1929 Crash of The Stock Market - Top Trading Directory

I keep getting ads like this, "we will loan you 100k for buying stocks". how very 1929. all being marketed to anyone with a pulse, i got approved for higher level options and derivative trading at td ameritrade and i don't have a job or a real address. lots of margin.

I keep getting ads like this, submitted by MakeTotalDestr0i to economicCollapse [link] [comments]

The Great Unwinding: Why WSB Will Keep Losing Their Tendies

The Great Unwinding: Why WSB Will Keep Losing Their Tendies
I. The Death of Modern Portfolio Theory, The Loss of Risk Parity, & The Liquidity Crunch
SPY 1 Y1 Day
Modern portfolio theory has been based on the foundational idea for the past 3 decades that both equities and bonds are inversely correlated. However, as some people have realized, both stocks and bonds are both increasing in value and decreasing in value at the same time.[1] This approach to investing is used pretty much in everyone's 401K, target date retirement plans, or other forms of passive investing. If both bonds and equities are losing value, what will happen to firms implementing these strategies on a more generalized basis known as risk-parity? Firms such as Bridgewater, Bluecrest, and H2O assets have been blowing up. [2,3]
Liquidity has been drying up in the markets for the past two weeks.[4] The liquidity crisis has been in the making since the 2008 financial crisis, after the passage of Dodd-Frank and Basel III. Regulations intended to regulate the financial industry have instead created the one of the largest backstops to Fed intervention as the Fed tried to pump liquidity into the market through repo operations. What is a repo?
A repo is a secured loan contract that is collateralized by a security. A repo transaction facilitates the sale and future repurchase of the security that serves as collateral between the two parties: (1) the borrower who owns a security and seeks cash and (2) the lender who receives the security as collateral when lending the cash. The cash borrower sells securities to the cash lender with the agreement to repurchase them at the maturity date. Over the course of the transaction, the cash borrower retains the ownership of the security. On the maturity date, the borrower returns the cash with interest to the lender and the collateral is returned from the lender to the borrower.[5]
Banks like Bank of New York Mellon and JP Morgan Chase act as a clearing bank to provide this liquidity to other lenders through a triparty agreement.[6] In short, existing regulations make it unfavorable to take on additional repos due to capital reserve requirement ratios, creating a liquidity crunch.[7,8,9] What has the Fed done to address this in light of these facts?
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period.[10]
II. Signs of Exhaustion & The Upcoming Bounce is a Trap, We Have Far More to Go
A simple indicator to use is the relative strength index (RSI) that a lot of WSB is familiar with. RSI is not the be all and end all. There's tons of indicators that also are indicating we are at a very oversold point.
SPY 1 Y1 Day RSI
Given selling waves, there are areas of key support and resistance. For reference, I have not changed key lines since my original charts except for the colors. You can check in my previous posts. 247.94 has been critically an area that has been contested many times, as seen in the figure below. For those that bought calls during the witching day, RIP my fellow autists. The rejection of 247.94 and the continued selling below 233.86 signals to me more downside, albeit, it's getting exhausted. Thus, I expect the next area in which we start rallying is 213.
SPY 10 Day/30 min
Another contrarian indicator for buying calls is that notable people in finance have also closed their shorts. These include Jeffery Gundlach, Kevin Muir, and Raoul Pal.[11,12,13]
III. The Dollar, Gold, and Oil
As previously stated, cash is being hoarded by not only primary banks, but central banks around the world. This in turn has created a boom in the dollar's strength, despite limitless injections of cash (if you think 1 trillion of Repo is the ceiling, think again) by the Fed.
DXY
Despite being in a deflationary environment, the DXY has not achieved such levels since 2003. Given the dollar shortage around the world, it is not inconceivable that we reach levels of around 105-107. For disclosure, I have taken a long position in UUP. However, with all parabolic moves, they end in a large drop. To summarize, the Fed needs to take action on its own currency due to the havoc it's causing globally, and will need to crush the value of the dollar, which will likely coincide with the time that we near 180.
If we are indeed headed towards 180, then gold will keep selling off. WSB literally screams bloody guhhhhhh when gold sells off. However, gold has been having an amazing run and has broken out of its long term channel. In times of distress and with margin calls, heavy selling of equities selling off of gold in order to raise cash. As previously noted, in this deflationary environment, everything is selling off from stocks, to bonds, to gold.
/GC Futures Contracts 5 Y1 Wk
What about oil? Given the fall out of the risk parity structure, I'm no longer using TLT inflows/outflows as an indicator. I've realized that energy is the economy. Closely following commodities such as light crude which follow supply and demand more closely have provided a much better leading indicator as to what will happen in equities. Given that, oil will also most likely hit a relief rally. But ultimately, we have seen it reach as low $19/barrel during intraday trading.
/CL Futures Contracts 1 Y1 D
IV. The Next 5 Years
In short, the recovery from this deflationary environment will take years to recover from. The trend down will not be without large bumps. We cannot compare this on the scale of the 2008 financial crisis. This is on the order of 1929. Once we hit near 180, the Fed crushes the dollar, we are in a high likelihood of hitting increased inflation, or stagflation. At this point the Fed will be backed into a corner and forced to raise rates. My targets for gold are around 1250-1300. It may possibly go near to 1000. Oil could conceivably go as low as $15-17/barrel, so don't go all in on the recovery bounce. No matter what, the current rise in gold will be a trap. The continued selling in the S&P is a trap, will bounce, forming another trap, before continuing our painful downtrend.
I haven't even mentioned coronavirus and unemployment until now. I've stated previously we are on track to hit around at least 10,000 coronavirus cases by the end of this month. It's looking closer to now 20-30,000. Next month we are looking to at least 100,000 by the end of the April. We might hit 1,000,000 by May or June.
Comparison of the 2020 Decline to 1929
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Chart courtesy of Moon_buzz
tl;dr We're going to have a major reflexive rally starting around 213, all the way back to at least to 250, and possibly 270. WSB is going to lose their minds holding their puts, and then load up on calls, declaring we've reached a bottom in the stock market. The next move will be put in place for the next leg down to 182, where certain actors will steal all your tendies on the way down. Also Monday might be another circuit breaker.
tl;dr of tl;dr Big bounce incoming. Bear trap starting 213. Then bull trap up around 250-270. We're going down to around 182.
tl;dr of tl;dr of tl;dr WSB will be screwed both left and right before they can say guh.
Hint: If you want to get a Bloomberg article for free, hit esc repeatedly before the popup appears. If it doesn't work, refresh the article, and keep hitting esc.
Remember, do not dance. We are on the cusp of a generational change. Use the money you earn to protect yourselves and others. Financial literacy and knowledge is the key to empowerment and self-change.
Some good DD posts:
u/bigd0g111 -https://www.reddit.com/wallstreetbets/comments/fmshcv/when_market_bounce_inevitably_comesdont_scream/
u/scarvesandsuspenders - https://www.reddit.com/wallstreetbets/comments/fmzu51/incoming_bounce_vix_puts/

Update 1 3/22/2020 - Limit down 3 minutes of futures. Likely hit -7% circuit breaker on the cash open on Monday at 213 as stated previously.
Do not think we will hit the 2nd circuit breaker at 199.06. Thinking we bounce, not too much, but stabilize at least around 202.97.
Update 2 3/23/20 9:08 - Watching the vote before making any moves.
9:40 - sold 25% of my SPY puts and 50% of my VXX calls
9:45 - sold another 50% of SPY puts
9:50 - just holding 25% SPY puts now and waiting for the vote/other developments
11:50 - Selling all puts.
Starting my long position.
11:55 - Sold USO puts.
12:00 - Purchased VXX puts to vega hedge.
2:45 - Might sell calls EOD. Looks like a lot of positioning for another leg down before going back up.
It's pretty common to shake things out in order to make people to sell positions. Just FYI, I do intraday trading. If you can't, just wait for EOD for the next positioning.
3:05 - Seeing a massive short on gold. Large amounts of calls on treasuries. And extremely large positioning for more shorts on SPY/SPX.
Will flip into puts.
Lot of people keep DM'ing me. I'm only going to do this once.

https://preview.redd.it/uvs5tkje1ho41.png?width=2470&format=png&auto=webp&s=c6b632556ca04a26e4e08fb2c9223bfcb84e0901
That said, I'm going back into puts. Just goes to show how tricky the game is.
3:45 - As more shorts cover, going to sell the calls and then flip into puts around the last few min of close.
Hope you guys made some money on the cover and got some puts. I'll write a short update later explaining how they set up tomorrow, especially with the VIX dropping so much.
3/24/20 - So the rally begins. Unfortunately misread the options volume. The clearest signal was the VIX dropping the past few days even though we kept swinging lower, which suggested that large gap downs were mostly over and the rally is getting started.
Going to hold my puts since they are longer dated. Going to get a few short term calls to ride this wave.
10:20 - VIX still falling, possibility of a major short squeeze coming in if SPY breaks out over 238-239.
10:45 - Opened a small GLD short, late April expiration.
10:50 - Sold calls, just waiting, not sure if we break 238.
If we go above 240, going back into calls. See room going to 247 or 269. Otherwise, going to start adding to my puts.
https://preview.redd.it/ag5s0hccxmo41.png?width=2032&format=png&auto=webp&s=aad730db4164720483a8b60056243d6e4a8a0cab
11:10 - Averaging a little on my puts here. Again, difficult to time the entries. Do not recommend going all in at a single time. Still watching around 240 closely.
11:50 - Looks like it's closing. Still going to wait a little bit.
12:10 - Averaged down more puts. Have a little powder left, we'll see what happens for the rest of today and tomorrow.
2:40 - Closed positions, sitting on cash. Waiting to see what EOD holds. Really hard trading days.
3:00 - Last update. What I'm trying to do here posting some thoughts is for you guys to take a look at things and make some hypotheses before trading. Getting a lot of comments and replies complaining. If you're tailing, yes there is risk involved. I've mentioned sizing appropriately, and locking in profits. Those will help you get consistent gains.
https://preview.redd.it/yktrcoazjpo41.png?width=1210&format=png&auto=webp&s=2d6f0272712a2d17d45e033273a369bc164e2477
Bounced off 10 year trendline at around 246, pretty close to 247. Unless we break through that the rally is over. Given that, could still see us going to 270.
3/25/20 - I wouldn't read too much into the early moves. Be careful of the shakeouts.
Still long. Price target, 269. When does the month end? Why is that important?
12:45 - out calls.
12:50 - adding a tranche of SPY puts. Adding GLD puts.
1:00 est - saving rest of my dry powder to average if we still continue to 270. Think we drop off a cliff after the end of the quarter.
Just a little humor... hedge funds and other market makers right now.
2:00pm - Keep an eye on TLT and VXX...
3:50pm - Retrace to the 10 yr trend line. Question is if we continue going down or bounce. So I'm going to explain again, haven't changed these lines. Check the charts from earlier.
https://preview.redd.it/9qiqyndtivo41.png?width=1210&format=png&auto=webp&s=55cf84f2b9f5a8099adf8368d9f3034b0e3c4ae4
3/26/20 - Another retest of the 10 yr trendline. If it can go over and hold, can see us moving higher.
9:30 - Probably going to buy calls close to the open. Not too sure, seems like another trap setting up. Might instead load up on more puts later today.
In terms of unemployment, was expecting close to double. Data doesn't seem to line up. That's why we're bouncing. California reported 1 million yesterday alone, and unemployment estimates were 1.6 million? Sure.
Waiting a little to see the price action first.
Treasuries increasing and oil going down?
9:47 - Added more to GLD puts.
10:11 - Adding more SPY puts and IWM puts.
10:21 - Adding more puts.
11:37 - Relax guys, this move has been expected. Take care of yourselves. Eat something, take a walk. Play some video games. Don't stare at a chart all day.
If you have some family or close friends, advise them not to buy into this rally. I've had my immediate family cash out or switch today into Treasury bonds/TIPS.
2:55pm - https://youtu.be/S74rvpc6W60?t=9
3:12pm - Hedge funds and their algos right now https://www.youtube.com/watch?v=ZF_nUm982vI
4:00pm - Don't doubt your vibe.
For those that keep asking about my vibe... yes, we could hit 270. I literally said we could hit 270 when we were at 218. There was a lot of doubt. Just sort by best and look at the comments. Can we go to 180 from 270? Yes. I mentioned that EOM is important.
Here's another prediction. VIX will hit ATH again.
2:55pm EST - For DM's chat is not working now. Will try to get back later tonight.

Stream today for those who missed it, 2:20-4:25 - https://www.twitch.tv/videos/576598992
Thanks again to WallStreetBooyah and all the others for making this possible.

9:10pm EST Twitter handles (updated) https://www.reddit.com/wallstreetbets/comments/fmhz1p/the_great_unwinding_why_wsb_will_keep_losing/floyrbf/?context=3, thanks blind_guy
Not an exhaustive list. Just to get started. Follow the people they follow.
Dark pool and gamma exposure - https://squeezemetrics.com/monitodix
Wyckoff - https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method
MacroVoices
Investopedia for a lot. Also links above in my post.

lol... love you guys. Please be super respectful on FinTwit. These guys are incredibly helpful and intelligent, and could easily just stop posting content.
submitted by Variation-Separate to wallstreetbets [link] [comments]

DDDD - Cycles and Human History

DDDD - Cycles and Human History
In this week's edition of DDDD (Data-Driven DD), now that my short term thesis of a 274-292 channel has now been invalidated because of some vaccine company fraudulently telling everyone they've cured COVID-19 to pump their stock before a secondary offering, I'll be digging deeper into my longer term thesis that I've been talked about for weeks now. I've previously wrote about this thesis from a perspective of economic history and the perspective of liquidity and finance. This time, lets look at it from a perspective of human and American history, and cycles that can be in them.
EDIT - This DD is meant to be read as a last part of a trilogy from these two previous posts with the actual data and quantitative content. Without that context, this post will basically seem like trying to use obscure theories to magically predict the future because of some prophecy. This is meant to be a theoretical / qualitative explanation of the of what was talked about in those previous posts, as well as connecting them to actions and thesises of well-known investors like Ray Dalio and Warren Buffett, who are saying very similar things. Don't bother reading this if you haven't read the first two parts of this trilogy.
Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
History doesn’t repeat itself, but it often rhymes. This time, let’s take a broader look at cycles and patterns that often present itself throughout human history, and connect that to the economy and the stock market. Much of the content for this piece is taken from the Strauss–Howe generational theory, Ray Dalio’s thesis about our place in the long-term debt cycle, and Warren Buffet’s take on the same topic when he spent a few hours talking about it in the most recent Berkshire Hathaway annual shareholders meeting.
The Fourth Turning
The general idea of Strauss–Howe generational theory, or the “fourth turning” is that American history tends to repeat certain trends within every “saeculum”, or human lifespan - approximately 80 years. This is how long it typically takes for the certain historical events to start disappearing from human memory, allowing similar events to happen again. I’m not entirely sure why this theory focuses on American history specifically, and can be applied to human histories across civilizations, although until recently those cycles may not have been synchronized with each other. The theory states that history tend to occur in cycles of four “turnings”:
High - A “golden age” of a civilization. This is when there is strong unity within members of the society, with strong confidence in institutions like the government and big corporations, and weak individualism. As a collective mind, the civilization is able to work together to achieve big goals.
Awakening - People get tired of conformity, trust in institutions weaken, and there’s a strong desire for self awareness, spirituality, or authenticity. This is a time of experimentation, activism, and rebellion.
Unraveling - Confidence in institutions such as governments and large corporations are at its weakest, and individualism is at its strongest. Society fragments to polarizing groups, and public action by governments is barely able to achieve the smallest goals.
Crisis - This is when the fabric of society and existing institutions are destroyed in response to a perceived existential threat to the civilization itself. Economic distress is rampant as the economy sees defaulting sovereign debt, high unemployment, deflation or hyperinflation, or civil unrest. The crisis eventually becomes a unifying force for the previously fractured society, and the civilization comes together to solve the crisis. Civil authority and governments become trusted again, and self-sacrifices inspire people to work together as a society over self interest.
Let’s look at how this cycle played out over the past few centuries in the US.

1701-1723 High The establishment of the first British Empire. The thirteen British colonies in the Americas were all by now well established and beginning to prosper. The Glorious Revolution in Great Britain has just ended, and the result is the supremacy of the people, through Parliament, over the Crown, and a new set of rights that apply to all Englishmen.
1724-1741 Awakening The First Great Awakening, or the Evangelical Revival. People become much more devoted to their religion and a desire to convert others, including native Americans and slaves.
1742-1766 Unravelling Seven Years War (French and Indian War in the US). It was considered to be the world’s first major conflict, with initial rivalry between the European great powers spilling over to other continents. From an American perspective, this would seem as an unnecessary war caused by a rivalry between two powers far far away, causing unnecessary hardship to the settlers in America. After the war, Britain wanted to recoup some of their losses from all the money spent fighting in North America, and created new taxes, leading to the Boston Tea Party. As a result, Britain then imposed the “Intolerable Acts” to punish the colony of Massachusetts. Throughout this time, trust in the Crown within the colonies started to disappear.
1767-1791 Crisis The American Revolution - All trust and allegiance to the Crown is destroyed and replaced with new ideals.
1792-1821 High After Victory in the American Revolution, there’s a new sense of unity and pride in the newly founded nation. New institutions were created for the new country, and there was a sense of optimism, even during the War of 1812. The period after that war, and leading up to the 1824 election, was called the Era of Good Feelings, to reflect the sense of national unity and purpose within the US
1822-1842 Awakening The Second Great Awakening, similar to the first one.
1844-1860 Unraveling Sectionalism within the US - this period saw the rise in the North vs. South divide over slave states and non-slave states, and tensions revolving around it
1860-1865 Crisis American Civil War
1865-1886 High Gilded Age - Rapid economic growth in the United States through industrialization. Creation of new institutions in the form of industrial titans like Standard Oil.
1886-1908 Awakening The Third Great Awakening, similar to the first two. Also, the progressive era, which saw an activist movement to address some of problems that come with monopolies like Standard Oil, urbanization, and corruption.
1908-1929 Unravelling This period saw WWI, Prohibition, and the Roaring Twenties. During this time, there was an increasing social conflict between liberal urban and conservative rural areas, specifically about morals and what should and shouldn’t be legal (eg. Scopes trial), the rise of the KKK, and is a hallmark of consumerism, individualism, and greed.
1929-1946 Crisis The Great Depression and WWII. The New Deal destroyed many existing institutions, and replaced them with new ones. The aftermath of WWII created new global institutions, in the form of the UN, and started the American world order.
1946-1964 High The Golden Age of Capitalism / post-war economic boom
1964-1984 Awakening During this time, we saw two different types of awakening. The counterculture movement of the 1960s saw activism against the Vietnam war and the Civil Rights movement, as well as an increase in spirituality and self-awareness, which is typically associated with the youth during this period (i.e. “hippies”). During the same time, there was another religious revival - The Fourth Great Awakening.
1984-2008 Unravelling This period saw an increase of the polarization on cultural issues in America, specifically with abortion, gun control, drugs, and gay rights, between conservatives and liberals, starting with the election of Ronald Reagan. The polarization was also very heavily influenced by geography, with liberals tending to live on the coasts and big cities, and conservatives everywhere else. The polarization made it increasingly difficult for congress to enact any big changes.
2008 to somewhere between 2020 and 2030 Crisis This period started with the financial crisis, as well as the aftermath of 9/11 and the War on Terror. Add on the pandemic, and the fallout from it, and we’d likely see another mass destruction of old institutions and creation of new ones.
2020-2030 to 2040-2050 High ???
2040-2050 to 2070-2080 Awakening A Fifth Great Awakening?

The Changing Hands of World Powers
There’s also another interesting theory in the field of international relations that’s interesting and probably applicable here - the Long Cycle Theory. It basically states that international world orders and the title of the most powerful nation, is challenged every 70 to 100 years - the approximate maximum lifespan of an average human life, leading to some sort of global conflict and potentially a change in the world order as a result.
Cycles in World Leadership
The United States has survived as the World Leader for the 20th century from the threat of the Soviet Union challenging the world order. This time, it’s becoming increasingly clear that China has become a new challenger to the American world order.
Long Term Economic Cycles
Ray Dalio is famous for this being a central part of his economic thesis - about long term debt cycles, and the fact that we’re near the end of one. The summary of this idea is that the economy goes through short term and long term debt cycles. Short term debt cycles are the regular occurring business cycles you usually see once every decade, usually caused by overspending. The long term debt cycle, however, is when an entire economy becomes overleveraged, and it becomes harder and harder for a central bank to stimulate the economy. A hallmark of this happening is when interest rates hit near 0%, and they are forced to perform quantitative easing to stimulate the economy; the last time the economy’s seen anything similar to this was the Great Depression - this is called a liquidity trap. The period following this liquidity trap was an economic deleveraging, typically associated with civil unrest, revolutions, wars, and asset prices plummeting. The US economy has been seeing this since 2008 and has never been able to successfully fully deleverage the economy yet.
Another long term economic cycle theory that’s somewhat popular is the Kondratiev wave, although this field of economics is not generally accepted by most economists. The idea is that the economy goes through long-term economic cycles, lasting between 45 to 60 years, of periods of rapid economic and stock market growth fueled by technological innovations, followed by a period of stagnation.
Kondratiev Waves
Currently, we’re late in the wave created by the introduction of Information Technology, which started in the late 1970s. I’ve previously talked about this, but basically we’re near the end of this cycle as well.
So, it sounds like we’re near the end of many cycles; the generational cycle of the Strauss–Howe generational theory, the long term debt cycle, the Kondratiev Wave cycle, and possibly the beginning of the end of the Long Cycle in international relations as China begins to contend with the United States for global influence. In all of these cycles, the conclusion is clear - chaos, economic hardship, geopolitical tensions and crises. Let’s take a closer look at the stock market last time all of these cycles ended - the 1930s.
Retail Investors in the 1920s
There’s not that much solid quantitative data about retail investors and their impact on the stock market; only qualitative and anecdotal data. However, one thing is clear - retail investors pumped the market in 1929 beyond what fundamentals warranted, despite evidence of a weakening economy due to stagnating consumer spending and distress by farmers due to overproduction of wheat, and soon, the Dust Bowl. Why were they pumping stocks so much? Because they falsely believed that stocks only go up. I’ll put some excerpts from this Forbes and this Investopedia article I found talking about this to better illustrate the extent and nature of this pump.
Still there was one big anomaly in the decade preceding, the 1920s, and it remains instructive today. The American people bought stocks in unprecedented fashion. Stocks on the installment plan, stocks via investment clubs, stocks bought with capital rather than income, stocks on margin. It was a big new fad. Nothing like the participation in the market that the nation experienced in the 1920s can be found in previous eras of history.
The permanent denuding of the dollar, the reality of which first became clear in the 1920s, forced savers to find some instrument that would pay them back in the old way, in money that held its value. The choice was made to capture, via stocks, the forthcoming profits of businesses. Here would be money commensurate to what was needed to buy things in the future.
Until the peak in 1929, stock prices went up by nearly 10 times. In the 1920s, investing in the stock market became somewhat of a national pastime for those who could afford it and even those who could not—the latter borrowed from stockbrokers to finance their investments.
People were not buying stocks on fundamentals; they were buying in anticipation of rising share prices. Rising share prices simply brought more people into the markets, convinced that it was easy money. In mid-1929, the economy stumbled due to excess production in many industries, creating an oversupply. Essentially, companies were able to acquire money cheaply due to high share prices and invest in their own production with the requisite optimism.
This all sounds pretty familiar to what's going on in the stock market today; as I previously mentioned, retail investors are pouring money in at unprecedented levels. Why is this happening now, about 90 years since the last time every retail investor started pouring money in? It's the same as the reasoning behind most of the other cycles I've mentioned above - the vast majority of people who previously experienced this and would have been alive to remember the 1920s have passed away by now. With an absence of people alive to have this mistake in living memory, humanity is bound to repeat the same mistakes, ignoring the warnings from our ancestors who are no longer with us, and repeat the cycle.
There's one pair of billionaires who are old enough to remember the aftermath of the the stock market pump that led towards the 1929 crash - Warren Buffett and Charlie Munger. Warren would have been born right after the crash and Charlie would have been 5. Both of them entered the finance industry while the stock market was still recovering from it, and still below the 1929 highs. For anyone who watched him talk at the annual shareholder meeting, he spent a few hours talking about a similar story - one of the highs and lows of American history, with a bullish perspective. He wouldn't have spent hours talking about the 1929 crash and the fact that it took multiple decades to recover if this wasn't relevant. This is supported by the fact that he bought virtually nothing since the crash, and has been gradually selling a large portion of this publicly traded equities - first his airlines and now banks. Although he believes that we'll eventually recover (i.e. "Never bet against American", in the long run), it's clear from his actions that he sees parallels of this from the stock market he grew up in the shadow of in his childhood and doesn't want to bet for America in the short term.
EDIT - Someone pointed out this article by Ray Dalio: https://www.linkedin.com/pulse/big-cycles-over-last-500-years-ray-dalio/ which basically talks about something very similar. I actually didn't even know about the existence of this article and actually wrote this before this got published, but looks like we both came to the same conclusion, and this is a shorter version of Ray Dalio's article. Recommend everyone check this out if they want a more in-depth version of this DD with more data and this this post as a tldr of it.
Weekly SPY Watch Updates
This section has absolutely nothing to do with anything I talked about above, but people apparently care about trades I'm making and what my magic markers say will happen in the stock market this week, so I'll have this section of this post dedicated to that and my updates.
I've since sold, with the exception of some VIX calls, all my short positions on SPY, and currently doing some individual plays - currently holding GSX puts and short (sold) HTZ calls, among some other smaller plays. With respect to SPY, it looks like we'll be in a new channel - this time 293-300; not sure how long we'll be staying in this channel for, but I'll be playing it by either selling short-dated iron condors or buying calls / puts when it reaches one end of the channel. While magic markers are telling me we're going to be bullish medium term, and go through 300 to new ATHs, meaning I should buy calls, I don't want to go against my own fundamentals in principle by the fact that the stock market is clearly already overvalued.
5/25 3PM - /ES at 299, might open near the top of the channel. Will need to see how we open to decide if I'm going to enter a position on SPY again.
5/25 10PM - Looks we're going to be trading on the upper half the of channel on Tuesday, with a trading range of 300-297. Might look to pick up some short-dated puts to play the channel if technicals look right on open.
5/26 Noon - Got a small amount of 5/29 ATM puts to play the channel. We opened right above the 200MA so I'm relying on this being a fake out, and not very confident about this specific play.
5/26 3:50PM - Looks like 300-302 range is acting like a resistance, heading back down in the 293-300 channel. Bearish intraday (5M, 15M) MACD => EOD dump and open lower in the channel tomorrow. Looking closely at what's going on with China.
- Wednesday (tomorrow): House votes on sanctions related to Chinese concentration camps of Uyghurs
- Thursday: China votes, and very likely passes, amendment to Basic Law in HK for "national security"
- End of Week: Trump promised that he will have a policy response, likely sanctions, for the change in HK's basic law, in addition to possibly revoking HK's special status
5/27 Market Open - Opened at the top of the resistance again, but quickly reversing. Might play out similar to yesterday
5/27 11AM - Going to wait till SPY hits 297 again and then roll my 5/29 puts I got yesterday to continue playing the channel down to 293
5/27 3:50PM - Turns out it was a EOD pump instead of dump. Oversold on 5M and 15M, so probably need to consolidate again tomorrow with a trading range of 297-302 again. Not so sure about this one because there's a solid chance this just breaks through that resistance and goes towards new ATHs. Entered into more 5/29 puts and going to hold overnight, sell if we still have positive momentum going in to open tomorrow. If we don't break 300 again tomorrow, I'm going to assume we're going to new ATHs and buy some IWM calls, hedged with QQQ puts.
5/27 6:30PM - My plan for tomorrow - see if we're actually in a 293-302 channel. There's going to be alot of uncertainty coming from China this week. If we're still above 302 by 10AM I'll probably transition towards bull positions. Most tech / strong companies are priced near their ATHs, and all the momentum coming into SPY is now coming from all the stocks that were really hit the past few months. Looking at CCL, JPM, and BA, all of whom are going towards a 1W MACD crossover
5/27 11PM - Still above this channel. Again, if we open above 302 and don't quickly reverse then clearly 300 wasn't that much of a resistance and we're headed to ATHs - next stop is 313, followed by 340. To my bears out there - the 1W MACD has already crossed over, meaning we're not going to see a rug pull any time soon, with the exception of some dramatic event happening in China. I'm not taking any medium-term bearish positions and currently just trying to play this channel, although the bullish momentum is stronger than I expected and not consolidating that much on 300 (yet). Watch out for August - that's when most medical experts agree a second lockdown is going to become evident and this bubble will pop; I still stand by my long term thesis. However, in the short term, don't trade against the trend and profit off the bubble.
5/28 9:40AM - I was wrong again. Going to sell those puts when SPY hits 302 at a small loss. We're headed to ATH
5/28 11:40AM - Overbought on 15M and 1H RSI, should see more consolidation today, and hopefully hit my 302 target to sell later today.
5/28 1PM - Stopped out of my small SPY puts, rolled that out into bullish positions on JPM, BA, and CCL. Will probably be doing SPY plays for a while, since all the technicals are pointing to a bullish rally, but only way for that to continue is for beaten down stocks like the ones mentioned, and found in IWM, to skyrocket the next few weeks. Also probably going to stop updating this thread as much.
5/28 5PM - 1H MACD is about to cross, and SPY got near 302 today, We've clearly broken the previous resistance area of 300-302, alot earlier than I was expecting; today was just a day for consolidation because RSI was overbought, now it has room to grow. MACD also acts as a resistance and typically will bounce back instead of cross if there's still bullish sentiment. I believe this is the case now, and we will also see SPY bounce up from the previous 300-302 region of resistance with it becoming support; the next level of resistance will be 313 on SPY, which is where we'll be headed soon. Haven't been holding any medium-term short positions, and am currently net long on financials and transports, which will very likely rally disproportionally if SPY continues to go up. Very well aware that this is a bubble, but I called the top wrong and trading against the trend will just lose you money.
5/28 7PM - Tomorrow will be an interesting day, Trump announced a news conference, with an unspecified time, where he will talk about actions he will do to China, potentially sanctions. There was a very small dip in the market on this news but nothing much else has happened yet. Depending on what the actions are, could be a red day tomorrow and break 302. I'll play this out intraday if we don't open low tomorrow
5/29 11AM - SPY is re-testing the 300-302 area, this time as support. Everything really depends on whatever Trump announces today regarding retaliation about China. Hard to say what can happen. If it's something extreme, like sanctions or tariffs, this could lead to another crash. Anything else would mean this SPY immediately bounces back from this support area.
5/29 1PM - Trump conference scheduled at 2PM. Will watch stock market reaction and trade with sentiment from it. If retaliation is bad enough to drop below 300, could be the rug pull all the bears have been waiting for.
5/29 2PM - Picked up some 302-300 debit spreads coming into the news conference, planning on holding this for an hour and selling by EOD
5/29 3PM - Sold puts during the speech and flipped to 304-310 calls. Looks like this wasn't enough to break through support. Going to hold these overnight, momentum looks to be turning bullish now that there's no longer any uncertainty about China, and actions are unlikely to provoke a Chinese retaliation.
5/29 4PM - Sold my short-dated calls. Coming into the weekend, it looks like next week will continue to be bullish, with 1D MACD convergence continuing, as well as the lack of any resistance until 313.
Week of Jun 1 - Jun 5 - Looking at SPY hitting 213 by end of week
submitted by ASoftEngStudent to wallstreetbets [link] [comments]

How Margin Loans Work - a Primer

Occasionally people ask how these loans work. With that in mind: from the Canadian prairie on a beautiful day in July, to you:

First, if you're from the U.S.: I'm doing this from a Canadian perspective which means I'm ignoring the Regulation T, special memorandum account, overnight maintenance requirement, and initial margin, because all of those are concepts that have no equivalent or application in Canada. But the basics are the same. You can ignore all of those concepts because they have no bearing on how margin actually works. Those concepts are simply restrictions in how you can use margin and as a practical matter they're not onorous restrictions.

I'm also ignoring U.S. risk-based "portfolio margin" because that's a specialized, alternative margin system some brokers offer in the U.S., that we don't have in Canada. We have traditional, rules-based margin that hasn't changed in Canada in 100+ years.

Note: If you are a Canadian resident buying U.S. stock in Canada you still fall under the Canadian rules for margin.

Margin in Canada hasn't really changed since the 1900's, except you have to put up at least 30% nowadays instead of 10% as it was back before the crash of 1929. Basically that's the only thing that's changed.

In Canada you can borrow up to 70% of a position at once for most stocks. This means that if you want to buy $10,000 worth of RBC or Apple, you only have to put up $3,000 and your broker lends you the rest.

Margin was first developed in the Netherlands which basically invented the modern financial system we have today in the West, back in the 1600s. The Dutch East India corporation (ticker VOC) was at one point 20% of the world's total commerce. That would be like a company in 2020 grossing about 16 trillion US a year. By comparison Apple brings in about one half of one percent of that. The Amsterdam stock market developed just to trade VOC and other shares and related securities.

Seein the success of their Continental rivals, the British copied the Dutch and for a long time, until after the Battle of Waterloo, the western world had two rival financial capitals, London, and Amsterdam. For various historical reasons, Amsterdam got pushed out of the picture and for about 100 years the City of London (which is what the financial district in London is called) was the financial capital of the west. They of course now share that crown with New York City.

But it's really the Dutch who started it all, around the time of Vermeer.

***

The concept is that the bank (or broker) will lend against some of your stock, but not all of it. They want a "haircut." The haircut is the amount they won't lend against. In Canada the haircut is usually 30% but can be 50% and there are some stocks the banks won't lend against at all, like most of the stuff on the TSX-V or on the U.S. pink sheets. Every bank is different, so BMO InvestorLine might want 50% on one company and Interactive Brokers Canada might want 30% or vice versa for another. But most things are 30%, some are 50% and some are 100% (meaning no loan).

The maximum available leverage is 1/haircut.

If the haircut is 30% as is typical in Canada, the bank will let you buy up to 1/0.3 = 3 1/3 as much as your cash, meaning, you can borrow up to 2 1/3 dollars for every dollar you put up. That's the limit. But:

So say you have $3,000 and you want to buy on margin. As the bank haircut (margin rate) is 30%, you can buy $3,000/0.3 = $10,000 worth of stock. Obviously you then have a loan of $7,000.

You now have $10,000 worth of stock, but remember, the bank won't let you borrow against 30%*$10,000 = $3,000. So your collateral is only $7,000. So you now have a $7,000 loan collateralized by $7,000 worth of stock.

In the above example, you put up 30% margin, the same as the haircut.

It's easy to see that if your total position slides so much as a dollar, you will have less collateral than $7,000 and therefore get what's called a "margin call" where they will tell you that you have to put up more money in a few hours or sell stock (which automatically pays down the loan to the extent of the sale) so that you have enough collateral to cover your loan, otherwise they will automatically sell a stock of their choosing at an amount of their choosing.

They are also allowed to sell whichever stock they choose automatically without calling you first, in the event of a margin call. That is explicitly set out in your margin agreement.

There have been at least two challenges to that in the Ontario courts in the last 20 years or so, where the former client argued that the bank sold their shares out without first advising them, or, in one of the court cases, after promising to hold off so that the client could put up money, and then reneging on that and selling the client's stock anyway.

The court in both cases sided with the bank. The margin is for real, not negotiable, it is there to protect the bank and the other client's capital, and the words "the bank can sell at any time and without prior notice" mean what they say they mean. If you get sold out at a loss, don't expect the courts to give you redress.

So obviously you need some "buffer" because of volatility, but how much do you borrow?

Now you have to understand some more math.

target margin = 1-(1-x)*(1-haircut)
x is the price drawdown
target margin is how much margin you have to put up.

Say Apple is marginable at 30% (the haircut) by your bank. You decide you want to borrow on margin. But you decide, "I will allow Apple to slide 40% from what I buy it at before I get a margin call." So how much margin should you put up?

target margin = 1-(1-0.4)*(1-0.3) = 1-0.6*0.7 = 1-0.42 = 0.58.

So you have to put up 58% margin.

That means if you have $3,000 to invest, you would buy $3,000/0.58 = $5,172 worth of Apple. If Apple is trading at $350 that means it can slide to $210 before you get a margin call. At which point you will have lost 0.4/0.58 = 68.9% of your money. (Remember, leverage is simply 1/margin.)

You can convince yourself by working through it as a check.

In the example, as you had $3,000 and you margined that at 58%, you bought $3,000/0.58 = $,5172 worth of stock. Obviously your equity at the time of purchase was be $3,000 because you owned $5,172 worth of stock and owed the bank $2,172. Because of the haircut, 0.3*$5,172 = $1,551 could not be used as collateral.

Then the stock slid 40%, from $350 to $210, so your total stock position was then (1-0.4)*$5,172 = $3,103. Of course, you still owed the bank $2,172. But remember, not all of the $3,103 was available be used as collateral, only 70% (meaning, 1-haircut) of that.

So at $210 your collateral was (1-0.3)*$3,103 = $2,172, exactly the same as the loan amount. $210 was, therefore, the lowest price at which you still have sufficient collateral. Anything less and you would have received a margin call or the bank would simply have automatically sold stock, depending on how they saw the risk.

Key takeaway here is that the haircut is 30%, meaning that 30% of your stock cannot be used as collateral, which mathematically also means that your account equity/total amount of stock = (total amount of stock-loan)/(total amount of stock) has to stay at or above 30%. You're putting up 58%, meaning you're borrowing 1/0.58 - 1 = 72 cents from the bank for every dollar of your own money that you put up.

The formula above is simply a rearrangement using basic algebra, of the basic margin equation which is:

price at margin call = initial price of stock*(1-target margin)/(1-haircut)


Whatever you do, make sure you are maxing out your TFSA or possibly RRSP or possibly both before you use margin, or only contribute a small amount of capital to a margin account and make sure your TFSA or RRSP is your main stock investment vehicle. Do not put up your TFSA as collateral on a margin account. You could end up getting a margin call, then the broker transfers the TFSA over to the margin account, but then the stock market slides again and now your TFSA is wiped out along with your margin account. Questrade offers this and I think it's an absolutely terrible idea. Frankly I think the CRA should disallow it. Notice how none of the banks offer this.

Also have a plan for a margin call. You will get a margin call at some point. One good plan is simply to sell enough stock to pay off the margin loan and then re-enter margin when conditions warrant. It makes absolutely no sense to have cash lying around to meet a margin call. Why not just invest the cash and not use margin. The old adage is, "Never meet a margin call" and I think that's good advice. If the bank gives you to choice of either putting in more money in or selling, then sell.

To me there are only 3 reasons you would use a margin account:


To me the following are bad reasons to trade on margin:


Margined investing = active investing = checking your positions at least daily and following a trading plan.

Finally, the average investor working with average capital should always, always, make the TFSA their #1 priority. The TFSA is truly a gem. When I was in my 20's back in the 90's, the only tax shelters for the average Canadian were the sale of their primary residence and the RRSP, the latter which is a deferral and a deduction but not an outright break the way the TFSA is.

The TFSA offers leverage effectively equal to the capital gains inclusion rate * your average taxation rate, and yet without a margin call and at zero percent and it doesn't even magnify your losses. No margin account can match that.

Some investors don't believe in margin at all. Like Warren Buffett, who said in a 2018 CNBC interview, "It's crazy to borrow against securities." (Note he said borrowing against stocks, not borrowing to buy stocks.) But he is right in saying that the bad thing about margin is that it gives you limited additional potential upside but at the cost of great potential downside.

Understand the risks. Read your margin agreement. Consider even meeting with a securities lawyer who can explain the agreement to you.

Consider this statement from an article posted on a popular stock investing website (Fair dealing exception), posted March 15th, 2020:

" https://www.fool.com/investing/2020/03/15/5-ugly-lessons-from-a-nasty-margin-call.aspx

From its close on Feb. 19 to its close on March 12, the S&P 500 fell more than 26%, a huge decline in less than a month. Like many investors who had been using options in a margin account, I faced a margin call during that precipitous decline and was forced to liquidate positions to satisfy that call.
Note that despite facing that margin call, I never actually borrowed money from my broker. I just had margin available and usable from a purchasing power perspective in the event some of my options got exercised against me. It didn't matter to my broker, though, who only saw the margin math, rather than the cash and investment-grade bonds that were also in that account and hadn't seen their values evaporate.
Unfortunately, my experience during that margin call revealed some very ugly realities about how Wall Street really works, particularly when it comes to retail investors. "

He goes on set out "lessons learned." None of those lessons learned is "read your margin agreement before you trade." So he didn't really learn his lesson.

Anyway, it's up to each person to do what is right for them, bearing in mind the risks. But know the risks. Trading with margin doesn't mean you'll be wiped out, but if you trade anything you need to know what you're doing and that is even more important if you've agreed to borrow money.

The post here was to explain how to do the calculations for this popular and important financial tool as there is a lot of misinformation out there on the subject, make some suggestions on how you can use it as a part of your overall portfolio, and give my opinions on how one might do that.

Whichever road or roads you take, good investing.

For more details on the TFSA and its contribution rules, see https://www.reddit.com/CanadianInvestocomments/hcy9r9/how_the_tfsa_works/


submitted by KhingoBhingo to CanadianInvestor [link] [comments]

A long list of CIA atrocities.

The following article was initially published in 1997. It is in part based on the work of William Blum. Killing Hope: U.S. Military and CIA Interventions since World War II, 1995 (GR Ed. M. Ch.)
By Steve Kangas
The following timeline describes just a few of the hundreds of atrocities and crimes committed by the CIA. (1)
CIA operations follow the same recurring script. First, American business interests abroad are threatened by a popular or democratically elected leader. The people support their leader because he intends to conduct land reform, strengthen unions, redistribute wealth, nationalize foreign-owned industry, and regulate business to protect workers, consumers and the environment. So, on behalf of American business, and often with their help, the CIA mobilizes the opposition. First it identifies right-wing groups within the country (usually the military), and offers them a deal: “We’ll put you in power if you maintain a favorable business climate for us.”
The Agency then hires, trains and works with them to overthrow the existing government (usually a democracy). It uses every trick in the book: propaganda, stuffed ballot boxes, purchased elections, extortion, blackmail, sexual intrigue, false stories about opponents in the local media, infiltration and disruption of opposing political parties, kidnapping, beating, torture, intimidation, economic sabotage, death squads and even assassination. These efforts culminate in a military coup, which installs a right-wing dictator.
The CIA trains the dictator’s security apparatus to crack down on the traditional enemies of big business, using interrogation, torture and murder. The victims are said to be “communists,” but almost always they are just peasants, liberals, moderates, labor union leaders, political opponents and advocates of free speech and democracy. Widespread human rights abuses follow.
This scenario has been repeated so many times that the CIA actually teaches it in a special school, the notorious “School of the Americas.” (It opened in Panama but later moved to Fort Benning, Georgia.) Critics have nicknamed it the “School of the Dictators” and “School of the Assassins.” Here, the CIA trains Latin American military officers how to conduct coups, including the use of interrogation, torture and murder.
The Association for Responsible Dissent estimates that by 1987, 6 million people had died as a result of CIA covert operations. (2) Former State Department official William Blum correctly calls this an “American Holocaust.”
The CIA justifies these actions as part of its war against communism. But most coups do not involve a communist threat. Unlucky nations are targeted for a wide variety of reasons: not only threats to American business interests abroad, but also liberal or even moderate social reforms, political instability, the unwillingness of a leader to carry out Washington’s dictates, and declarations of neutrality in the Cold War. Indeed, nothing has infuriated CIA Directors quite like a nation’s desire to stay out of the Cold War.
The ironic thing about all this intervention is that it frequently fails to achieve American objectives. Often the newly installed dictator grows comfortable with the security apparatus the CIA has built for him. He becomes an expert at running a police state. And because the dictator knows he cannot be overthrown, he becomes independent and defiant of Washington’s will. The CIA then finds it cannot overthrow him, because the police and military are under the dictator’s control, afraid to cooperate with American spies for fear of torture and execution. The only two options for the U.S at this point are impotence or war. Examples of this “boomerang effect” include the Shah of Iran, General Noriega and Saddam Hussein. The boomerang effect also explains why the CIA has proven highly successful at overthrowing democracies, but a wretched failure at overthrowing dictatorships.
The following timeline should confirm that the CIA as we know it should be abolished and replaced by a true information-gathering and analysis organization. The CIA cannot be reformed — it is institutionally and culturally corrupt.
1929
The culture we lost — Secretary of State Henry Stimson refuses to endorse a code-breaking operation, saying, “Gentlemen do not read each other’s mail.”
1941
COI created — In preparation for World War II, President Roosevelt creates the Office of Coordinator of Information (COI). General William “Wild Bill” Donovan heads the new intelligence service.
1942
OSS created — Roosevelt restructures COI into something more suitable for covert action, the Office of Strategic Services (OSS). Donovan recruits so many of the nation’s rich and powerful that eventually people joke that “OSS” stands for “Oh, so social!” or “Oh, such snobs!”
1943
Italy — Donovan recruits the Catholic Church in Rome to be the center of Anglo-American spy operations in Fascist Italy. This would prove to be one of America’s most enduring intelligence alliances in the Cold War.
1945
OSS is abolished — The remaining American information agencies cease covert actions and return to harmless information gathering and analysis.
Operation PAPERCLIP – While other American agencies are hunting down Nazi war criminals for arrest, the U.S. intelligence community is smuggling them into America, unpunished, for their use against the Soviets. The most important of these is Reinhard Gehlen, Hitler’s master spy who had built up an intelligence network in the Soviet Union. With full U.S. blessing, he creates the “Gehlen Organization,” a band of refugee Nazi spies who reactivate their networks in Russia.
These include SS intelligence officers Alfred Six and Emil Augsburg (who massacred Jews in the Holocaust), Klaus Barbie (the “Butcher of Lyon”), Otto von Bolschwing (the Holocaust mastermind who worked with Eichmann) and SS Colonel Otto Skorzeny (a personal friend of Hitler’s). The Gehlen Organization supplies the U.S. with its only intelligence on the Soviet Union for the next ten years, serving as a bridge between the abolishment of the OSS and the creation of the CIA. However, much of the “intelligence” the former Nazis provide is bogus. Gehlen inflates Soviet military capabilities at a time when Russia is still rebuilding its devastated society, in order to inflate his own importance to the Americans (who might otherwise punish him). In 1948, Gehlen almost convinces the Americans that war is imminent, and the West should make a preemptive strike. In the 50s he produces a fictitious “missile gap.” To make matters worse, the Russians have thoroughly penetrated the Gehlen Organization with double agents, undermining the very American security that Gehlen was supposed to protect.
1947
Greece — President Truman requests military aid to Greece to support right-wing forces fighting communist rebels. For the rest of the Cold War, Washington and the CIA will back notorious Greek leaders with deplorable human rights records.
CIA created — President Truman signs the National Security Act of 1947, creating the Central Intelligence Agency and National Security Council. The CIA is accountable to the president through the NSC — there is no democratic or congressional oversight. Its charter allows the CIA to “perform such other functions and duties… as the National Security Council may from time to time direct.” This loophole opens the door to covert action and dirty tricks.
1948
Covert-action wing created — The CIA recreates a covert action wing, innocuously called the Office of Policy Coordination, led by Wall Street lawyer Frank Wisner. According to its secret charter, its responsibilities include “propaganda, economic warfare, preventive direct action, including sabotage, antisabotage, demolition and evacuation procedures; subversion against hostile states, including assistance to underground resistance groups, and support of indigenous anti-communist elements in threatened countries of the free world.”
Italy — The CIA corrupts democratic elections in Italy, where Italian communists threaten to win the elections. The CIA buys votes, broadcasts propaganda, threatens and beats up opposition leaders, and infiltrates and disrupts their organizations. It works — the communists are defeated.
1949
Radio Free Europe — The CIA creates its first major propaganda outlet, Radio Free Europe. Over the next several decades, its broadcasts are so blatantly false that for a time it is considered illegal to publish transcripts of them in the U.S.
Late 40s
Operation MOCKINGBIRD — The CIA begins recruiting American news organizations and journalists to become spies and disseminators of propaganda. The effort is headed by Frank Wisner, Allan Dulles, Richard Helms and Philip Graham. Graham is publisher of The Washington Post, which becomes a major CIA player. Eventually, the CIA’s media assets will include ABC, NBC, CBS, Time, Newsweek, Associated Press, United Press International, Reuters, Hearst Newspapers, Scripps-Howard, Copley News Service and more. By the CIA’s own admission, at least 25 organizations and 400 journalists will become CIA assets.
1953
Iran – CIA overthrows the democratically elected Mohammed Mossadegh in a military coup, after he threatened to nationalize British oil. The CIA replaces him with a dictator, the Shah of Iran, whose secret police, SAVAK, is as brutal as the Gestapo.
Operation MK-ULTRA — Inspired by North Korea’s brainwashing program, the CIA begins experiments on mind control. The most notorious part of this project involves giving LSD and other drugs to American subjects without their knowledge or against their will, causing several to commit suicide. However, the operation involves far more than this. Funded in part by the Rockefeller and Ford foundations, research includes propaganda, brainwashing, public relations, advertising, hypnosis, and other forms of suggestion.
1954
Guatemala — CIA overthrows the democratically elected Jacob Arbenz in a military coup. Arbenz has threatened to nationalize the Rockefeller-owned United Fruit Company, in which CIA Director Allen Dulles also owns stock. Arbenz is replaced with a series of right-wing dictators whose bloodthirsty policies will kill over 100,000 Guatemalans in the next 40 years.
1954-1958
North Vietnam — CIA officer Edward Lansdale spends four years trying to overthrow the communist government of North Vietnam, using all the usual dirty tricks. The CIA also attempts to legitimize a tyrannical puppet regime in South Vietnam, headed by Ngo Dinh Diem. These efforts fail to win the hearts and minds of the South Vietnamese because the Diem government is opposed to true democracy, land reform and poverty reduction measures. The CIA’s continuing failure results in escalating American intervention, culminating in the Vietnam War.
1956
Hungary — Radio Free Europe incites Hungary to revolt by broadcasting Khruschev’s Secret Speech, in which he denounced Stalin. It also hints that American aid will help the Hungarians fight. This aid fails to materialize as Hungarians launch a doomed armed revolt, which only invites a major Soviet invasion. The conflict kills 7,000 Soviets and 30,000 Hungarians.
1957-1973
Laos — The CIA carries out approximately one coup per year trying to nullify Laos’ democratic elections. The problem is the Pathet Lao, a leftist group with enough popular support to be a member of any coalition government. In the late 50s, the CIA even creates an “Armee Clandestine” of Asian mercenaries to attack the Pathet Lao. After the CIA’s army suffers numerous defeats, the U.S. starts bombing, dropping more bombs on Laos than all the U.S. bombs dropped in World War II. A quarter of all Laotians will eventually become refugees, many living in caves.
1959
Haiti — The U.S. military helps “Papa Doc” Duvalier become dictator of Haiti. He creates his own private police force, the “Tonton Macoutes,” who terrorize the population with machetes.
They will kill over 100,000 during the Duvalier family reign. The U.S. does not protest their dismal human rights record.
1961
The Bay of Pigs — The CIA sends 1,500 Cuban exiles to invade Castro’s Cuba. But “Operation Mongoose” fails, due to poor planning, security and backing. The planners had imagined that the invasion will spark a popular uprising against Castro -– which never happens. A promised American air strike also never occurs. This is the CIA’s first public setback, causing President Kennedy to fire CIA Director Allen Dulles.
Dominican Republic — The CIA assassinates Rafael Trujillo, a murderous dictator Washington has supported since 1930. Trujillo’s business interests have grown so large (about 60 percent of the economy) that they have begun competing with American business interests.
Ecuador — The CIA-backed military forces the democratically elected President Jose Velasco to resign. Vice President Carlos Arosemana replaces him; the CIA fills the now vacant vice presidency with its own man.
Congo (Zaire) — The CIA assassinates the democratically elected Patrice Lumumba. However, public support for Lumumba’s politics runs so high that the CIA cannot clearly install his opponents in power. Four years of political turmoil follow.
1963
Dominican Republic — The CIA overthrows the democratically elected Juan Bosch in a military coup. The CIA installs a repressive, right-wing junta.
Ecuador — A CIA-backed military coup overthrows President Arosemana, whose independent (not socialist) policies have become unacceptable to Washington. A military junta assumes command, cancels the 1964 elections, and begins abusing human rights.
1964
Brazil — A CIA-backed military coup overthrows the democratically elected government of Joao Goulart. The junta that replaces it will, in the next two decades, become one of the most bloodthirsty in history. General Castelo Branco will create Latin America’s first death squads, or bands of secret police who hunt down “communists” for torture, interrogation and murder. Often these “communists” are no more than Branco’s political opponents. Later it is revealed that the CIA trains the death squads.
1965
Indonesia — The CIA overthrows the democratically elected Sukarno with a military coup. The CIA has been trying to eliminate Sukarno since 1957, using everything from attempted assassination to sexual intrigue, for nothing more than his declaring neutrality in the Cold War. His successor, General Suharto, will massacre between 500,000 to 1 million civilians accused of being “communist.” The CIA supplies the names of countless suspects.
Dominican Republic — A popular rebellion breaks out, promising to reinstall Juan Bosch as the country’s elected leader. The revolution is crushed when U.S. Marines land to uphold the military regime by force. The CIA directs everything behind the scenes.
Greece — With the CIA’s backing, the king removes George Papandreous as prime minister. Papandreous has failed to vigorously support U.S. interests in Greece.
Congo (Zaire) — A CIA-backed military coup installs Mobutu Sese Seko as dictator. The hated and repressive Mobutu exploits his desperately poor country for billions.
1966
The Ramparts Affair — The radical magazine Ramparts begins a series of unprecedented anti-CIA articles. Among their scoops: the CIA has paid the University of Michigan $25 million dollars to hire “professors” to train South Vietnamese students in covert police methods. MIT and other universities have received similar payments. Ramparts also reveals that the National Students’ Association is a CIA front. Students are sometimes recruited through blackmail and bribery, including draft deferments.
1967
Greece — A CIA-backed military coup overthrows the government two days before the elections. The favorite to win was George Papandreous, the liberal candidate. During the next six years, the “reign of the colonels” — backed by the CIA — will usher in the widespread use of torture and murder against political opponents. When a Greek ambassador objects to President Johnson about U.S. plans for Cyprus, Johnson tells him: “Fuck your parliament and your constitution.”
Operation PHEONIX — The CIA helps South Vietnamese agents identify and then murder alleged Viet Cong leaders operating in South Vietnamese villages. According to a 1971 congressional report, this operation killed about 20,000 “Viet Cong.”
1968
Operation CHAOS — The CIA has been illegally spying on American citizens since 1959, but with Operation CHAOS, President Johnson dramatically boosts the effort. CIA agents go undercover as student radicals to spy on and disrupt campus organizations protesting the Vietnam War. They are searching for Russian instigators, which they never find. CHAOS will eventually spy on 7,000 individuals and 1,000 organizations.
Bolivia — A CIA-organized military operation captures legendary guerilla Che Guevara. The CIA wants to keep him alive for interrogation, but the Bolivian government executes him to prevent worldwide calls for clemency.
1969
Uruguay — The notorious CIA torturer Dan Mitrione arrives in Uruguay, a country torn with political strife. Whereas right-wing forces previously used torture only as a last resort, Mitrione convinces them to use it as a routine, widespread practice. “The precise pain, in the precise place, in the precise amount, for the desired effect,” is his motto. The torture techniques he teaches to the death squads rival the Nazis’. He eventually becomes so feared that revolutionaries will kidnap and murder him a year later.
1970
Cambodia — The CIA overthrows Prince Sahounek, who is highly popular among Cambodians for keeping them out of the Vietnam War. He is replaced by CIA puppet Lon Nol, who immediately throws Cambodian troops into battle. This unpopular move strengthens once minor opposition parties like the Khmer Rouge, which achieves power in 1975 and massacres millions of its own people.
1971
Bolivia — After half a decade of CIA-inspired political turmoil, a CIA-backed military coup overthrows the leftist President Juan Torres. In the next two years, dictator Hugo Banzer will have over 2,000 political opponents arrested without trial, then tortured, raped and executed.
Haiti — “Papa Doc” Duvalier dies, leaving his 19-year old son “Baby Doc” Duvalier the dictator of Haiti. His son continues his bloody reign with full knowledge of the CIA.
1972
The Case-Zablocki Act — Congress passes an act requiring congressional review of executive agreements. In theory, this should make CIA operations more accountable. In fact, it is only marginally effective.
Cambodia — Congress votes to cut off CIA funds for its secret war in Cambodia.
Wagergate Break-in — President Nixon sends in a team of burglars to wiretap Democratic offices at Watergate. The team members have extensive CIA histories, including James McCord, E. Howard Hunt and five of the Cuban burglars. They work for the Committee to Reelect the President (CREEP), which does dirty work like disrupting Democratic campaigns and laundering Nixon’s illegal campaign contributions. CREEP’s activities are funded and organized by another CIA front, the Mullen Company.
1973
Chile — The CIA overthrows and assassinates Salvador Allende, Latin America’s first democratically elected socialist leader. The problems begin when Allende nationalizes American-owned firms in Chile. ITT offers the CIA $1 million for a coup (reportedly refused). The CIA replaces Allende with General Augusto Pinochet, who will torture and murder thousands of his own countrymen in a crackdown on labor leaders and the political left.
CIA begins internal investigations — William Colby, the Deputy Director for Operations, orders all CIA personnel to report any and all illegal activities they know about. This information is later reported to Congress.
Watergate Scandal — The CIA’s main collaborating newspaper in America, The Washington Post, reports Nixon’s crimes long before any other newspaper takes up the subject. The two reporters, Woodward and Bernstein, make almost no mention of the CIA’s many fingerprints all over the scandal. It is later revealed that Woodward was a Naval intelligence briefer to the White House, and knows many important intelligence figures, including General Alexander Haig. His main source, “Deep Throat,” is probably one of those.
CIA Director Helms Fired — President Nixon fires CIA Director Richard Helms for failing to help cover up the Watergate scandal. Helms and Nixon have always disliked each other. The new CIA director is William Colby, who is relatively more open to CIA reform.
1974
CHAOS exposed — Pulitzer prize winning journalist Seymour Hersh publishes a story about Operation CHAOS, the domestic surveillance and infiltration of anti-war and civil rights groups in the U.S. The story sparks national outrage.
Angleton fired — Congress holds hearings on the illegal domestic spying efforts of James Jesus Angleton, the CIA’s chief of counterintelligence. His efforts included mail-opening campaigns and secret surveillance of war protesters. The hearings result in his dismissal from the CIA.
House clears CIA in Watergate — The House of Representatives clears the CIA of any complicity in Nixon’s Watergate break-in.
The Hughes Ryan Act — Congress passes an amendment requiring the president to report nonintelligence CIA operations to the relevant congressional committees in a timely fashion.
1975
Australia — The CIA helps topple the democratically elected, left-leaning government of Prime Minister Edward Whitlam. The CIA does this by giving an ultimatum to its Governor-General, John Kerr. Kerr, a longtime CIA collaborator, exercises his constitutional right to dissolve the Whitlam government. The Governor-General is a largely ceremonial position appointed by the Queen; the Prime Minister is democratically elected. The use of this archaic and never-used law stuns the nation.
Angola — Eager to demonstrate American military resolve after its defeat in Vietnam, Henry Kissinger launches a CIA-backed war in Angola. Contrary to Kissinger’s assertions, Angola is a country of little strategic importance and not seriously threatened by communism. The CIA backs the brutal leader of UNITAS, Jonas Savimbi. This polarizes Angolan politics and drives his opponents into the arms of Cuba and the Soviet Union for survival. Congress will cut off funds in 1976, but the CIA is able to run the war off the books until 1984, when funding is legalized again. This entirely pointless war kills over 300,000 Angolans.
“The CIA and the Cult of Intelligence” — Victor Marchetti and John Marks publish this whistle-blowing history of CIA crimes and abuses. Marchetti has spent 14 years in the CIA, eventually becoming an executive assistant to the Deputy Director of Intelligence. Marks has spent five years as an intelligence official in the State Department.
“Inside the Company” — Philip Agee publishes a diary of his life inside the CIA. Agee has worked in covert operations in Latin America during the 60s, and details the crimes in which he took part.
Congress investigates CIA wrong-doing — Public outrage compels Congress to hold hearings on CIA crimes. Senator Frank Church heads the Senate investigation (“The Church Committee”), and Representative Otis Pike heads the House investigation. (Despite a 98 percent incumbency reelection rate, both Church and Pike are defeated in the next elections.) The investigations lead to a number of reforms intended to increase the CIA’s accountability to Congress, including the creation of a standing Senate committee on intelligence. However, the reforms prove ineffective, as the Iran/Contra scandal will show. It turns out the CIA can control, deal with or sidestep Congress with ease.
The Rockefeller Commission — In an attempt to reduce the damage done by the Church Committee, President Ford creates the “Rockefeller Commission” to whitewash CIA history and propose toothless reforms. The commission’s namesake, Vice President Nelson Rockefeller, is himself a major CIA figure. Five of the commission’s eight members are also members of the Council on Foreign Relations, a CIA-dominated organization.
1979
Iran — The CIA fails to predict the fall of the Shah of Iran, a longtime CIA puppet, and the rise of Muslim fundamentalists who are furious at the CIA’s backing of SAVAK, the Shah’s bloodthirsty secret police. In revenge, the Muslims take 52 Americans hostage in the U.S. embassy in Tehran.
Afghanistan — The Soviets invade Afghanistan. The CIA immediately begins supplying arms to any faction willing to fight the occupying Soviets. Such indiscriminate arming means that when the Soviets leave Afghanistan, civil war will erupt. Also, fanatical Muslim extremists now possess state-of-the-art weaponry. One of these is Sheik Abdel Rahman, who will become involved in the World Trade Center bombing in New York.
El Salvador — An idealistic group of young military officers, repulsed by the massacre of the poor, overthrows the right-wing government. However, the U.S. compels the inexperienced officers to include many of the old guard in key positions in their new government. Soon, things are back to “normal” — the military government is repressing and killing poor civilian protesters. Many of the young military and civilian reformers, finding themselves powerless, resign in disgust.
Nicaragua — Anastasios Samoza II, the CIA-backed dictator, falls. The Marxist Sandinistas take over government, and they are initially popular because of their commitment to land and anti-poverty reform. Samoza had a murderous and hated personal army called the National Guard. Remnants of the Guard will become the Contras, who fight a CIA-backed guerilla war against the Sandinista government throughout the 1980s.
1980
El Salvador — The Archbishop of San Salvador, Oscar Romero, pleads with President Carter “Christian to Christian” to stop aiding the military government slaughtering his people. Carter refuses. Shortly afterwards, right-wing leader Roberto D’Aubuisson has Romero shot through the heart while saying Mass. The country soon dissolves into civil war, with the peasants in the hills fighting against the military government. The CIA and U.S. Armed Forces supply the government with overwhelming military and intelligence superiority. CIA-trained death squads roam the countryside, committing atrocities like that of El Mazote in 1982, where they massacre between 700 and 1000 men, women and children. By 1992, some 63,000 Salvadorans will be killed.
1981
Iran/Contra Begins — The CIA begins selling arms to Iran at high prices, using the profits to arm the Contras fighting the Sandinista government in Nicaragua. President Reagan vows that the Sandinistas will be “pressured” until “they say ‘uncle.’” The CIA’s Freedom Fighter’s Manual disbursed to the Contras includes instruction on economic sabotage, propaganda, extortion, bribery, blackmail, interrogation, torture, murder and political assassination.
1983
Honduras — The CIA gives Honduran military officers the Human Resource Exploitation Training Manual – 1983, which teaches how to torture people. Honduras’ notorious “Battalion 316” then uses these techniques, with the CIA’s full knowledge, on thousands of leftist dissidents. At least 184 are murdered.
1984
The Boland Amendment — The last of a series of Boland Amendments is passed. These amendments have reduced CIA aid to the Contras; the last one cuts it off completely. However, CIA Director William Casey is already prepared to “hand off” the operation to Colonel Oliver North, who illegally continues supplying the Contras through the CIA’s informal, secret, and self-financing network. This includes “humanitarian aid” donated by Adolph Coors and William Simon, and military aid funded by Iranian arms sales.
1986
Eugene Hasenfus — Nicaragua shoots down a C-123 transport plane carrying military supplies to the Contras. The lone survivor, Eugene Hasenfus, turns out to be a CIA employee, as are the two dead pilots. The airplane belongs to Southern Air Transport, a CIA front. The incident makes a mockery of President Reagan’s claims that the CIA is not illegally arming the Contras.
Iran/Contra Scandal — Although the details have long been known, the Iran/Contra scandal finally captures the media’s attention in 1986. Congress holds hearings, and several key figures (like Oliver North) lie under oath to protect the intelligence community. CIA Director William Casey dies of brain cancer before Congress can question him. All reforms enacted by Congress after the scandal are purely cosmetic.
Haiti — Rising popular revolt in Haiti means that “Baby Doc” Duvalier will remain “President for Life” only if he has a short one. The U.S., which hates instability in a puppet country, flies the despotic Duvalier to the South of France for a comfortable retirement. The CIA then rigs the upcoming elections in favor of another right-wing military strongman. However, violence keeps the country in political turmoil for another four years. The CIA tries to strengthen the military by creating the National Intelligence Service (SIN), which suppresses popular revolt through torture and assassination.
1989
Panama — The U.S. invades Panama to overthrow a dictator of its own making, General Manuel Noriega. Noriega has been on the CIA’s payroll since 1966, and has been transporting drugs with the CIA’s knowledge since 1972. By the late 80s, Noriega’s growing independence and intransigence have angered Washington… so out he goes.
1990
Haiti — Competing against 10 comparatively wealthy candidates, leftist priest Jean-Bertrand Aristide captures 68 percent of the vote. After only eight months in power, however, the CIA-backed military deposes him. More military dictators brutalize the country, as thousands of Haitian refugees escape the turmoil in barely seaworthy boats. As popular opinion calls for Aristide’s return, the CIA begins a disinformation campaign painting the courageous priest as mentally unstable.
1991
The Gulf War — The U.S. liberates Kuwait from Iraq. But Iraq’s dictator, Saddam Hussein, is another creature of the CIA. With U.S. encouragement, Hussein invaded Iran in 1980. During this costly eight-year war, the CIA built up Hussein’s forces with sophisticated arms, intelligence, training and financial backing. This cemented Hussein’s power at home, allowing him to crush the many internal rebellions that erupted from time to time, sometimes with poison gas. It also gave him all the military might he needed to conduct further adventurism — in Kuwait, for example.
The Fall of the Soviet Union — The CIA fails to predict this most important event of the Cold War. This suggests that it has been so busy undermining governments that it hasn’t been doing its primary job: gathering and analyzing information. The fall of the Soviet Union also robs the CIA of its reason for existence: fighting communism. This leads some to accuse the CIA of intentionally failing to predict the downfall of the Soviet Union. Curiously, the intelligence community’s budget is not significantly reduced after the demise of communism.
1992
Economic Espionage — In the years following the end of the Cold War, the CIA is increasingly used for economic espionage. This involves stealing the technological secrets of competing foreign companies and giving them to American ones. Given the CIA’s clear preference for dirty tricks over mere information gathering, the possibility of serious criminal behavior is very great indeed.
1993
Haiti — The chaos in Haiti grows so bad that President Clinton has no choice but to remove the Haitian military dictator, Raoul Cedras, on threat of U.S. invasion. The U.S. occupiers do not arrest Haiti’s military leaders for crimes against humanity, but instead ensure their safety and rich retirements. Aristide is returned to power only after being forced to accept an agenda favorable to the country’s ruling class.
EPILOGUE
In a speech before the CIA celebrating its 50th anniversary, President Clinton said: “By necessity, the American people will never know the full story of your courage.”
Clinton’s is a common defense of the CIA: namely, the American people should stop criticizing the CIA because they don’t know what it really does. This, of course, is the heart of the problem in the first place. An agency that is above criticism is also above moral behavior and reform. Its secrecy and lack of accountability allows its corruption to grow unchecked.
Furthermore, Clinton’s statement is simply untrue. The history of the agency is growing painfully clear, especially with the declassification of historical CIA documents. We may not know the details of specific operations, but we do know, quite well, the general behavior of the CIA. These facts began emerging nearly two decades ago at an ever-quickening pace. Today we have a remarkably accurate and consistent picture, repeated in country after country, and verified from countless different directions.
The CIA’s response to this growing knowledge and criticism follows a typical historical pattern. (Indeed, there are remarkable parallels to the Medieval Church’s fight against the Scientific Revolution.) The first journalists and writers to reveal the CIA’s criminal behavior were harassed and censored if they were American writers, and tortured and murdered if they were foreigners. (See Philip Agee’s On the Run for an example of early harassment.) However, over the last two decades the tide of evidence has become overwhelming, and the CIA has found that it does not have enough fingers to plug every hole in the dike. This is especially true in the age of the Internet, where information flows freely among millions of people. Since censorship is impossible, the Agency must now defend itself with apologetics. Clinton’s “Americans will never know” defense is a prime example.
Another common apologetic is that “the world is filled with unsavory characters, and we must deal with them if we are to protect American interests at all.” There are two things wrong with this. First, it ignores the fact that the CIA has regularly spurned alliances with defenders of democracy, free speech and human rights, preferring the company of military dictators and tyrants. The CIA had moral options available to them, but did not take them.
Second, this argument begs several questions. The first is: “Which American interests?” The CIA has courted right-wing dictators because they allow wealthy Americans to exploit the country’s cheap labor and resources. But poor and middle-class Americans pay the price whenever they fight the wars that stem from CIA actions, from Vietnam to the Gulf War to Panama. The second begged question is: “Why should American interests come at the expense of other peoples’ human rights?”
The CIA should be abolished, its leadership dismissed and its relevant members tried for crimes against humanity. Our intelligence community should be rebuilt from the ground up, with the goal of collecting and analyzing information. As for covert action, there are two moral options. The first one is to eliminate covert action completely. But this gives jitters to people worried about the Adolf Hitlers of the world. So a second option is that we can place covert action under extensive and true democratic oversight. For example, a bipartisan Congressional Committee of 40 members could review and veto all aspects of CIA operations upon a majority or super-majority vote. Which of these two options is best may be the subject of debate, but one thing is clear: like dictatorship, like monarchy, unaccountable covert operations should die like the dinosaurs they are.
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My notes to Seth Klarman's 'Margin of Safety."

I was just alerted that my post from 7 years ago had a broken link.
https://rbcpa.com//wp-content/uploads/2016/12/Notes_To_Margin_of_Safety.pdf
I posted my entire notes, quite long, and I think the link would provide an easier view.
Notes To The Book “Margin Of Safety”
Author: Seth Klarman
1991
Prepared by: Ronald R. Redfield, CPA, PFS
According to www.wikipedia.com "Margin of Safety – Risk-Averse Value Investing Strategies for the Thoughtful Investor" is a name of a book written by Seth A. Klarman, a successful value investor and President of the Baupost Group, an investment firm in Boston. This book is no longer published and sometimes can be found on eBay for more than $1000 (some consider it a collectible item). These notes are hardly all encompassing. These are notes I would find helpful for me, as a money manager. I do not mention Klarman’s important premise of looking at investments as “fractional ownerships.” I don’t mention things like that in these notes, as I am already tuned into those concepts, and do not need a reminder. Hence a reader of these notes, should read the book on their own, and get their own information from it. I found this book at several libraries. One awsome library I went to was the New York Public Library for Science, Business and Industry. http://www.nypl.org/research/sibl/index.html
Throughout this paper you will see items in “quote marks.” The quotes exclusively represent direct quotes of Seth Klarman, from the book. As I read this book, and through completion, I felt fortunate that I have been following most of his philosophies for many years. I am not comparing myself to Klarman, not at all. How could I ever compare myself to the greats of Klarman, Buffett, Whitman etal?
What I did experience via this reading was a confirmation of my style and discipline. This book really put together and confirmed to me, so many of the philosophies and methods which I have been using for many years. These notes are a means for me to look back, and feel my roots every so often. At times in these notes, I have added sections which I have found appropriate in my workings.
Introduction
“This book alone will not turn anyone into a successful value investor.
Value investing requires a great deal of hard work, unusually strict discipline
and a long-term investment horizon.”
“This book is a blueprint that, if carefully followed, offers a good possibility
of investment successes with limited risk.”
Understand why things work. Memorizing formulas give the appearance of
competence. Klarman describes the book as one about “thinking about
investing.”
I interpret much of the introduction of the book, as to not actively buy and
sell investments, but to demonstrate an “ability to make long-term
investment decisions based on business fundamentals.” As I completed the
book, I realize that Klarman does not embrace the long term approach in the
same fashion I do. Yet, the key is to always determine if value still exists.
Value is factored in with tax costs and other costs.
Fight the crowd. I think what Klarman is saying is that it is warm and fuzzy
in the middle of crowds. You do not need to be warm and fuzzy with
investing.
Stay unemotional in business and investing!
Study the behavior of investors and speculators. Their actions “often
inadvertently result in the creation of opportunities for value investors.”
“The most beneficial time to be a value investor is when the market is
falling.” “Value investors invest with a margin of safety that protects from
large losses in declining markets.” I have only begun the book, but am
curious as to how any value investor could have stayed out of the way of
1973 –1974 bear market. Some would argue that Buffett exited the business
during this period. Yet, it is my understanding, and I could be wrong, that
Berkshire shares took a big drop in that period. Also, Buffett referred his
investors who were leaving the partnership to Sequoia Fund. Sequoia Fund
is a long term value investment mutual fund. They also had a horrendous
time during the 1973 –1974 massacre.
“Mark Twain said that there are two times in a man’s life when he should
not speculate: when he can’t afford it and when he can.”
“Investors in a stock expect to profit in at least one of three possible ways:
a. From free cash flow generated by the underlying business, which
will eventually be reflected in a higher share price or distributed as
dividends.
b. From an increase in the multiple that investors are willing to pay
for the underlying business as reflected in a higher share price.
c. Or by narrowing of the gap between share price and underlying
business value.”
“Speculators are obsessed with predicting – guessing the direction of
prices.”
“Value investors pay attention to financial reality in making their investment
decisions.”
He discusses what could happen if investors lost favor with liquid treasuries,
and if indeed they became illiquid. All investors could run for the door at
once.
“Investing is serious business, not entertainment.”
Understand the difference between an investment and a collectible. An
investment is one, which will eventually be able to produce cash flow.
“Successful investors tend to be unemotional, allowing the greed of others to
play into their hands. By having confidence in their own analysis and
judgment, they respond to market forces not with blind emotion but with
calculated reason.”
He discusses Mr. Market. He mentions when a price of a stock declines
with no apparent reason, most investors become concerned. They worry that
there is information out there, which they are not privy to. Heck, I am going
through this now with a position that is thinly traded, and sometimes I think
I am the only purchaser out there. He describes how the investor begins to
second-guess him or herself. He mentions it is easy to panic and just sell.
He goes onto to write, “Yet, if the security were truly a bargain when it was
purchased, the rationale course of action would be to take advantage of this
even better bargain and buy more.”
Don’t confuse the company’s performance in the stock market with the real
performance of the underlying business.
“Think for yourself and don’t let the market direct you.”
“Security prices sometimes fluctuate, not based on any apparent changes in
reality, but on changes in investor perception.” This could be helpful in my
research of the 1973 – 1974 period. As I study that era, it looks as though
price earnings ratios contracted for no real apparent reason. Many think that
the price of oil and interest rates sky rocketed, but according to my research,
that was not until later in the decade.
He discusses the good and bad of Wall Street. He identifies how Wall Street
is slanted towards the bullish side. The reason being that bullishness
generates fees via offerings, 401k’s, floating of debt, etc. etc. One of the
sections is titled, “Financial Market Innovations Are Good for Wall Street
But Bad for Clients.” As I read this, I was wondering if the “pay option
mortgages,” which are being offered by many lenders, are one of these
products. These negative amortization and adjustable mortgages have been
around for 25 years. Yet, they have not proliferated the marketplace in the
past as much as they have the last several years. Lenders such as
Countrywide, GoldenWest Financial and First Federal Financial have been
using these riskier mortgages as a typical type of loan in 2005 and 2006.
“Investors must recognize that the early success of an innovation is not a
reliable indicator of its ultimate merit.” “Although the benefits are apparent
from the start, it takes longer for the problems to surface.” “What appears
to be new and improved today may prove to be flawed or even fallacious
tomorrow.”
“The eventual market saturation of Wall Street fads coincides with a cooling
of investor enthusiasm. When a particular sector is in vogue, success is a
self-fulfilling prophecy. As buyers bid up prices, they help to justify their
original enthusiasm. When prices peak and start to decline, however, the
downward movement can also become self-fulfilling. Not only do buyers
stop buying, they actually become sellers, aggravating the oversupply
problem that marks the peak of every fad.”
He later writes about investment fads. “All market fads come to an end.”
He clarifies, “It is only fair to note that it is not easy to distinguish an
investment fad from a real business trend.”
"You probably would not choose to dine at a restaurant whose chef always
ate elsewhere. You should be no more satisfied with a money manager who
does not eat his or her own cooking." Just to reiterate, I do eat my own
cooking, and I don’t “dine out” when it comes to investing.
“An investor’s time is required both to monitor the current holdings and to
investigate potential new investments. Since most money managers are
always looking for additional assets to manage, however, they spend
considerable time meeting with prospective clients in addition to
handholding current clientele. It is ironic that all clients, Present and
potential, would probably be financially better off if none of them spent time
with money managers, but a free-rider problem exists in that each client
feels justified in requesting periodic meetings. No single meeting places an
intolerable burden on a money manager’s time; cumulatively, however, the
hours diverted to marketing can take a toll on investment results.”
“The largest thrift owners of junk bonds – Columbia Savings and Loan,
CenTrust Savings, Imperial Savings and Loan, Lincoln Savings and Loan
and Far West Financial, were either insolvent of on the brink of insolvency
by the end of 1990. Most of these institutions had grown rapidly through
brokered deposits for the sole purpose of investing the proceeds in junk
bonds and other risky assets.”
I personally suspect that the same will be said of the aggressive mortgage
lenders of 2005 – 2006. I have looked back at my files of 1st quarter 1980
Value Line for a few of these companies mentioned above. Here are some
notes on one of the companies I found.
Far West Financial: Rated C++ for financial strength. In 1979 it was
selling for 5/% of book value. “The yield-cost spread is under pressure.”
“Lending is likely to decline sharply in 1980.” “Far West’s earnings are
likely to sink 30 – 35% in 1980. Reasons: The deteriorating margin between
yield on earning assets and the cost of money, less loan fee income…” Keep
in mind that the stock price rose around 400% from 1974 – 1979. From
1968 – 1972 the P/E ratio was in a range from 11 –17. From 1973 through
1979 the P/E ratio was in a range from 3.3 – 8.1. It would be interesting for
me to look at the 1990 – 1992 Value Lines of the same companies.
A Value Investment Philosophy:
“One of the recurrent themes of this book is that the future is unpredictable.”
“The river may overflow its banks only once or twice in a century, but you
still buy flood insurance.” “Investors must be prepared for any eventuality.”
He describes that an investor looking for a specific return over time, does
not make that goal achievable. “Targeting investment returns leads investors
to focus on potential upside rather on downside risk.” “Rather than targeting
a desired rate of return, even an eminently reasonable one, investors should
target risk.”
Value Investing: The Importance of a Margin of Safety”
“Value investing is the discipline of buying securities at a significant
discount from their current underlying values and holding them until more of
their value is realized. The element of the bargain is the key to the process.”
“The greatest challenge for value investors is maintaining the required
discipline. Being a value investor usually means standing apart from the
crowd, challenging conventional wisdom, and opposing the prevailing
investment winds. It can be a lonely undertaking. A value investor may
experience poor, even horrendous, performance compared with that of other
investors or the market as a whole during prolonged periods of market
overvaluation.”
“Value investors are students of the game; they learn from every pitch, those
at which they swing and those they let pass by. They are not influenced by
the way others are performing; they are motivated only by their own results.
He discusses that value investors have “infinite patience.”
He discusses that value investors will not invest in companies that they don’t
understand. He discusses how value investors typically will not own
technology companies for this reason. Warren Buffett has stated this as the
reason as to why he does not own any technology companies. As a side
note, I do believe that at some point, Berkshire will take a sizable position in
Microsoft ($24.31 5/1/06). Klarman mentions that many also shun
commercial banks and property and casualty companies. The reasons being
that they have unanalyzable assets. Keep in mind that Berkshire Hathaway
(Warren Buffett is the majority shareholder) is basically in the property and
casualty business.
“For a value investor a pitch must not only be in the strike zone, it must be
in his “sweet spot.”” “Above all, investors must always avoid swinging at
bad pitches.”
He goes onto discuss that determining value is not a science. A competent
investor cannot have all the facts, know all the answers or all the questions,
and most investments are dependent on outcomes that cannot be foreseen.
“Value investing can work very well in an inflationary environment.” I
wonder if the inverse is true? Are we in a soon to be deflationary
environment for real estate? I think so. Sure enough he discusses
deflationary environments. He explains how deflation is “a dagger to the
heart of value investing.” He explains that it is hardly fun for any type of
investor. He explains that value investors should worry about declining
business values. Yet, here is what he said value investors should do in this
environment.”
a. “Investors can not predict when business values will rise or fall,
valuation should always be performed conservatively, giving
considerable weight to worst-case liquidation value and other
methods.”
b. Investors fearing deflation could demand a greater discount than
usual. “Probably let more pitches go by.”
c. Deflation should give greater importance to the investment time
frame.
“A margin of safety is achieved when securities are purchased at prices
sufficiently below underlying value to allow for human error, bad luck, or
extreme volatility in a complex, unpredictable and rapidly changing world.”
“The problem with intangible assets, I believe, is that they hold little or no
margin of safety.” He describes how tangible assets might have alternate
uses, hence providing a margin of safety. He does explain how Buffett
recognizes the value of intangibles.
“Investors should pay attention not only to whether but also to why current
holdings are undervalued.” He explains to remember the reason you bought
the investment, and if that no longer holds true, then sell the investment.
He tells the reader to look for catalysts, which might assist in adding value.
He looks for companies with good management and insider ownership
(“personal financial stake in the business.”)
“Diversify your holdings and hedge when it is financially attractive to do
so.”
He explains that adversity and uncertainty create opportunity.
“A market downturn is the true test of an investment philosophy.”
“Value investing is, in effect, predicated on the proposition the efficientmarket (EMT) hypothesis is frequently wrong.” He explains that market
pricing is more efficient with larger capitalization companies.
“Beware of Value Pretenders”
This means, watch out for the misuse of value investing. He explains that
these pretenders came about via the successes of Michael Price, Buffett,
Max Heine and the Sequoia Fund. He labels these people as value
chameleons, and states that they are failing to achieve a margin of safety for
their clients. He claims these investors suffered substantial losses in 1990. I
find this section difficult. For one, the book was published in 1991,
certainly not a long enough time to comment on investments of 1990. Also,
he doesn’t mention the broad based declines of 1973 – 1974
“Value investing is simple to understand but difficult to implement.” “The
hard part is discipline, patience and judgment.” Wait for the fat pitch.
“At the Root of a Value Investment Philosophy”
Value investors look for absolute performance, not relative performance.
They look more long term. They are willing to hold cash reserves when no
bargains are available. Value investors focus on risk as well as returns. He
discusses that the greater the risk, does not necessarily mean the greater the
return. He feels that risk erodes returns because of losses. Price creates
return, not risk.
He defines risk as, “ both the probability and the potential of loss.” An
investor can counteract risk by diversification, hedging (when appropriate)
and invest with a margin of safety.
He eloquently discusses the following, “The trick of successful investors is
to sell when they want to, not when they have to. Investors who may need
to sell should not own marketable securities other than U.S. Treasury Bills.”
Warning, warning , warning. Eye opener next. “The most important
determinant of whether investors will incur opportunity cost is whether or
not part of their portfolios are held in cash.” “Maintaining moderate cash
balances or owning securities that periodically throw off appreciable cash is
likely to reduce the number of foregone opportunities.”
“The primary goal of value investors is to avoid losing money.” He
describes the 3 elements of a value-investment strategy.
a. A bottoms up approach, searching via fundamental analysis.
b. Absolute performance strategy.
c. Pay attention to risk.
“The Art of Business Valuation”
He explains that NPV and IRR are great tools for summarizing data. He
explains they can be misleading unless the flows are contractually
determined, and when all payments are received when due. He talks about
the adage, “garbage in, garbage out.” As a side note, Milford Blonsky, CPA
during the 1970’s through the mid 1990’s, taught me that with frequency.
Klarman believes that investments have a range of values, and not a precise
value.
He discusses 3 tools of business valuation”
a. Net Present Value (NPV) analysis. “NPV is the discounted
value of all future cash flows that the business is expected to generate.
He describes the importance of avoiding market comparables, for
obvious reasons. Use this method when earnings are reasonably
predictable and a discount rate can be chosen. This is often a guessing
game. Things can go wrong, things change. Even management can’t
predict changes. “An irresolvable contradiction exists: to perform
present value analysis, you must predict the future, yet the future is
reliably predictable.” He explains that this should be dealt with using
“conservatism.”
He discusses choosing a discount rate. He states, “A discount rate is, in
effect, the rate of interest that would make man investor indifferent between
present and future dollars.” He mentions that there is no single correct
discount rate and there is no precise way to choose one. He explains that
some investors use a generic round number, like 10%. He claims it is an
easy round number, but not necessarily the best choice. He emphasizes to be
conservative when choosing the discount rate. The less the risk of the
investment, the less the time frame, the less the discount rate should be. He
explains, “Depending on the timing and magnitude of the cash flows, even
modest differences in the discount rate can have a considerable impact on
the present-value calculation.” Of course discount rates are changed by
changing interest rates. He discusses how investing when interest rates are
unusually low, could cause inflated share prices, and that one must be
careful in making long term investments.
Klarman discusses using various DCF and NPV scenarios. He also
emphasizes one should discount earnings or cash flows as opposed to
dividends, since not all companies pay dividends. Of course, one wants to
understand the quality of the earnings and their reoccurring nature.
b. Analyze liquidation value. You need to understand what would
be an orderly liquidation versus fire sale liquidation. Klarman
quotes Graham’s “net net working capital.” Net working capital =
Current Assets – Current Liabilities. Net Net working capital =
Net Working Capital – all long-term liabilities. Keep in mind that
operating losses deplete working capital. Klarman reminds us to
look at off balance sheet liabilities, such as under-funded pension
plans.
c. Estimate the price of the company, or its subsidiaries considered
separately, as it would trade on the stock market. This method is
less reliable than the other 2 and should be used as a yardstick.
Private Market Value (PMV) does give an analyzer some rules of
thumb. When using PMV one needs to understand the garbage in,
garbage out concept, as well as the use of relevant and
conservative assumptions. One has to be wary of certain periods
of excesses when using this method. Look at historic multiples. I
am reminded of some recent research I have been working on in
regards to 1973 – 1974. Utility companies were selling for over
18X earnings, when they typically sold for much lower multiples.
I believe this was the case in 1929 as well. Klarman mentioned
television companies, which historically sold for 10X pre-tax cash
flow, but in the late 80’s were selling for 13 to 15X pre-tax cash
flow. “Investors relying on conservative historical standards of
valuation in determining PMV will benefit from a true margin of
safety, while others’ margin of safety blows with the financial
winds.” He suggests when you use PMV to determine what you
would pay for the business, not what others would pay to own
them. “At most, PMV should be used as one of several inputs in
the valuation process and not the exclusive final arbiter of value.”
I think that Klarman mentions that all tools should be used, and not to give
to great a value to any one tool or procedure of valuation. NPV has the
greatest weight in typical situations. Yet an analyst has to know when to
apply each tool, and when a specific tool might not be relevant. He
mentions that a conglomerate when being valued might have a variety of
methods for the different business components. He suggests, “Err on the
side of conservatism.”
Klarman quotes Soros from “The Alchemy of Finance.” “Fundamental
analysis seeks to establish how underlying values are reflected in stock
prices, whereas the theory of reflexivity shows how stock prices can
influence underlying values. (Pg. 51 1987 ed)”
Klarman mentions that the theory of reflexivity makes the point that a stock
price can significantly influence the value of a business. Klarman states,
“Investors must not lose sight of this possibility.” I am reminded of Enron
when reading this. Their business fell apart because they no longer were
able to use their stock price as currency. Soon covenants were violated
because of falling stock prices. Mix that difficult ingredient with fraud, and
you have a fine recipe for disaster. How many companies today are reliant
on continual liquidity from the equity or bond markets?
He discussed a valuation from 1991 of Esco. He indicated that the “working
capital / Sales ratio” was worthwhile to look at. He included a discount rate
of 12% for first 5 years of valuation, followed by 15%. He mentioned that
these higher rates indicated “uncertainty” in themselves. He stressed that
investors should consider other valuation scenarios and not just NPV. This
was all outlined above, but it was cool to see in a real time approach. He
discussed that PMV was not useful, as there were no comparables. He
indicated that a spin-off approach was helpful, as Esco previously
purchased a competitor (Hazeltine). He mentioned that the Hazeltine
acquisition, although much smaller than Esco, showed Esco to be severely
undervalued. He indicated that liquidation value would not be useful,
because defense companies could not be easily liquidated. He did look at a
gradual liquidation, as ongoing contracts could be run to completion. He did
use Stock market valuation as a guide. He noticed that the company was
selling for a small fraction of tangible assets. He called this a very low level,
considering positive cash flow and a viable company. He couldn’t identify
the exact worth of Esco, but he could identify that it was selling for well
below intrinsic value. He looked at all worst-case scenarios, and still
couldn’t pierce the current market price. He claimed the price was based on
“disaster.” He also noticed insider purchasing in the open market.
Klarman discussed that management could manipulate earnings, and that
one had to be wary of using earnings in valuation. He mentioned that
managements are well aware that investors price companies based on growth
rates. He hinted that one needs to look at quality of earnings, and the need
to interpret cash costs versus non-cash costs. Basically, indicating a
normalization of earnings process. “…It is important to remember that the
numbers are not an end in themselves. Rather they are a means to
understanding what is really happening in a company.”
He discusses that book value is not very useful as a valuation yardstick.
Book Value provides limited information (like earnings) to investors. It
should only be considered as one component of thorough analysis.
“The Challenge of Finding Attractive Investments”
If you see a company selling for what you consider to be a very inexpensive
price, ask yourself, “What is wrong with this company?” This reminds me
of Charles Munger, who advises investors to “invert, always invert.”
Klarman mentions, “A bargain should be inspected and re-inspected for
possible flaws.” He indicates possible flaws might be the existence of
contingent liabilities or maybe the introduction of a superior product by a
competitor. Interestingly enough, in the late 90’s, we noticed that Lucent
products were being replaced by those of the competition. We can’t blame
the entire loss of wealth on Lucent inferiority at the time, as the entire sector
followed Lucent’s wipeout at a later date. There were both industry and
company specific issues that were haunting Lucent at the time.
Klarman advises to look for industry constraints in creating investment
opportunities. He cited that institutions frowned upon arbitrage plays, and
that certain companies within an industry were punished without merit. He
mentions that many institutions cannot hold low-priced securities, and that in
itself can create opportunity. He also cites year-end tax selling, which
creates opportunities for value investors.
“Value investing by its very nature is contrarian.” He explains how value
investors are typically initially wrong, since they go against the crowd, and
the crowd is the one pushing up the stock price. He discusses how the value
investor for a period of time (and sometimes a long time at that) will likely
suffer “paper losses.” He hinted that contrarian positions could work well in
over-valued situations, where the crowd has bid up prices. Profits can be
claimed from short positions.
He claims that no matter how extensive your research, no matter how
diligent and smart you are, the diligence has shortcomings. For one, “some
information is always elusive,” hence you need to live with incomplete
information. Knowing all the facts does not always lead to profit. He cites
the “80/20 rule.” This means that the first 80% of the research is gathered in
the first 20% of the time spent finding that research. He discusses that
business information is not always made available, and it is also
“perishable.” “High uncertainty is frequently accompanied by low prices.
By the time uncertainty is resolved, prices are likely to have risen.” He hints
that you can make decisions quicker, without all of the information, and take
advantage of the time others are looking and delving into the same
information. This extra time can cause the late and thorough investor to lose
their margin of safety.
Klarman discusses to watch what the insiders are doing. “The motivation of
company management can be a very important force in determining the
outcome of an investment.” He concludes the chapter with this quote:
“Investment research is the process of reducing large piles of information to
manageable ones, distilling the investment wheat from the chaff. There is,
needless to say, a lot of chaff and very little wheat. The research process
itself, like the factory of a manufacturing company, produces no profits. The
profits materialize later, often much later, when the undervaluation identified
during the research process is first translated into portfolio decisions and
then eventually recognized by the market.” He goes onto discuss that the
research today, will provide the fruits of tomorrow. He explains that an
investment program will not succeed if “high quality research is not
performed on a continuing basis.”
Klarman discussed investing in complex securities. His theme being, if the
security is hard to understand and time consuming, many of the analysts and
institutions will shy away from it. He identifies this as “fertile ground” for
research.
Spin-offs
The goal of a spin-off, according to Klarman is for the former parent
company to create greater value as a whole by spinning off businesses that
aren’t necessarily in their strategic plans. Klarman finds opportunity
because of the complexity (see above) and the time lag of data flow. I don’t
know in 2006 if this is still the case, but Klarman mentions there is a 2 to 3
month lag of data flow to the computer databases. I have owned several
spin-offs and have ultimately sold them, as they were too small for the pie,
or just not followed by my research. As I think back, I think quite a few of
these spin-offs did fairly well. One example would be Freescale. As I look
at the Freescale chart, it looks like it went from around 18 two years ago, to
around 33 today. Ahh, this topic alone, enabled the book to provide
potential value to my future net worth.
Bankrupt Companies
Look for Net Operating Losses as a potential benefit. He describes the
beauty of investing in bankrupt companies is the complexity of the analysis.
This complexity, as described often in his book, leads to potential
opportunity, as many investors shy away from the complex analysis.
Pending a bankruptcy, costs get leaner and more focused, cash builds up and
compounds with interest. This cash buildup can simplify the process of
reorganization, because all agree on the value of cash.
Michael Price and his 3 stages of Bankruptcy:
a. Immediately after bankruptcy. This is the most uncertain stage,
but also one of the greatest opportunities. Liabilities are not
evident, there is turmoil, financial statements are late or
unavailable and the underlying business may not have stabilized.
The debtor’s securities are also in disarray. This is accompanied
by forced selling at any price.
b. The second stage is the negotiation of a reorganization plan.
Klarman mentions that by this time, many analysts have pored
over the financials and the company. Much more is known about
the debtor, uncertainty is not as acute, but certainly still exists.
Prices will reflect this available information.
c. The third stage is the finalization of the reorganization and the
debtor’s emergence from bankruptcy. He claims this stage takes 3
months to a year. Klarman mentions that this last stage most
closely resembles a risk-arbitrage investment.
“When properly implemented, troubled-company investing may entail less
risk than traditional investing, yet offer significantly higher returns. When
badly done, the results of investing can be disastrous…” He emphasizes that
the market is illiquid and traders take advantage of unsophisticated investors.
“Caution is the order of the day for the ordinary investor.”
Klarman mentions to use the same investment valuation techniques you
would use for a solvent company. He suggests that the analyst look to see if
the companies are intentionally “uglifying” their financial statements. He
cites the example of expensing rather than capitalizing certain expenses.
The analyst needs to look at off-balance sheet arrangements. He cites
examples as real estate and over-funded pension plans.
Klarman discusses the investor should typically shy away from investing in
common stock of bankrupt companies. He mentions there is an occasional
home run, but he states, “as a rule investors should avoid the common stock
of bankrupt entities at virtually any price; the risks are great and the returns
are very uncertain.” He discusses one ploy of buying the bonds and shorting
the stock. He used an example of Bank Of New England (BNE). He
mentioned that BNE bonds were selling at 10 from 70, whereas the stockstill carried a large market capitalization.
He concludes the bankruptcy section by stressing that this type of investing
is sophisticated and highly specialized. The competition in finding these
securities is savvy, experienced and hard-nosed. When this area becomes
popular, be extra careful, as most of the money made is based on the
uneconomic behavior of investors.
Portfolio Management and Trading
“All investors must come to terms with the relentless continuity of the
investment process.”
He mentions the need for liquidity in investments. A portfolio manager can
buy a stock and subsequently find out he or she made an error, or that a
competitor has a stronger product. With that said, the portfolio manager can
typically sell that situation. If the investment was in an annuity or limited
partnership, the liquidity is pierced and the change of strategy cannot be
economically deployed. “When investors do not demand compensation for
bearing illiquidity, they almost always come to regret it.”
He discusses that liquidity is not of great importance in managing a longterm oriented portfolio. Most portfolios should contain a balance of
liquidity, which can quickly be turned into cash. Unexpected liquidity needs
do occur. The longer the duration of illiquidity, should demand a greater
form of compensation for the liquidity sacrifice. The cost of illiquidity
should be very high. “Liquidity can be illusory.” Watch out for situations
that are liquid one day, and illiquid the next. He claims this can happen in
market panics.
“Investing is in some ways an endless process of managing liquidity.”
When a portfolio is in cash only, the risk of loss is non-existent. The same
goes for the lack of gain when fully invested in cash. Klarman mentions,
“The tension between earning a high return, on the one hand, and avoiding
risk, on the other, can run high. This is a difficult task.
“Portfolio management requires paying attention to the portfolio as a whole,
taking into account diversification, possible hedging strategies, and the
management of portfolio cash flow.” He discusses that portfolio
management is a further means of risk reduction for investors.
He suggests that, as few as ten to fifteen different holdings should be suffice
for diversification. He does mention, “My view is that an investor is better
off knowing a lot about a few investments than knowing only a little about
each of a great many holdings.” He mentions that diversification is
“potentially a Trojan horse.” “Diversification, after all, is not how many
different things you own, but how different the things you do own are in the
risks they entail.”
In regards to trading Klarman stated, “The single most crucial factor in
trading is the developing the appropriate reaction to price fluctuations.
Investors must learn to resist fear, the tendency to panic, when prices are
falling, and greed, the tendency to become overly enthusiastic when prices
are rising.
“Leverage is neither necessary nor appropriate for most investors.”
How do you evaluate a money manager?
a. “Personal interviews are absolutely essential.”
b. “Do they eat their own cooking?” He feels this is the most
important question of an advisor. When an advisor does not invest
in his or her own preaching, Klarman refers to it as “eating out.”
You want the advisor to act in a “parallel” fashion to his or her
clients.
c. “Are all clients treated equally?”
d. Examine the investor’s track record during different periods of
varying amounts of assets managed. How has the advisor
performed as his or her assets have grown? If assets are shrinking,
try to examine the reason.
e. Examine the investment philosophy. Does the advisor worry
about absolute returns, about what can go wrong, or is the advisor
worried about relative performance?
f. Does advisor have constraining rules? Examples of this could be
the requirement to always be fully invested.
g. Thoroughly analyze the past investment performance. How long a
track record is there? Was it achieved in one or more market
cycles?
h. How did the clients do in falling markets?
i. Have the returns been steady over time, or have they been
volatile?
j. Was the track record from a steady pace, or just a couple of
successes?
k. Is the manager still using the same philosophy that he or she has
always used?
l. Has the manager produced good long-term results despite having
excess cash and cash equivalents in the portfolio allocation? This
could indicate a low risk approach.
m. Were the investments in the underlying portfolio themselves
particularly risky, such as shares of highly leveraged companies?
Conversely, did the portfolio manager reduce risk via hedging,
diversification and senior securities?
n. Make sure you are personally compatible with the advisor. Make
sure you are comfortable with the investment approach.
o. After you hire the manager, monitor them on an ongoing basis.
The issues that were addressed prior to hiring should be used after
hiring.
He finishes the book with these words. “I recommend that you adopt a
value-investment philosophy and either find an investment professional with
a record of value-investment success or commit the requisite time and
attention to investing on your own.”
Respectfully submitted,
Ronald R. Redfield CPA, PFS
May 3, 2006
submitted by rbco to SecurityAnalysis [link] [comments]

/r/neoliberal elects the American Presidents - Part 34, Hoover v Smith in 1928

Previous editions:
(All strawpoll results counted as of the next post made)
Part 1, Adams v Jefferson in 1796 - Adams wins with 68% of the vote
Part 2, Adams v Jefferson in 1800 - Jefferson wins with 58% of the vote
Part 3, Jefferson v Pinckney in 1804 - Jefferson wins with 57% of the vote
Part 4, Madison v Pinckney (with George Clinton protest) in 1808 - Pinckney wins with 45% of the vote
Part 5, Madison v (DeWitt) Clinton in 1812 - Clinton wins with 80% of the vote
Part 6, Monroe v King in 1816 - Monroe wins with 51% of the vote
Part 7, Monroe and an Era of Meta Feelings in 1820 - Monroe wins with 100% of the vote
Part 8, Democratic-Republican Thunderdome in 1824 - Adams wins with 55% of the vote
Part 9, Adams v Jackson in 1828 - Adams wins with 94% of the vote
Part 10, Jackson v Clay (v Wirt) in 1832 - Clay wins with 53% of the vote
Part 11, Van Buren v The Whigs in 1836 - Whigs win with 87% of the vote, Webster elected
Part 12, Van Buren v Harrison in 1840 - Harrison wins with 90% of the vote
Part 13, Polk v Clay in 1844 - Polk wins with 59% of the vote
Part 14, Taylor v Cass in 1848 - Taylor wins with 44% of the vote (see special rules)
Part 15, Pierce v Scott in 1852 - Scott wins with 78% of the vote
Part 16, Buchanan v Frémont v Fillmore in 1856 - Frémont wins with 95% of the vote
Part 17, Peculiar Thunderdome in 1860 - Lincoln wins with 90% of the vote.
Part 18, Lincoln v McClellan in 1864 - Lincoln wins with 97% of the vote.
Part 19, Grant v Seymour in 1868 - Grant wins with 97% of the vote.
Part 20, Grant v Greeley in 1872 - Grant wins with 96% of the vote.
Part 21, Hayes v Tilden in 1876 - Hayes wins with 87% of the vote.
Part 22, Garfield v Hancock in 1880 - Garfield wins with 67% of the vote.
Part 23, Cleveland v Blaine in 1884 - Cleveland wins with 53% of the vote.
Part 24, Cleveland v Harrison in 1888 - Harrison wins with 64% of the vote.
Part 25, Cleveland v Harrison v Weaver in 1892 - Harrison wins with 57% of the vote
Part 26, McKinley v Bryan in 1896 - McKinley wins with 71% of the vote
Part 27, McKinley v Bryan in 1900 - Bryan wins with 55% of the vote
Part 28, Roosevelt v Parker in 1904 - Roosevelt wins with 71% of the vote
Part 29, Taft v Bryan in 1908 - Taft wins with 64% of the vote
Part 30, Taft v Wilson v Roosevelt in 1912 - Roosevelt wins with 81% of the vote
Part 31, Wilson v Hughes in 1916 - Hughes wins with 62% of the vote
Part 32, Harding v Cox in 1920 - Cox wins with 68% of the vote
Part 33, Coolidge v Davis v La Follette in 1924 - Davis wins with 47% of the vote
Welcome back to the thirty-fourth edition of /neoliberal elects the American presidents!
This will be a fairly consistent weekly thing - every week, a new election, until we run out.
I highly encourage you - at least in terms of the vote you cast - to try to think from the perspective of the year the election was held, without knowing the future or how the next administration would go. I'm not going to be trying to enforce that, but feel free to remind fellow commenters of this distinction.
If you're really feeling hardcore, feel free to even speak in the present tense as if the election is truly upcoming!
Whether third and fourth candidates are considered "major" enough to include in the strawpoll will be largely at my discretion and depend on things like whether they were actually intending to run for President, and whether they wound up actually pulling in a meaningful amount of the popular vote and even electoral votes. I may also invoke special rules in how the results will be interpreted in certain elections to better approximate historical reality.
While I will always give some brief background info to spur the discussion, please don't hesitate to bring your own research and knowledge into the mix! There's no way I'll cover everything!
Herbert Hoover v Alfred Smith
Profiles
  • Herbert Hoover is the 54-year-old Republican candidate and the Secretary of Commerce. His running mate is US Senator from Kansas Charles Curtis.
  • Al Smith is the 55-year-old Democratic candidate and the Governor of New York. His running mate is US Senator from Arkansas Joseph Robinson.
Issues
  • A bit less than 10 years ago, the 18th Amendment was ratified, quickly followed by the Volstead Act which implemented the nationwide prohibition on the production, importation, sale, and transportation of alcoholic beverages that we are all familiar with today. For years, the parties have largely successfully kept Prohibition from becoming a major presidential election issue. Now, that has changed.
    • Herbert Hoover has never been one of Prohibition's most enthusiastic advocates, but he does support it and has gone along with his party's platform which calls for a vigorous enforcement of Prohibition.
    • While he has promised to enforce the laws so long as they exist, Al Smith opposes Prohibition. Specifically, he says he favors "changes" in the current law and even the Constitutional amendment. He states that he believes in temperance, but points out that too much of the public believes the conduct in question to be innocent for it to be adequately prosecuted. Thus, his main reason for opposing prohibition is that "disregard of the prohibition laws is insidiously sapping respect for all law." One immediate reform that Smith supports is "an amendment to the Volstead Law giving a scientific definition of the alcoholic content of an intoxicating beverage."
  • Aside from some brief periods of transitional industrial declines, the economy continues to largely be booming. Republicans are quick to take credit for this prosperity given their control of the executive branch post-Wilson and their control of both houses of Congress for even longer (as a side note, some Democrats have sharply criticized some of the circumstances that have allowed Republicans to maintain their power in Congress.) Hoover has praised income tax reductions and protective tariffs, attributing the current prosperity to policies like these. And his economic ambitions go further - he has proclaimed that "we are nearer today to the ideal of the abolition of poverty" than ever before. That Hoover served for 7 years as Secretary of Commerce gives him a unique opportunity to take credit for the accomplishments of the recent administrations. Republicans praise Hoover as an engineer of governance and a technocrat who can bring a unique efficiency and intelligence to government, and also highlight his humanitarian work.
  • Takeover of the Democratic Party? Smith represents the victory of a different kind of Democrat in securing the nomination. Post-Wilson, tension has been on the rise between the Democratic Party of the rural south, the west, prohibition supporters, and KKK-sympathizers versus the Democratic Party of eastern cities, Tammany Hall, prohibition skeptics, and Catholic & Jewish immigrant communities. In the last election, Davis represented a compromise between the two factions. But this time, the latter faction won outright at the top of the ticket - with the caveat that the vice-presidential nominee to some extent represents the former faction.
    • This elevation of a newer faction of the Democratic Party is a major development - but also comes with risks. Smith is associated with a diverse urban culture that is foreign to vast swaths of the country. As one radio preacher argued, Al Smith is to be associated with "card playing, cocktail drinking, poodle dogs, divorces, novels, stuffy rooms, dancing, evolution, Clarence Darrow, nude art, prize-fighting, actors, greyhound racing, and modernism."
    • Al Smith has had to combat abundant questions and criticisms related to his Catholic faith. Protestant ministers have involved themselves in political commentary surrounding this election at an unprecedented level, spreading unfounded claims to their congregants that Smith will take orders from the Pope. The Ku Klux Klan has engaged in active opposition to Smith, burning crosses outside his rallies and distributing unsupported literature arguing Smith will annul Protestant marriages.
    • Al Smith has also received criticism for his association with Tammany Hall. While the political organization has in many ways attempted to reinvent itself, many Americans still associate it with its history of corruption.
  • On economic policy, the differences between Republicans and Democrats have become particularly nuanced, marginal, and difficult to identify. On tariffs for example, once a major anchor issue distinguishing the parties, the Democrats have become more open to protectionism and moved towards the traditional Republican position. Both parties call for tax reductions broadly. Democrats have distinguished themselves somewhat with a call for public works programs during times of high unemployment, but this is not to say that Republicans are known to oppose such programs.
  • Alice Paul's National Women's Party has endorsed Herbert Hoover because of his selection of a running mate. That running mate, Senator Charles Curtis, introduced the Equal Rights Amendment in Congress. Smith opposes the ERA, but largely because of his support for protective laws. Some women's rights organizations, for example the Women's Joint Congressional Committee, share Smith's stance.
Platforms
Read the full 1928 Republican platform here. Highlights include:
General
  • Strong endorsement of Coolidge Administration
  • Statement that "under Republican inspiration and largely under Republican executive direction the continent has been bound with steel rails, the oceans and great rivers have been joined by canals, waterways have been deepened and widened for ocean commerce, and with all a high American standard of wage and living has been established"
Economy, Trade
  • Statement that the "citizen and taxpayer has a natural right to be protected from unnecessary and wasteful expenditures"
  • Statement that the "Republican Party will continue to reduce our National debt as rapidly as possible"
  • Pledge for "further reduction of the tax burden as the condition of the Treasury may from time to time permit"
  • Reaffirmation of "our belief in the protective tariff as a fundamental and essential principle of the economic life of this nation"
  • Statement that "contrary to the prophesies of its critics, the present tariff law has not hampered the natural growth in the exportation of the products of American agriculture, industry, and mining, nor has it restricted the importation of foreign commodities which this country can utilize without jeopardizing its economic structure"
  • Statement that the "Republican Party believes that in the interest of both native and foreign-born wage-earners, it is necessary to restrict immigration" but that in cases where "the law works undue hardships by depriving the immigrant of the comfort and society of those bound by close family ties, such modification should be adopted as will afford relief"
  • Support for "freedom in wage contracts [and] the right of collective bargaining by free and responsible agents of their own choosing"
Foreign Policy
  • Endorsement of "a multilateral treaty proposed to the principal powers of the world and open to the signatures of all nations, to renounce war as an instrument of national policy"
  • Statement that the "object and the aim of the United States is to further the cause of peace, of strict justice between nations with due regard for the rights of others in all international dealings"
  • Opposition to US membership in the League of Nations or "to assume any obligations under the covenant of the League"
  • Endorsement of cooperating "in the humanitarian and technical work undertaken by the League"
  • Statement that "the Republican Party pledges itself to aid and assist in the perfection of principles of international law and the settlement of international disputes"
Other Issues
  • Pledge for "the observance and vigorous enforcement" of "the Eighteenth Amendment"
  • Statement that the "Republican Party, which from the first has sought to bring this development about, accepts wholeheartedly equality on the part of women, and in the public service it can present a record of appointments of women in the legal, diplomatic, judicial, treasury and other governmental departments"
  • Support for "the creation of a Commission to be appointed by the President including one or more Indian citizens to investigate and report to Congress upon the existing system of the administration of Indian affairs and to report any inconsistencies that may be found to exist between that system and the rights of the Indian citizens of the United States"
  • Renewal of "our recommendation that the Congress enact at the earliest possible date a Federal Anti-Lynching Law so that the full influence of the Federal Government may be wielded to exterminate this hideous crime"
Read the full 1928 Democratic platform here. Highlights include:
General
  • Statement "that government must function not to centralize our wealth but to preserve equal opportunity so that all may share in our priceless resources"
  • Reaffirmation of "our devotion to the principles of Democratic government formulated by Jefferson and enforced by a long and illustrious line of Democratic Presidents"
  • Demand that "the constitutional rights and powers of the states shall be preserved in their full vigor and virtue" and that these rights and powers "constitute a bulwark against centralization and the destructive tendencies of the Republican Party"
  • Demand for "a revival of the spirit of local self-government, without which free institutions cannot be preserved"
Economy, Trade, Immigration
  • Pledge for "business-like reorganization of all the departments of the government" and "substitution of modern business-like methods for existing obsolete and antiquated conditions"
  • Statement that the "Federal Reserve system, created and inaugurated under Democratic auspices, is the greatest legislative contribution to constructive business ever adopted"
  • Support for "a further reduction of the internal taxes of the people"
  • Support for tariffs "that will permit effective competition, insure against monopoly and at the same time produce a fair revenue for the support of government"
  • Statement that the "actual difference between the cost of production at home and abroad, with adequate safeguard for the wage of the American laborer must be the extreme measure of every tariff rate"
  • Support for "a Democratic tariff based on justice to all"
  • Support for "the principle of collective bargaining"
  • Support for "a scientific plan whereby during periods of unemployment appropriations shall be made available for the construction of necessary public works and the lessening, as far as consistent with public interests, of government construction work when labor is generally and satisfactorily employed in private enterprise"
  • Statement that "laws which limit immigration must be preserved in full force and effect, but the provisions contained in these laws that separate husbands from wives and parents from infant children are inhuman and not essential to the purpose or the efficacy of such laws"
Foreign Policy
  • Statement that the "Republican administration has no foreign policy; it has drifted without plan"
  • Statement that the United States "can not afford to play [only] a minor role in world politics"
  • Support for a foreign policy based on principles of "an abhorrence of militarism, conquest and imperialism" as well as "freedom from entangling political alliances" and "full, free and open cooperation with all other nations for the promotion of peace and justice throughout the world"
  • Support for immediate independence for the Philippines
Other Issues
  • Support "for equality of women with men in all political and governmental matters"
  • Support for "an equal wage for equal service; and likewise favor adequate appropriations for the women's and children's bureau"
  • Pledge of "the party and its nominees to an honest effort to enforce the eighteenth amendment and all other provisions of the federal Constitution and all laws enacted pursuant thereto"
  • Pledge "to enlarge the existing Bureau of Public Health and to do all things possible to stamp out communicable and contagious diseases, and to ascertain preventive means and remedies for these diseases, such as cancer, infantile paralysis and others which heretofore have largely defied the skill of physicians"
Audiovisual Material
40-minute Pro-Hoover silent campaign film, 1928 (Video)
Hoover urging voters to the polls, 1928 (Video & Audio)
Hoover speaking at the Republican convention, 1928 (Video & Audio)
Smith accepting the nomination, 1928 (Audio)
For more audio clips, go to this Library of Congress link and search the name of one of the candidates.
Strawpoll
>>>VOTE HERE<<<
submitted by John_Charles_Fremont to neoliberal [link] [comments]

Irving Fisher 1929/10/30 What Was The Cause Of The Stock Market Crash Of 1929? Stock Market Crash of 1929 1929 the great depression  1929 stock market crash  1929=2020 The Great Depression - 5 Minute History Lesson - YouTube

On October 19, stock prices fell sharply. As a result, a wave of margin calls went out after the close. A margin call is when an investor needs to put up more cash or sell stocks to meet margin requirements. Since cash was hard to come by (most investors were fully invested and highly leveraged), most investors had no choice but to sell shares. On September 4, 1929, the stock market hit an all-time high. Banks were heavily invested in stocks, and individual investors borrowed on margin to invest in stocks. On October 29, 1929, the stock market dropped 11.5%, bringing the Dow 39.6% off its high. After the crash, the stock market mounted a slow comeback. Disregarding the volatility of the stock market, they invested their entire life savings. Others bought stocks on credit (margin). When the stock market took a dive on Black Tuesday, October 29, 1929, the country was unprepared. The economic devastation caused by the Stock Market Crash of 1929 was a key factor in the start of the Great Depression. The provision of Margin money lured more and more people to trading securities. By early 1929, people were scrambling to get into the stock market as no one wanted to leave their possible gains on the table. The profits seemed so assured that no one wished to look else where. And yes, eachbrokerage allowed customers to speculate on borrowed money. The 1920’s, leading up to the stock crash, also featured a huge amount of margin trading – when investors borrow money using stock as collateral, and use the loan to buy even more stock. Since stock prices were rising constantly, banks were happy to give the loans and investors, both new and old, were taking them and turning huge profits.

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Irving Fisher 1929/10/30

CATÉGORIE Culture générale et histoire des faits économiques Le krach de 1929 est une crise boursière qui se déroula à la Bourse de New York entre le jeudi... To clarify, Hitler was NOT the founder of the Nazi party, sorry for any confusion! The Great Depression was the worst economic downturn of the industrialized... Following the stock market crash if 1929, us economy fell into a recession that lasted of in october 1929 was not so much cause great depression as it confirmation economic conditions events black ... How Brokers Earn from Margin Trading ? ... 1929 The Great Depression & Stock Market Crash - Complete Guide (हिंदी में) - Duration: 29:41. Asset Yogi 117,602 views. This country is fundamentally sound.…》1929/10/30 and the technical situation in the stock market is not going to prevent the great improvement, forcastive improvement in our wonderful prosperity.

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