Individual stocks have positive skewness. A random sampling of 20 stocks is likely to underperform the market.
You can prove this to yourself through back testing.
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I know you’ve posted about this before but I want to make sure we’re on the same page, are you saying the EV of 20 random stocks are lower or just that it’s higher variance where the distribution of outcomes most likely has you underperforming but in rare cases massively overperforms? If it’s the latter is that necessarily always an inferior strategy?
It’s the latter. Not commenting on whether that’s an inferior strategy. It could be a good strategy if historical market returns will not allow you to hit your financial goals.
some data points on skewness vs. # of securities & diversification: https://tarjomefa.com/wp-content/uploads/2017/06/6891-English-TarjomeFa.pdf
Feels like this First Republic bailout plan is an old school plan that won’t work in the social media era where word spreads lightening quick. Big banks deposited $30billion for at least 4 months… ok, eases the short term panic but what happens after four months?
If I have money there, it’s still an insta withdraw. Know for a fact now that the bank is troubled and uncertain about its long term future.
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Bizarre strawman
Good thing I’m not picking stocks at random.
Indeed, you are picking value stocks that are likely to have correlated returns. Not exactly helping your argument that it gives you a ‘diverse portfolio’.
This is something you can absolutely counter by making sure you’re spreading out your picks across industries and markets. My portfolio contains a lot of BRK (I actually use BRK stock the way most people use ETF’s) which is kind of correlated with the entire US/global economy but none of the other positions are in remotely similar spaces.
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Right, I’m not overly concerned about having correlated returns anyway. I’m concerned about having correlated exposure to disasters or sector-specific crises. That’s easy enough to avoid. Or in some cases accept for a specific reason.
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Looks like that’s $0.945 per share. It closed Friday at $2.01 per share, and was $2.15 after hours. It was at $3.58 before SVB went under.
UBS likely being pressured to do this by the Swiss government, as well. I was watching an interview with Steve Eisman (Steve Carell plays him in The Big Short) and he was adamant that nobody wanted Credit Suisse, especially not UBS which was a solidly run bank.
Swiss government guaranteeing up to $9 billion of Credit Suisse losses over a certain cap, and the CS market cap Friday at close was $6.91 billion. Also extending a $100 billion loan to UBS as part of the deal.
Swiss central bank
Really worrying that rich people are suddenly going to realize they are fine with 6 percent inflation forever so long as their wealth is protected and we go back to low interest rates. That’s going to suck for the middle class.
Turn on CNBC any day last week and I assume this week will be the same, they’ve already decided that. The derision with which they talk about Powell and the Fed is palpable.
I think ultimately it’s going to bite them one way or another. If the rate hikes stop to protect the banks/markets, then inflation remains too high. Sooner or later (and I think we’re probably in sooner territory on this), too many people run through savings and/or max out credit cards. You’d see consumer discretionary spending drop, and you’d see people tighten up their spending on staples as much as possible. Then you’d see corporate earnings suffer, which should cause the market to drop. You’d also see increases in bankruptcy and foreclosures - hey, what happens if foreclosures shoot up and some banks are overexposed to mortgage-backed securities?
My guess is that we’re going to see the Fed hike 25 bips on 3/22, and a mildly hawkish message from Powell. Like, no guarantee of a hike in May, but no guarantee of a pause either - a wait and see approach. I think they’re going to continue to hike rates, while injecting as much liquidity as possible through lending to banks.
On the one hand, rate hikes are deflationary and the lending is inflationary. On the other, if they’re lending to banks at 5% and the deal is that they’re letting them value underwater bonds and MBS’s at par value for collateral, is it really going to be inflationary in practice? It’s not like the banks can borrow at 5% and lend at 3%, so it’s really just letting them get through a liquidity crunch without having to realize losses on underwater assets.
I think it’s probably the right strategy, which doesn’t necessarily mean it’ll work as they hope, but it’s got a shot IMO.
I’m concerned they’re not going to raise at all on 3/22. If they raise 25 basis points on 3/22 I think that’s fine.
The Euro bank raised 50 bips, and the OECD urged central banks to keep raising rates due to some concerning inflation figures. I’d be somewhat surprised if they paused. That said, CME has the odds at about 52% hike, 48% pause.
Heard an interesting analysis on this that if they pause, it’s almost like ringing an alarm that they’re scared and could cause a crash anyway.
So I learned something interesting over the weekend. There’s a sizable group of Redditors, overlapping with the Wall Street Bets crowd, that thinks Silicon Valley Bank and Credit Suisse went under due to betting against GameStop. They are convinced that GME is going to the moon again FOR SURE, that it’s actually worth more than $16 a share, and that the shorts are all getting wiped out - and that this is causing the banking crisis.
A poker friend explained that to me and I asked why the banks were getting wiped out, and he couldn’t explain that but said it was 100% happening. I assume the theory is that the banks lent to the hedge funds and that a squeeze puts the hedge funds into a margin call and they lose a shit ton and go insolvent, which means the banks lose a shit ton? I mean, obviously GME is not worth significantly more than $16 a share. I’m bearish on it being worth $16, but whatever, maybe! But it’s not worth like $50 or $200, so at the end of the day as long as someone has enough liquidity to bail out the shorts for a handsome profit, I don’t see how this ends anything but poorly for the Diamond Hands Gang.
I also explained to him why banks were actually having issues, and he was like, “Yeah you know a lot more about that than me, I mostly just go on the Reddit to get hyped up and get excited because I know this is going to happen 100%.”
I 100% failed at trying to talk him into taking some of the 25% of his net worth he has in GME off the table. GL to them I guess, fuck the hedge funds!
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Bought SATS (EchoStar) at $18.88.
Tangible book $34.20, NCAV $19.40, P/E of 9, they’re about to launch a new satellite that will double their capacity and they expect to realize that gain over 2-3 years in terms of additional business. Capex should decline over that stretch, too. Major competitive threat is Starlink, but I actually think there’s also the opportunity to take business away because they do some gov’t business (small amount currently) and I doubt the DOD wants to be in business with Elon now. I don’t think SATS is a lock to get a lot of that business, not even close, but even if they just get a little of it, it would be quite profitable for them. Even Elon losing it to someone else would probably be very good for SATS as it would weaken Starlink.
They have a lot of debt (about 95% of market cap) at what used to look like bad rates - fixed rates in the 5-7% range. Now it doesn’t look so awful. They also have a lot of cash, about 100% of market cap. They’re currently moving away from buybacks and looking at M&A opportunities on low-earth orbit companies, and investing in their own growth. But, I expect either an accretive acquisition or significant buybacks over the next 2-3 years. Anything along those lines should be a major catalyst to realize the value here.