Have we entered the era of macro investing?

[twacowfca]

Moore Capital,

 

What are you talking about?

 

"Original Mungerville, I believe you are mistaken, with regards to your understand of what brought about those gains.

 

Those gains, as you mention were in fact company making for fairfax, and thus far have delivered better nominal results than vanilla value investing picks, however you fail to recognize that all those positions had one very clear common denominator. They were asymmetric investments with very little capital require upfront for a potentially very large payout."

 

If you call - $5 billion plus in US treasuries (many long US treasuries and could be far more than 5 billion as its not worth going to check the exact amount) and $1 billion plus in hedges on the S&P on the way down with the $1 billion plus hedges taken off - "asymmetric investments with very little capital required upfront for a potentially very large payout", give me some of the stuff you are smoking.

 

The only hedge investment on the list I provided that is asymmetric requiring very little capital upfront is the first: the CDS protection purchased which paid out in the $2 billion range on an average investment around $300M plus or minus 100M. #2, #3, and #4 in no way can be characterised in the way you did. This is plainly obvious.

 

LOL exactly so you are saying that buying the safest security in the world with 5 Billion dollars where there is literally no risk of capital loss and then have that security go up 30% when you expected maybe 2-3% because of the federal reserve creating money to purchase that security not another example of asymmetric risk reward?

 

The asymmetry has to do with permanent loss of capital as well.

 

Santyana, yes indeed Prem was lucky, both the CDS and the Treasury position delivered returns that prem could have never imagined, had he imagined those returns he would have deployed even more in the CDS position for example.

 

The same thing happened to friedberg this year, hes up nearly 40% because he was long Bunds, US Treasuries and owned CDS's on European Sovereigns, and he will be the first to tell you hes lucky they have done what they have done.

 

Original Mungerville, all I am saying is this: Inferring from the examples you provided, that Prem is a macro investor is in my humble opinion a misunderstanding of what in fact happened which is that Prem was just being safe with his capital and taking some punts which turned out to be 20 baggers because the federal reserve bailed out AIG with newly printed money and paid out counterparties whole.

 

Burry on the other hand did in fact let his MacUro view supersede his value investing principles and bet the farm on this idea. Whether or not that will continue to work for him time will tell, but if you boil down the principles of value investing, Macro should not play a role, only valuations and multiples, in a way when multiples expand too much, too quick, that is most probably a result of a macro risk in the making, but as value investors we should not take any views on the macro at all.

 

I will end with a Buffett quote:

 

The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It is optimism that is the enemy of the rational buyer.

 

Moore Cap, you are partly right or partly wrong about Prem and the CDS he bought.  Yes, this was mainly a hedge, but their main doubt was not whether, but when it would play out in their favor quite asymmetrically.  After this hedge lost 2/3 its value, Prem and his team reassessed the situation and decided to put more money into the position.  Mason H. Loved what they were doing, but couldn't figure out a way to emulate it within their mutual fund structure, other than with their exposure to FFH.

 

That this is true is born out by what they did after the CDS they held began to move up.  I had a piece of FFH and I'm thinking, "Take the money and run."  But they continued to hold them long after they more than hedged their portfolio until they rose in some cases twenty times their market value  before the crisis took hold.  :)

[ageofsocrates]

guys imho, should have a look at security analysis. Ben graham talks about investing during the depression era (u will be surprisd how eerily similiar it was to the  crisis in 08/09).

 

Cheers