY).
Investors need only read the tea leaves to surmise where his position stands, given Soros Fund Management’s vast reload of a put order for SPY units, now tallied at a staggering 1,248,643 units in the quarter. Recall that Soros’ hot hand, with renewed positions in Apple, coupled with sell offs in gold, the AUD and Netflix (NFLX), which all netted billions. As such, with nearly $1.25 billion now tied up in his latest move, observers should likely take notice.
Indeed, Soros’ fund increased its share in the SPY position from 1.28% to 4.79% in the first quarter alone, nearly tripling its overall weight – as if this was not enough, the second quarter witnessed an allocation to 13.54% in Q2. Read More
The complaints unsealed today against former JPMorgan Chase bankers Javier Martin-Artajo and Julien Grout in connection with the bank’s so-called “London Whale” trading losses contain some fascinating detail.
The 15-page complaint against Mr Martin-Artajo, for example, alleges that the former head of Europe and of credit and equity at JPMorgan’s so-called chief investment office conspired with “others known and unknown” to conceal billions of dollars of losses racked up in bets made by the CIO. (The much-maligned chief investment office is responsible for investing JPMorgan’s surplus deposits.)
Below are some of the extracts from the complaint. They date from March 2012 and detail alleged exchanges between Mr Martin-Artajo and unnamed colleagues referred to in the complaint as CW-1 and CC-1.
Lawyers for Mr Martin-Artajo and Mr Grout said earlier this week that they would respond to any charges in due course. A lawyer for Mr Martin-Artajo said that she was confident her client would be “cleared of any wrongdoing.”
Singapore: Hedge fund manager Jim Rogers, who moved to Singapore in 2007 because he thought the centre of the world is shifting to Asia, says India is set to miss out on the Asian century. The chairman of Rogers Holdings says that if there is one country an individual must visit, it has to be India for its “spectacular sensory feast, beautiful, food, colour and religions”, but it is also the worst country to do business in. Rogers also slammed the Indian government’s recent curbs on gold imports, saying Indian citizens had no choice but to buy the metal because they had very little faith in investing in other sectors of its economy. In an interview, Rogers spoke about the financial crisis and his bets for the future and defended his decision to be extremely negative about India in his just-released book Street Smarts: Adventures on the Road and in the Markets. Edited excerpts:
What lessons have you learnt from the financial crisis that started five years ago and how has your investment mantra changed since then? Can you tell us how your portfolio has changed over the course of this crisis?
Governments and central banks have reacted to the crisis in what they view is the correct manner, but, in my view, it is an artificial manner, and they are only making the crisis worse. The reason it is stretching out as a problem is that they never let the problem cure itself. Read More
(Reuters) – U.S. authorities are considering arresting two former JPMorgan Chase & Co (JPM.N) employees for their alleged role in masking $6.2 billion “London Whale” losses, according to two people familiar with the situation.
In the latest twist in a scandal that has tainted the reputation of the largest U.S. bank and led to calls for greater oversight of its chief executive, Jamie Dimon, the main target of the investigation is Javier Martin-Artajo, who worked in London as the direct supervisor of Bruno Iksil, the trader who became known as “the London Whale,” the sources said.
The United States is also looking at Julien Grout, Iksil’s junior trader, according to one of the sources. Both sources spoke on condition that they not be otherwise identified as the investigation is ongoing.
Reuters reported on Thursday that Iksil, who earned his nickname after making outsized bets in a thinly traded derivatives market, is cooperating with the government and will not face any charges. His cooperation is essential to any arrest, the same sources said. <ID: nL1N0G924R>
The timing of the possible arrests, which would take place in London, was not clear, the sources said. U.S. authorities plan to extradite the former employees to the United States, they said. Read More
1. “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” Psychological mistakes are at the same time the biggest source of danger for an investor and the biggest source of opportunity when other people succumb to those mistakes. If you can keep your head about you when everyone else is losing theirs, you can profit in ways which beat the market. Howard Marks: “The absolute best buying opportunities come when asset holders are forced to sell.”
2. “Rule No. 1: Most things will prove to be cyclical. – Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.” Nothing good or bad goes on forever. And yet people extrapolate sometimes as if a phenomenon will go on indefinitely. “If something cannot go on forever it will eventually stop” famously said Herbert Stein. Situations in which mean reversion does not happen are rare enough as to make a mean reversion assumption a consistent friend to the investor.
3. “We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.” Focusing on the simplest possible system (an individual company) is the greatest opportunity for an investor since a company is understandable in a way which may reveal a mispriced bet. Howard Marks puts it simply: “We don’t make macro bets.”
4. “We can make excellent investment decisions on the basis of present observations, with no need to make guesses about the future.” This video has excellent material from Marks on why trying to make macroeconomic predictions is bound to fail: https://www.youtube.com/watch?v=2It1fzcBoJU If great investors like Marks, Buffett, Munger, Lynch etc. can’t make macro forecasts, do you think economists can? If you do believe they can, “Where are the economists’ yachts?” Howard Marks notes that anyone can be right “once in a row” especially when the range of possible outcomes is small.
5. “There are two essential ingredients for profit in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you’re wrong. Oh yes, there’s a third; you have to be right.” Being a contrarian for its own sake is suicidal. Not being a contrarian at all means by definition you can’t outperform the market. Being genuinely contrarian means you are going to be uncomfortable sometimes. Howard Marks adds: “To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.” Read More
Loss aversion, or the reluctance to accept a loss, can be deadly. For example, one of your investments may be down 20% for good reason. The best decision may be to just book the loss and move on. However, you can’t help but think that the stock might comeback.
This latter thinking is dangerous because it often results in you increasing your position in the money losing investment. This behavior is similar to the gambler who makes a series of larger bets in hopes of breaking even.
Your brain remembers everything.
How you trade in the future is often affected by the outcomes of your previous trades. For example, you may have sold a stock at a 20% gain, only to watch the stock continue to rise after your sale. And you think to yourself, “If only I had waited.” Or perhaps one of your investments fall in value, and you dwell on the time when you could’ve sold it while in the money. These all lead to unpleasant feelings of regret.
Regret minimization occurs when you avoid investing altogether or invests conservatively because you don’t want to feel that regret. Read More
Nothing really leaps out. Dollar shorts were hammered by the squeeze last week but they hung in there or were re-established. Overall, it`s a continue slow shift in dollar longs and suggests they`re longer term positions and strong hands. That`s not something you want to bet against.
Indian banks have cumulatively restructured more than Rs.2.5 trillion of loans under a popular mechanism created by the central bank in 2005, with a significant portion of this being done in recent quarters and years—an indication of rash bets taken by borrowers and accommodating lending rules followed by lenders in the earlier easy money regime and the impact of the economic slowdown.
According to two officials of the corporate debt restructuring (CDR) cell who did not want to be identified, the Rs.2.5 trillion milestone was crossed in June.
India’s slowing economy, which grew at a 10-year-low of 5% in the fiscal year ended March, continues to affect the ability of companies to repay money borrowed from banks, forcing many lenders to restructure the loans in an effort to prevent them from turning bad. Banks have to set aside (or provision) more money for bad loans (or non-performing assets) than restructured ones.
Experts say that companies have also been hit by delays in government approvals for projects. Read More