BAC-WT - Bank of America Warrants

[Olmsted]

I know value investors are supposed to appreciate opportunities like $5 BAC - but at some point it's time to switch from wanting opportunity to wanting reward!  I think a lot of us wouldn't mind some d*mn payoffs already!

[Rabbitisrich]

I'm adding to my position, despite reservations about investment banking in general. Historically, purchasing deposit oriented banks at TBV has been a good idea. Problematic inflows haven't been jumping at a worrisome rate and the changes in accounting for TDRs and 2nd liens haven't revealed icebergs. I'm focusing on stabilizing collateral values rather than weak coincident indicators and the recent trend in real wages.

 

Europe, then China? Still a good idea to keep cash for 1 or 2 homeruns.

[moore_capital54]

I know value investors are supposed to appreciate opportunities like $5 BAC - but at some point it's time to switch from wanting opportunity to wanting reward!  I think a lot of us wouldn't mind some d*mn payoffs already!

 

Have patience. We are living in an unprecedented environment where short-term interest rates are 0% what this means is that capital which would normally be deployed in risk-free assets such as CD's/GIC's is aggressively searching for yield, contributing to the dramatic movements in the market which seem to be more pronounced each time. This capital seeks higher risk securities to compensate for lack of yield when it appears they can generate a safe return (IE: when markets are rising for a few weeks/days) but immediately rushes for the exits when the trend changes. At some point the central banks will figure out that the best thing they need to do is raise short-term rates, even to 1-2% and when they do you will see businesses that can earn a 10-20% return on equity attract long-term capital, of course at that stage there will be little supply.

 

I highly recommend the Don Coxe piece from last week for those that have access to it. I will not post it nor can I provide it in PM as it has my firm name on it.

 

Regards.

 

 

[ERICOPOLY]

Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  :(

[twacowfca]

Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  :(

 

It's called: "buy low, sell . . . Uh . . . Not so high."  ???

[leftcoast]

Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  :(

 

Hopefully before January 2019.  :P

[leftcoast]

I highly recommend the Don Coxe piece from last week for those that have access to it. I will not post it nor can I provide it in PM as it has my firm name on it.

 

Not sure if this is the piece you're referring to?

 

Exec summary starts on page 38.

93917899-Don-Coxe-Basic-Points-May-2012-1.pdf

[alertmeipp]

Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  :(

 

Only if he moves to cash, oops if he moved to oil stock with his proceeds.

[moore_capital54]

I highly recommend the Don Coxe piece from last week for those that have access to it. I will not post it nor can I provide it in PM as it has my firm name on it.

 

Not sure if this is the piece you're referring to?

 

Exec summary starts on page 38.

 

Yes... Very good

[kmukul]

Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  :(

 

Only if he moves to cash, oops if he moved to oil stock with his proceeds.

 

well sd and chk also appear to be super cheap

[ERICOPOLY]

Question:  can warrants be shorted? 

 

Can we for example buy the "A" warrant for $3.23 today, and then later sell short the "B" warrant after we're satisfied that the "B" warrant has rallied a ton?

 

A "covered" warrant strategy.

 

 

[nkp007]

Question:  can warrants be shorted? 

 

Can we for example buy the "A" warrant for $3.23 today, and then later sell short the "B" warrant after we're satisfied that the "B" warrant has rallied a ton?

 

A "covered" warrant strategy.

 

I believe they can. I get Interactive Broker requests from time to time asking for permission to borrow my BAC A warrants. They'll pay me a fee.

[Cardboard]

"Ray Dalio sold his entire BAC stake in Q1 after buying the entire stake in Q4.  Now he can buy it again, then sell, then buy, then sell... will this ever end  "

 

I don't know Ericopoly but, I am really sick of it. Sometimes I wonder if I will ever live through a normal bull market in my investing life: like the 80's or 50's.

 

I own some puts at the moment which I have been extremely lucky with this time around by buying right at the top and right before this current malaise. Helps me a lot, but I am still fully invested otherwise. I guess, I rely more on micro events to help propel most of my stocks, but 2010, 2011 and now 2012 have been tough with this strategy. I am not losing, but not making real ground either. Deals seem tough to close. The macro seems to hurt deal making. The only consolation is that I have more value and quality in my portfolio than I probably ever did.

 

The problem with a BAC rather that the rest of my stocks is that only long term improvements will make investors give it a "permanent" higher valuation. I can't see an event to drive it higher other than better macro. It is the same for pretty much all very large companies. How do you successfully trade this period to benefit from these crazy swings? I don't know. I don't even know if the world will get through all this debt issue.

 

It is like my puts. I make good money on them now. Should I sell now, wait, cut in half? It is almost no different than deciding to leave the blackjack table after some gains. If Bernanke announces QE3 or if there is some global intervention, not having sold these puts will make me angry and look very silly. The market can rally 5% in no time and possibly reach a new high in a matter of weeks.

 

Cardboard

[ageofsocrates]

you can short warrants. though good to do it thru the dealing desk.

[bmichaud]

Cardboard, is it not amazing what you just said - "Three years have been tough to invest thru/will I ever live thru a bull market."

 

I honestly wish the market was open once a month. I believe the minute to minute update of our holdings is by far the biggest impediment to long term thinking, and I battle the consequences just as much as the next guy. Not sure how otherd feel, but I LOVE reading and researching and thinking when the market is effing shut. Think about it - in just five short years BAC will be trading close to three times higher than its current level, yet we're concerned with what it's doing right now!! Watching it not only everyday but probably many times throughout the day turns that five year period into something that feels like an eternity. I HATE IT.

 

I'd be curious to hear how others deal with the mental side of investing, which I find to be BY FAR the most difficult part of the business.

[biaggio]

"The problem with a BAC rather that the rest of my stocks is that only long term improvements will make investors give it a "permanent" higher valuation"

 

Cardboard, will BAC not do well and be given higher valuation (of $20-30) if things just muddle along as they are i.e. no long term improvement.

 

That is slow or no growth, with government intervening as needed with any hiccups.

 

Over next few years they will just earn there way out of the overhang of bad loans and lawsuits.

 

Your left with a very important public entity earning $2-3 per share.

 

You can buy that for $7 today. Seems like a good deal. Why the good deal? I am thinking that most people are focusing too closely on short term. Seems worth holding/buying.

 

Oh, if it does not work out that way I think we re in for a lot of pain no matter what you re holding.

[ERICOPOLY]

I'd be curious to hear how others deal with the mental side of investing, which I find to be BY FAR the most difficult part of the business.

 

It's a lot easier to be patient if you like your day job.  What's the worst that can happen?  Keep doing what you love?

 

Now, if instead you hate your day job... it can be very hard waiting for your ship to come in.

[enoch01]

Watching it not only everyday but probably many times throughout the day turns that five year period into something that feels like an eternity. I HATE IT.

 

Yes but there could be a downside to not being able to watch and trade it every day.  Without the constant voting machine, there may not be as many, or as severe, price inefficiencies.  In the last three months I have gone from 200% notional exposure, to 20%, to 250%.  I try and take what the market gives me.

 

So much of this temperament.

[Packer16]

I find re-reading book by Howard Marks and Montier help me stay focused on the long-term.  I also try to enlarge my cirlce of compitence which can takes time away from the day to day fluctuations in the market.

 

Packer

[ERICOPOLY]

Read some good accounts of extreme stress conditions.  Such as the account of Sgt. Paul McGee's experience in Korea as told in The Coldest Winter by David Halberstam.

 

I found it gave me perspective.  Also, remember that you are going to die, and so is everyone you love.  Now, go back to worrying about your money the most...

[MrB]

Cardboard, is it not amazing what you just said - "Three years have been tough to invest thru/will I ever live thru a bull market."

 

I honestly wish the market was open once a month. I believe the minute to minute update of our holdings is by far the biggest impediment to long term thinking, and I battle the consequences just as much as the next guy. Not sure how otherd feel, but I LOVE reading and researching and thinking when the market is effing shut. Think about it - in just five short years BAC will be trading close to three times higher than its current level, yet we're concerned with what it's doing right now!! Watching it not only everyday but probably many times throughout the day turns that five year period into something that feels like an eternity. I HATE IT.

 

I'd be curious to hear how others deal with the mental side of investing, which I find to be BY FAR the most difficult part of the business.

 

I look at the prices of my portfolio usually every Friday, mainly because I then update all my transactions and because the latter is 0 for some weeks I sometimes look at prices only every other week. When I'm travelling I may not look at my portfolio for 3 to 4 weeks.

I avoid reading Bloomberg like the plague. Actually when you are in the habit of not reading Bloomberg it is amazing to me that my heart rate noticeably jumps as soon as I go onto their website and start reading the articles. Maybe it is just me? BB is alarmist, no matter what is going on.

I'm also purposefully located outside the main financial center here; makes a huge difference.

So ultimately the mental side, in my case, needs to be well managed. 

[txlaw]

I'd be curious to hear how others deal with the mental side of investing, which I find to be BY FAR the most difficult part of the business.

 

It's a lot easier to be patient if you like your day job.  What's the worst that can happen?  Keep doing what you love?

 

Now, if instead you hate your day job... it can be very hard waiting for your ship to come in.

 

Haha, story of my life.

 

Seriously, I find this to be the hardest part about investing in the public capital markets.  It does often feel that it takes an eternity for my positions to work out (i.e., be revalued closer to fair value), and I usually feel this way less than a year after buying because I'm constantly watching the market!  It probably makes me trade more often than I should.

 

I do think the tendency to be impatient -- beyond the normal behavioral tendencies that every capital markets investor faces -- and watch the market can be exacerbated by one's current lot in life.  Like Eric says, if you're a retail investor and you hate your day job, you're more likely to pay attention to what's going on in the market as opposed to focusing solely on the other stuff at work.  Or if you are in the investment field, where your performance (or the perception of your performance) and your compensation is tied to short term NAV, you will of course be likely to monitor the market just to see what's going on and may be more perturbed by the way that price action affects your day job.  That's why I've never understood why some investment managers write quarterly reports -- that's gotta be tough reporting NAV on a quarterly basis.

 

Ability not to watch the market might also depend on where you're starting at in terms of wealth.  If you're starting from a position of not being wealthy and you're a decent investor, it can be a lot harder psychologically to invest in the capital markets because you want to get to the point where the power of compounding wealth materially affects your life.  The sooner the better, of course, so you monitor how you're doing quite frequently.  On the other hand, if you've already got it made, you can be very patient, just let time arbitrage work to grow your wealth, and ignore daily price quotes.  Having said that, it doesn't seem that the wealthy are any better at ignoring price action.

 

I find the "keeping the gains" mentality is also hard to combat.  That has caused me to make big errors on the sell decision in the past.  Probably the biggest mistake I made during the financial crisis -- when I was just getting into the whole value investing thing -- was to buy WFMI at SBUX at close to their bottoms, sell them for pretty awesome IRRs, never reestablish positions, and watch them quadruple or quintuple in price over the next few years as they did the right things for the business.  That has been very irritating to watch.

[tombgrt]

Read some good accounts of extreme stress conditions.  Such as the account of Sgt. Paul McGee's experience in Korea as told in The Coldest Winter by David Halberstam.

 

I found it gave me perspective.  Also, remember that you are going to die, and so is everyone you love.  Now, go back to worrying about your money the most...

 

+1 I've been reading about the Nanking Massacre tonight, puts things in perspective... What you said about "being 100% long in BAC and that ultimately it is only money" has been stuck in my mind.  :) We should of course never carry these things to extremes but in essence they are true.

[bmichaud]

Mr. B, I would KILL to have that set up - tough though since I work within 20 feet of two Bloomberg terminals. Probably every other week I start out Monday with a fresh mindset that I'll only look at the market at the open, noon, and the close..you can guess how long that lasts. Part of it too is that I read constantly so it's very tough to ignore news.

 

My ultimate dream is to have a set up like Buffett - no computer or BB, just an office with a desk and mounds of reading material. Keep the computer far away, and just print out everything I need for the day. Usually Fridays I work from home so I go to a coffee shop for the day with no electronics - best day of the week!

[leftcoast]

I'd be curious to hear how others deal with the mental side of investing, which I find to be BY FAR the most difficult part of the business.

 

It's a lot easier to be patient if you like your day job.  What's the worst that can happen?  Keep doing what you love?

 

Now, if instead you hate your day job... it can be very hard waiting for your ship to come in.

 

Very, very true. If you're relatively young and in a job that you hate, I think your time and energy are far better spent on making a career change than on obsessing over your portfolio and counting down the days until you can make your escape to financial independence. It will be better for you and probably better for your portfolio.

 

Your money will never be able to buy back all the years you spent doing something you hate.