Ask Eric!

[muscleman]

Eric, do you look at each thread in the investment ideas section? I've been busy recently and found that most of the investment ideas threads are new to me.

[ERICOPOLY]

Eric, do you look at each thread in the investment ideas section? I've been busy recently and found that most of the investment ideas threads are new to me.

 

I usually begin reading them after the discussion has been going on for a while.

 

[ERICOPOLY]

Unfortunately the old MSN board archives were lost.

 

Somewhere near May/June 2006, Mungerville (now original_Mungerville) posted that after the original boardmembers had spent years of battling the FFH shorts and fully explaining the FFH thesis, a new person could just walk up and read the full thread history and hit the fat pitch off the tee.  That's pretty much how that one worked for me.  Good timing, generous board discussion.  Everything I knew about that company at the time came from that thread.  As Cardboard once put it, it was easier for copycats to hold on due to the steady drumbeat of board discussion.  Without that kind of group involvement, I find it harder to hold conviction.  So there is more to the story than just following gurus -- the community discussion here has been very important to me.

 

Walking across a minefield, it feels like your odds are improved if many reputable mine-sweepers have been searching that field for a while before you step in yourself.

[meiroy]

The less humble way to say it is that most of us have to invest using processes to guide us and keep us from falling off the rails, and Eric invests by sheer raw brainpower. That's how he periodically distills down all these potential ideas that flow through the forum/news into a few bankable insights that he bets big on, structuring the bets so they're as asymmetric and tax efficient as possible.

 

The man behind the curtain might have seemed unimpressive at a glance, but dammit, he still found a way to actually run Oz, something that the story doesn't give him enough credit for ;)

 

Yeah, I know, it's embarassing how I sing your praises. Sorry about that, Eric, but I suspect my take is correct and nobody falling anywhere outside of the rightmost part of the bell curve could do what you do, despite anything you might say about not knowing much.

 

So while we're talking about him like he's not in the room, here is my two parts ERICOPOLY theory:

 

1. Classic Buffett/Munger.  Decisions based on the combinations and permutations mental model -- this is where his brainpower comes into play. Combined with waiting for the right pitch and then betting big -- this is the emotionally difficult part eased by the previous mental model.

 

2. Like many with IT background he possess the "data mining" capability. It is probably true that he  might not know specific details that he could articulate easily about an investment but what got him there is the process of probably scanning and filtering mass amount of information over the years.  With the data mining skills he is able to focus on the more important or useful data sources and people. It's not passive. Reading multiple useful sources he then utilizes his professional intuition built over many years to come to actual investment decisions in combination with part 1 above.

 

 

[returnonmycapital]

Taking the "Eric is awesome" thread one further, I have become an Ericopoly clone by ordering a Tesla.

[muscleman]

Eric, do you have any oil stocks that you are looking at right now and see to understand?  :D :D

[ERICOPOLY]

Eric, do you have any oil stocks that you are looking at right now and see to understand?  :D :D

 

I am waiting for the phone to ring (translation:  when a crowd gathers around a given name that I can make sense of).  Take away the board and I am a blind man.

[tede02]

Eric, you mentioned your first experience with options was buying a call back in 2006.  Have you just learned more over time by "hands-on" experience?  Did you read any books on strategy?

 

Also, I sense you don't do deep analysis into the companies you're purchasing (such as reading the 10ks for the past 5 years, researching the competition, etc.).  Is it fair to say you're just looking to understand the main idea of the opportunity and using options as a hedge in-case you're overlooking something?  If I'm way off here, can you comment on how much analysis you conduct and what you look at?

 

Thanks,

 

Ted

[ERICOPOLY]

Eric, you mentioned your first experience with options was buying a call back in 2006.  Have you just learned more over time by "hands-on" experience?  Did you read any books on strategy?

 

Also, I sense you don't do deep analysis into the companies you're purchasing (such as reading the 10ks for the past 5 years, researching the competition, etc.).  Is it fair to say you're just looking to understand the main idea of the opportunity and using options as a hedge in-case you're overlooking something?  If I'm way off here, can you comment on how much analysis you conduct and what you look at?

 

Thanks,

 

Ted

 

First options experience was 2006 FFH.  No book, just hands-on.

 

I don't know enough about how businesses work to do original research, so I first watch what the mine-sweepers like (to clear the field of mines) and invest if I can understand the story from 10,000 feet.  So the story needs to be clear and simple, and it is brought to me by people who do the screening for mines and booby-traps.

 

 

 

 

[original mungerville]

Unfortunately the old MSN board archives were lost.

 

Somewhere near May/June 2006, Mungerville (now original_Mungerville) posted that after the original boardmembers had spent years of battling the FFH shorts and fully explaining the FFH thesis, a new person could just walk up and read the full thread history and hit the fat pitch off the tee.  That's pretty much how that one worked for me.  Good timing, generous board discussion.  Everything I knew about that company at the time came from that thread.  As Cardboard once put it, it was easier for copycats to hold on due to the steady drumbeat of board discussion.  Without that kind of group involvement, I find it harder to hold conviction.  So there is more to the story than just following gurus -- the community discussion here has been very important to me.

 

Walking across a minefield, it feels like your odds are improved if many reputable mine-sweepers have been searching that field for a while before you step in yourself.

 

Hey Eric, I just came across this discussion - what did I post in 2006 that triggered something? The summary of the long FFH thesis?

[original mungerville]

Now that I am starting to think back, the ORH thesis was even more of a no-brainer right in the middle of the crisis - they had the municipal bond portfolio insured by Berkshire, hedged stock portfolio, decent underwriting with the market potentially getting harder, they were trading below book, and buying in shares like crazy. It was like buying a mutual fund with a guaranteed 10% or something return annually - below NAV - plus any upside potential from other hedged investments, etc. I remember it trading there at $36 to 37 a share in the middle of the crisis - wouldn't go much higher than $39 or lower than 33 or something, then of course it got bought out (too cheap in my opinion) at 65-70 or something. I forget exactly.

[ERICOPOLY]

Unfortunately the old MSN board archives were lost.

 

Somewhere near May/June 2006, Mungerville (now original_Mungerville) posted that after the original boardmembers had spent years of battling the FFH shorts and fully explaining the FFH thesis, a new person could just walk up and read the full thread history and hit the fat pitch off the tee.  That's pretty much how that one worked for me.  Good timing, generous board discussion.  Everything I knew about that company at the time came from that thread.  As Cardboard once put it, it was easier for copycats to hold on due to the steady drumbeat of board discussion.  Without that kind of group involvement, I find it harder to hold conviction.  So there is more to the story than just following gurus -- the community discussion here has been very important to me.

 

Walking across a minefield, it feels like your odds are improved if many reputable mine-sweepers have been searching that field for a while before you step in yourself.

 

Hey Eric, I just came across this discussion - what did I post in 2006 that triggered something? The summary of the long FFH thesis?

 

At one point near the bottom in 2006 you commented that after many dedicated longs had endured years of pain and held on, somebody new could just walk right up and kill it without having put in the time and paid dues.  That comment stuck with me.  You were commenting on the whole body of research and discussion up to that point.  And it was all free on the internet for anyone to take advantage of in return for nothing.  I think this is why Sanjeev stopped putting out for free  ;)

[gary17]

I like to know, what's the "no brainer" of 2015?  If im' that person who just walks in , what is that fat pitch I can take a big swing at? !! 

[ERICOPOLY]

I like to know, what's the "no brainer" of 2015?  If im' that person who just walks in , what is that fat pitch I can take a big swing at? !!

 

I don't know, but here's a good anthem to hum:

 

Stand up in a clear blue morning

Until you see

What can be

Alone in a cold day dawning,

Are you still free?

Can you be?

 

When some cold tomorrow finds you,

When some sad old dream reminds you

How the endless road unwinds you ?

 

While you see a chance take it,

Find romance fake it

Because it's all on you

 

Don't you know by now no one gives you anything

Don't you wonder how you keep on moving

One more day your way

When there's no one left to leave you,

Even you don't quite believe you

That's when nothing can deceive you

 

Stand up in a clear blue morning

Until you see

What can be

Alone in a cold day dawning,

Are you still free?

Can you be?

 

And that old gray wind is blowing

And there's nothing left worth knowing

And it's time you should be going

[original mungerville]

Eric, interesting. And once in a while - maybe then - the board becomes a reverse indicator of sorts. I mean at that point it might not have only been psychological rather it may have been financial also. I remember my own account was down so much, I HAD to (if I was ever going to recover) start using calls somewhere near the bottom.

 

Gary, opportunity will come again sooner rather than later I believe. This current market drop may be the beginning - Eric, speaking of which, are you still holding those IWM puts? If so, what percentage amount of your total investment in equities is that referencing. I think there should be some money there at some point in next year (or two or three).

[ERICOPOLY]

Eric, interesting. And once in a while - maybe then - the board becomes a reverse indicator of sorts. I mean at that point it might not have only been psychological rather it may have been financial also. I remember my own account was down so much, I HAD to (if I was ever going to recover) start using calls somewhere near the bottom.

 

Gary, opportunity will come again sooner rather than later I believe. This current market drop may be the beginning - Eric, speaking of which, are you still holding those IWM puts? If so, what percentage amount of your total investment in equities is that referencing. I think there should be some money there at some point in next year (or two or three).

 

I had closed the IWM short earlier in the year, and then put it back on at $117 a month ago.  The short is hedged with $130 strike call.  About 120% of account net asset value.  I also have a SPY short for 50% of account value that isn't hedged.  Then I have a lot of BAC common hedged with $15 strike 2016 puts and a few small energy positions.

[original mungerville]

I think its time Eric - right now, until the Fed comes back in and puts a floor under the market. (Which is why I am long precious metals...but the central banks are manipulating that so if you think SAC was bad with Fairfax, try the global central banks...)

 

Its just like FFH in 2005, my account works as a reverse indicator - so this should be the time!

[original mungerville]

Specifically silver and gold miners...lots of asymmetry with these. In my view, any portfolio should have at least 10% in precious metals given the ongoing currency debasement globally. But hey, I'm in the conspiracy camp minority on this one again.

[original mungerville]

I think its time Eric - right now, until the Fed comes back in and puts a floor under the market. (Which is why I am long precious metals...but the central banks are manipulating that so if you think SAC was bad with Fairfax, try the global central banks...)

 

Its just like FFH in 2005, my account works as a reverse indicator - so this should be the time!

 

Just to be clear, I don't think the puts can make all that much money because the central banks are there putting a floor under the equity markets, but I think this may be the start of a little downdraft until they come in. This is why I actually like precious metals better than the puts at this stage.

 

Of course take all of these timing remarks with a grain of salt / speculation on my part - nobody really knows what the future holds.

[ERICOPOLY]

I think its time Eric - right now, until the Fed comes back in and puts a floor under the market. (Which is why I am long precious metals...but the central banks are manipulating that so if you think SAC was bad with Fairfax, try the global central banks...)

 

Its just like FFH in 2005, my account works as a reverse indicator - so this should be the time!

 

Just to be clear, I don't think the puts can make all that much money because the central banks are there putting a floor under the equity markets, but I think this may be the start of a little downdraft until they come in. This is why I actually like precious metals better than the puts at this stage.

 

Of course take all of these timing remarks with a grain of salt / speculation on my part - nobody really knows what the future holds.

 

They were (in their dreams) putting a floor under equity markets in 2008 but markets still got crushed.  Gold went down too (up until end of Sept), as did all those miners.

[original mungerville]

I think its time Eric - right now, until the Fed comes back in and puts a floor under the market. (Which is why I am long precious metals...but the central banks are manipulating that so if you think SAC was bad with Fairfax, try the global central banks...)

 

Its just like FFH in 2005, my account works as a reverse indicator - so this should be the time!

 

Just to be clear, I don't think the puts can make all that much money because the central banks are there putting a floor under the equity markets, but I think this may be the start of a little downdraft until they come in. This is why I actually like precious metals better than the puts at this stage.

 

Of course take all of these timing remarks with a grain of salt / speculation on my part - nobody really knows what the future holds.

 

They were (in their dreams) putting a floor under equity markets in 2008 but markets still got crushed.  Gold went down too (up until end of Sept), as did all those miners.

 

This ain't 2008 Eric, not even close. In 2008 they were caught offside in the downdraft without necessarily being mentally or operationally prepared to bail-out the whole system with unconventional methods. Now, they are willing to print print print, the unconventional has become conventional. Its a whole new ballgame - its debasement. So how can we short that? We can't do it with straight puts on the index, we need to be long precious metals at the same time. What you really want to short is stocks vs gold, not stocks vs currency that is being debased.

 

 

 

 

[leadingusforward]

I had closed the IWM short earlier in the year, and then put it back on at $117 a month ago.  The short is hedged with $130 strike call.  About 120% of account net asset value.  I also have a SPY short for 50% of account value that isn't hedged.  Then I have a lot of BAC common hedged with $15 strike 2016 puts and a few small energy positions.

 

What was your thinking behind closing your IWM short earlier in the year and how much to hedge the market in general?

 

Also just curious how the size of your BAC position compares to your relatively new GM one?

 

Thanks again for patiently answering all of my and others' questions.

[ERICOPOLY]

I think its time Eric - right now, until the Fed comes back in and puts a floor under the market. (Which is why I am long precious metals...but the central banks are manipulating that so if you think SAC was bad with Fairfax, try the global central banks...)

 

Its just like FFH in 2005, my account works as a reverse indicator - so this should be the time!

 

Just to be clear, I don't think the puts can make all that much money because the central banks are there putting a floor under the equity markets, but I think this may be the start of a little downdraft until they come in. This is why I actually like precious metals better than the puts at this stage.

 

Of course take all of these timing remarks with a grain of salt / speculation on my part - nobody really knows what the future holds.

 

They were (in their dreams) putting a floor under equity markets in 2008 but markets still got crushed.  Gold went down too (up until end of Sept), as did all those miners.

 

This ain't 2008 Eric, not even close. In 2008 they were caught offside in the downdraft without necessarily being mentally or operationally prepared to bail-out the whole system with unconventional methods. Now, they are willing to print print print, the unconventional has become conventional. Its a whole new ballgame - its debasement. So how can we short that? We can't do it with straight puts on the index, we need to be long precious metals at the same time. What you really want to short is stocks vs gold, not stocks vs currency that is being debased.

 

 

 

 

 

QE was going on for most of the past 5 years.  That's debasement right?

 

However GLD (the ETF) increased in price from $109 then to $118 today.  It was a volatile trip, but the end result was disappointment.

 

That's less than CPI or roughly the same. 

 

[ERICOPOLY]

Gold shot up more in the years before 2008 than the years after.

 

It more than doubled from early 2005 to early 2008, that's just three years.

 

Then a whole lot of QE debasement happened since, but it's only up 32% cumulative to date since the start of 2008 and that's been 7 years!

 

I am not saying you are wrong though.  I'm just checking to see what impact QE had on gold so far.

[original mungerville]

Its true the gold price went up a lot from 2000 to 2008 - prior to that it was down for about 20 years. Yes, I would say QE is debasement and the gold price has not reacted much since 2008 - it has even reacted quite negatively for the past 3 years when almost every other asset was up. I think that is quite odd, and the trading has been quite odd - not unlike the price movements and trading of Fairfax in 2003/4/5 with a bunch of naked short-selling going on.

 

What seems to be going on is gold is making its way out of Western central banks to China mainly, but also Russia, Turkey and other countries buying. Rather than outright sales, many of these central banks are loaning their gold (and are continuing to report gold ownership) - but this gold gets melted and sent East. What seems to be left is a paper claim on gold. On the assumption those buying will hold long-term, at some point there has to be a squeeze. 

 

Problem is, I can't value gold on an absolute basis - like I feel I can value a stock. I just think its value in currency terms increases as more currency is created. And more currency is being created. The fact that I can't value gold on an absolute basis is similar to the problem I have with currencies - I can't value currencies on an absolute basis either when debt levels are high, deficits continuing, and they are being debased. I just look at gold as the inverse of the value of currencies.

 

And if I have a pot of cash / dry powder today, I would rather have 90 cents in currency and 10 cents in gold (miners and silver for me), than 100 cents in currency that is being debased. So if I wanted to position my portfolio ultra defensively - normally I would say hedge 100% of my notional exposure to equities. These days, I would hedge 100% of my notional exposure to equities, but also buy 10% in miners and silver.