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The Trading Log

Honest reporting on shorter-term trading activity and ideas
compscidude
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Re: The Trading Log

#397742

Postby compscidude » March 21st, 2021, 8:12 pm

> Yah, that record book is literally four months old. Astounding stuff.

Hello GoSeigen, thanks for your reply.

However... what are you talking about? You surely can't have read the article.

(If paywalled, put a '.' after the .com in the URL to see the full text, or google the title to find identical coverage from other sources).

It's an all-time record.

In the text it's also clearly noted that even if you adjusted down the figures to reflect the generally larger size of equity holdings nowadays, it's still the highest inflow since 2014.

"Meanwhile, Goldman Sachs estimated that net flows into global equity funds hit a nominal record of $68 billion in the week ended March 17, which when scaled to the level of mutual-fund equity assets was the largest since December 2014."

GoSeigen
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Re: The Trading Log

#397759

Postby GoSeigen » March 21st, 2021, 9:35 pm

compscidude wrote:> Yah, that record book is literally four months old. Astounding stuff.

Hello GoSeigen, thanks for your reply.

However... what are you talking about? You surely can't have read the article.

(If paywalled, put a '.' after the .com in the URL to see the full text, or google the title to find identical coverage from other sources).

It's an all-time record.

In the text it's also clearly noted that even if you adjusted down the figures to reflect the generally larger size of equity holdings nowadays, it's still the highest inflow since 2014.

"Meanwhile, Goldman Sachs estimated that net flows into global equity funds hit a nominal record of $68 billion in the week ended March 17, which when scaled to the level of mutual-fund equity assets was the largest since December 2014."



No I read the article. It had nothing supporting its "record" figure except a four-month chart.

Not only that, but neither you nor the article gave additional context of net $240bn OUTFLOWS from US equities last year, following years of net outflows before that. So IMO if there are strong inflows at the start of this year, then if anything that is profoundly bullish as it signals a switch of investing strategy from a group of investors you evidently view as significant (having just posted about them).

https://www.morningstar.com/articles/1017899/us-fund-flow-records-fell-in-2020

FWIW, many of my favourite pointers are bullish equities, e.g yield curve, consumer credit, etc -- though I favour UK over the US, which is probably a mistake. So I am buying steadily still.


GS

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Re: The Trading Log

#409154

Postby daducky » May 4th, 2021, 7:41 am

StepOne wrote:And just to point out that csd hasn't confirmed if he got back in at 763. That price was available for one day. It's currently well over 9 pounds which would have eaten significantly into the claimed 34% profit from shorting. So unless you are mystic meg there's not much attractive about the strategy being suggested.

StepOne


I seeeee ;-)

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Re: The Trading Log

#418185

Postby compscidude » June 8th, 2021, 4:51 pm

Hello dear friends

Sold out of my BP & Total positions completely in the last hour. Wish I'd sold them last week for a few pennies more!

(UK market price peaked at 326p and 40 euros / £35.45 last week briefly; though in the US the effective price on BP ADRs was 329.5p briefly).

My sell price BP 324p (market mid: 324.05p as I post this)

My sell price TOT 3420p (market mid: 48.50 USD / £34.31 as I post this)

Remaining holdings: uninvested cash + RDSB bought last year, which I currently intend to hold till maybe £14.50-£15.00 depending on how the oil price goes.

An OK profit was made on BP & TOT purchases from last year including dividends but GBPUSD movement has eaten 10% of it, booooo. (Was 1.28 $/£ before, now £1.41 $/£). Might put my money into US treasuries or something and lock in the 10% gain of USD vs GBP.... I don't have much confidence in Boris to keep the plates spinning.

Regrets: should have sold BP, RDSB, TOT a few months back at higher GBP prices, and flipped to BRK, but you live and learn. I have a pishy little 4p dividend as compensation for my stupidity.

Hope you are all enjoying and profiting from the buoyant markets, try not to get sucked into envy of the meme stocks!

comp

p.s. re: a previous post which talked about my "profit from shorting", 100% baffled. I haven't held a short position in the last 15 years, I haven't even had access to a mechanism to place shorts, I've never said I've shorted, and I've never advocated shorting, and indeed I think it's a stupid way to approach investing. But, hey, never let a fact get in the way of a good story. I suppose it's possible for someone to be unable to distinguish between 'selling a stock you invested in' and 'shorting a stock you don't hold'.

compscidude
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Re: The Trading Log

#418192

Postby compscidude » June 8th, 2021, 5:56 pm

A short essay on some rubbish gut-feel valuation methods.

In case anyone is interested in my reasoning for selling BP / Total. This is a bit hand-wavey but hopefully you get the idea.

Method 1. BP:

1. Looking at the graph of the past 5 years, the price was in the range 420 - 590p until covid showed up. Eyeballing it, looks like the time-average was 500p and that's in the middle of the range. So let's take 500p as an average / sort of fair price over that time.

2. GBPUSD rate ranged 1.15 to 1.45 over the last 5 years. Eyeballing it around 1.29.

3. Add/Deduct some arbitary penalty %s from the price, based on gut feelings.

3a. -10% "approximate GBPUSD rate movement"

3b. -10% "oh dear I have far too much in oil these days, don't feel comfortable"

3c. -5% "political headwinds emerging against fossil fuels"

3d. -5% "BP changing its business model very substantially, possibly overpaying for wind sites, general risks of a major business pivot"

3e. -10% "Market is at crazy bubble prices, CAPE is like 37.5 today, people are using margin & options to bet on ridiculous meme stocks like it's the peak of the dotcom era, I don't like being in this market at all!".

4. Calculate it out - 500 * 0.9 * 0.9 * 0.95 * 0.95 * 0.9 = gives you 328 pence.



Method 1. Total / Totalenergies:

1. Share price range 40-56 euros pre-covid. Average e.g. 48 euros.

2. GBPEUR range 1.075 to 1.20. Average maybe 1.14.

3a. -2% "approximate GBPEUR rate movement"

3b. -5% "political headwinds vs fossil fuels"

3c. -10% "scary market"

4. Calculate it out - 48 * 0.98 * 0.95 * 0.9 = 40.20 euros / £34.66


Method 1 summary: This is all extremely hand-wavey and I'm just putting totally arbitrary %s on the penalties but sometimes a gut feel / 'back of an envelope' valuation is the best you can hope for.

Method 2. A second crude way of doing valuation is just to say 'The price is roughly 50% over the cheapest price of the last 25 years, probably means most of the value in this deep value play has been played out now".

Method 3. A third crude way is to ask my gut if I would bet that BP or Total would outperform a FTSE100 tracker in terms of total risk-adjusted return going forward in the next few years. I can't honestly say that I believe that's much better than a 50/50 bet.

Method 4. A fourth crude way is to ask my gut "Do I think the price of BP / Total / Shell is more likely to be higher, or lower, 6-12 months from now?". With Shell, I'd say "70% chance higher, 30% chance lower". But for BP and Total? Hmmmm... maybe 60/40? Maybe 50/50? Certainly close enough to 50/50 that my gut doesn't have strong feelings about it.

The problem with these oil shares is that I have a great deal of trouble in valuing them formally with a proper IV / DCF calculation because they're so incredibly sensitive to the oil price. In Ye Olde Days that wasn't a problem. But the oil price this last 18 months has been incredibly sensitive to e.g. people in some far off country sneezing on each other and getting on a plane. Random mutations in microorganisms occurring in individual people. Extremely narrow margins of victory in US elections and random crazy political events. I mean, good lord, just a few months ago, the united states faced an insurrection out of the blue with armed citizens marching through the halls of power and a set of gallows built outside! Just 2 weeks ago, a random individual Dutch judge decided to use his sense of personal ethics rather than strict word of law to compel Shell to completely change its business model on his own choice of timescale. Huge boats being randomly steered into the sides of canals by idiots. OPEC etc - just some guys in a room bluffing against each other. India altered its stance on buying oil from the middle east recently based on S.A. donating their spare oxygen generators at peak crisis. BP yolo'd itself into wind energy sites at a price far above any other offer. When will each country open up again, and how much? How much energy will they need this year? How can you possibly put meaningful numbers on any of this? I mean, some guy can, but it's surely not me.

All I can say really is that oil stocks felt very cheap before and now they only feel "maybe a bit cheap, or maybe not". Not going to win any Nobel prizes in Economics for this sort of analysis I suppose, but that's life.

comp

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Re: The Trading Log

#418241

Postby compscidude » June 8th, 2021, 10:04 pm

Oops, this bit was worded stupidly:

"Method 2. A second crude way of doing valuation is just to say 'The price is roughly 50% over the cheapest price of the last 25 years, probably means most of the value in this deep value play has been played out now"."


should instead read something like:

"Method 2. A second crude way of doing valuation is just to say 'The price right now is roughly 50% over the low of the last few years (which was around the cheapest price of the last 25 years). Quickly rising to 50% over a low point probably means much of the value in this deep value play has been played out now"."

I mean it's not necessarily true; some shares ten-bag after hitting a low or whatever. But context matters. BP's current price is more than 50% above the lowest point of the last few years and less than 50% below the highest price.

The point I'm making is that if you come up with a bunch of crappy metrics and they all point you at the same conclusion then maybe that means something; at least, more than if they all point at different conclusions.

comp

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Re: The Trading Log

#421522

Postby compscidude » June 23rd, 2021, 9:46 am

Just got out of RDSB around 1433 20 minutes ago. Price as I post, 1430.

'I'm far too stressed out by this weird twitchy market' sums it up pretty well.

Funny thing is, I'm pretty sure RDSB could easily go on up to 1500p even within the next week or two, and 1600p-1700p in the next 5-6 weeks or so, and I think the results for all oil supermajors in late July are going to be absolutely stunning - market is pricing them like oil is $55-60, not >$75.

Also, things like the 10bn sale of US assets by RDSB will instantly bring its debt down to a level where crazy amounts of buybacks can start from earnings, which I think will put a huge amount of upwards pressure on the price. A mostly-restored dividend? Not likely, but entirely possible.

BUT.

The backdrop is a market filled with rampant wild speculation & gambling, and generally priced like we have the best economy of the last 5 years, yet in reality struggling to recover from covid (from which new strains continue to come into being). A twitchy market with everyone ready to run for the door. There are also oil-specific risks like an iran deal, a breakdown of OPEC+, I don't know how to put numbers on those risks.

Feels like a game of musical chairs, and I don't enjoy it.

All my stocks are now sold, I'm back to my comfort zone, now it's time to return to my bear cave to hibernate.

Good luck to anyone continuing onwards and upwards with oil!

comp

......zzzzzzzzzzz........

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Re: The Trading Log

#422005

Postby spasmodicus » June 24th, 2021, 6:27 pm

compscidude wrote:A short essay on some rubbish gut-feel valuation methods.


The problem with these oil shares is that I have a great deal of trouble in valuing them formally with a proper IV / DCF calculation because they're so incredibly sensitive to the oil price. In Ye Olde Days that wasn't a problem. But the oil price this last 18 months has been incredibly sensitive to e.g. people in some far off country sneezing on each other and getting on a plane. Random mutations in microorganisms occurring in individual people. Extremely narrow margins of victory in US elections and random crazy political events. I mean, good lord, just a few months ago, the united states faced an insurrection out of the blue with armed citizens marching through the halls of power and a set of gallows built outside! Just 2 weeks ago, a random individual Dutch judge decided to use his sense of personal ethics rather than strict word of law to compel Shell to completely change its business model on his own choice of timescale. Huge boats being randomly steered into the sides of canals by idiots. OPEC etc - just some guys in a room bluffing against each other. India altered its stance on buying oil from the middle east recently based on S.A. donating their spare oxygen generators at peak crisis. BP yolo'd itself into wind energy sites at a price far above any other offer. When will each country open up again, and how much? How much energy will they need this year? How can you possibly put meaningful numbers on any of this? I mean, some guy can, but it's surely not me.

All I can say really is that oil stocks felt very cheap before and now they only feel "maybe a bit cheap, or maybe not". Not going to win any Nobel prizes in Economics for this sort of analysis I suppose, but that's life.

comp


Hi comp,

I liked that off-the-cuff style of market prediction. The corrolary to what you are saying is that oilco share prices currently seem rather indifferent to increases in the oil price. A couple of years ago, I was happily trading in and out of Premier Oil, whose share price was extremly sensitive to the OP. I didn't always get it right, but a few percent on the OP and up it would go by about 20%. And then back down again. and so on. Now, trading as Harbour Energy, it's stuck in a narrow range. Everybody knows that HBR is mired in debt, but relatively small swings in the oil price should make a huge difference to the time (if ever) that it will get its debts down to a reasonable level. The markets now obviously think probably never, so I got out of it recently, mainly out of boredom. Similarly RDSB should have bounced back to at least 2000p but it hasn't. Predictions of $100/bbl oil are rife, but will the share prices of Shell, BP and the like respond in kind? I dunno.
regards,
S

compscidude
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Re: The Trading Log

#422083

Postby compscidude » June 25th, 2021, 12:54 am

Hello spasmodicus,

Thanks for your reply; it was thought-provoking.

PART 1: ON THE TOPIC OF OIL

RDSB should have bounced back to at least 2000p but it hasn't.


Similar to yourself, for quite some time (October 2020 -> maybe February 2021?), I had a gut feel just by glancing at price history and oil price etc that RDSB ought to go back to perhaps 2000p eventually in the event of a full and quick economic recovery to 2019-style normality.

Predictions of $100/bbl oil are rife, but will the share prices of Shell, BP and the like respond in kind? I dunno.


Exactly so! I had been investing on the assumption that 'oil price up = share price up', and backwardation = oil price up. I mean, profit margins are profit margins, right? It surely can't get any simpler than pulling stuff out of the ground for $30 and selling it for $75 in mass quantities, right?

But I recall reading a comment by George Soros from 20 years back, saying that models are only ever useful for a period of time, not forever, and it's essential to be ready to recognise when a model may not be helpful any more (as it will generally become actively harmful to you at that same moment).

My view on the oil-price-to-share-price link has been substantially changed in the last few months, firstly by seeing the effect of climate change seeming to pick up pace rather fast this year, and linked to that, by seeing a sharp change of sentiment in politics and courts relating to the climate.

Technology is an issue too. Seeing multiple headlines about fusion reactor breakthroughs last month & seeing Bezos leaping into that technology with massive investment has given me some butterflies in my tummy - Bezos is not an idiot. I believe the field is only 1 or 2 major breakthroughs away from rendering 80% of fossil fuel consumption rather pointless.

Traditionally, with oil companies, you're simply pulling stuff out of the ground that you happen to own. The company P/E ratio is not very important, as it's more or less just the rate at which you change book-value-dollars into actual dollars, so as long as you're paying the bills, the real questions are: how do you do book value calculation and how can you know if book value is being created or destroyed.

In principle, it's fairly simple: (A) how much new book value is being created or lost by new oil field discovery (or failures), and (B) how much book value is being created or lost by changes to cost of extraction (technology helps, wage increases hurt), and (C) how much book value is being created or lost due to expected price per barrel (a supply/demand estimate, with some political elements).

"C minus B" (price of sale minus cost of extraction) gives the long term marginal profit per barrel, which you multiply by the number of barrels you believe you have. As the oil price moves up or down (C), or as new barrels are discovered (A), it pushes the long-term value of the company around in a (relatively) straightforward way and thus the price. And as an investor you can more or less just sit back and twiddle your thumbs as the book value gets reliably translated into dividend payments, looking out for occasional market mis-pricing of companies based on (A, B and C) and occasionally worrying about political risks affecting (C).

What's happened in the last year or two, is that some troubling new variables and questions have been introduced.

D) How much of the assets will the company be *allowed* to produce? (Shell, court case: tough luck! only 50%! and maybe in 5 years, it will only be 40%, who knows?). This is now a matter of politics and public sentiment. One cannot even trust one's fellow shareholders not to try and ruin the fun, as we recently saw with Exxon and Shell. Good luck with that.

E) What will the cost to sell a barrel be... including new carbon taxes and loss of subsidies? Again, significant political risks.

F) Demand calculations: can we even know if covid will still be a threat to economies in 12 months? This throws out long-term calculations completely far more than other important changes like e.g. electric cars. You might as well roll a dice to determine oil demand this winter.

G) Geopolitics, reduced stability. This has always been an issue in much of the world, but OPEC+ is less stable than OPEC with the introduction of Russia, and Iran could change the situation dramatically overnight without warning. The USA is pulling its assets out of Saudi Arabia and Iraq and repositioning towards China. The long term consequences will be hard to guess or model; all you can really do is apply a risk-related discount factor to your model...

When you look at issues (D, E, F) in particular it seems like these are suddenly far more important than e.g. (A, B) were.

Trading around the oil price / share price link, or seeking opportunities where e.g. a 'very likely' barrel of oil has been mispriced as a 'possible' barrel of oil by the market, has long been clever and profitable in calm times but these days… if there’s an Iran deal… or a new major covid outbreak worldwide dumping WTI back to minus $42… ooof.

Ultimately I have to ask myself if I have better-than-market insight into the future of the oil price or oil companies, or the link between the oil price and share prices in the present environment, and the answer I keep coming to is ‘probably not, I feel way out of my depth here, and perhaps every person on this planet is out of their depth right now, because some of these issues are so huge and unpredictable’.

Let me elaborate on that last 'every person' comment. One would assume that Shell's C-level executives and top engineers would have some degree of insight into the value of their business? Yet there they were, happily buying back stock, day after day, when the price was far above 2000p. July 2019? 2600 pence a share!

Even in February 2020 when literally every human on the planet knew covid was causing China to lock down 100s of millions of people and weld people into their houses due to a deadly uncontrollable fast-spreading pneumonic plague, Shell was merrily buying back its stock at 2000 pence per share! And of course they're not buying it now, despite money pouring down on them from the heavens and the price being at 1200-1300p most of the last few months.

So maybe even the best and brightest oil experts have no damned idea how to value the value of companies like Shell in terms of the oil price any more. We are through the looking glass.

Question: If I have no edge then why should I bother investing in it, rather than a tracker or cash? Answer: I should not.

PART 2: WAITING FOR THE RUG-PULL CORRECTION/CRASH

Regardless, I’m not sure it matters any more what RDSB ‘ought’ to be worth in a return to normal.

We still don’t live in normal times and this is not a normal market. Valuations are in nosebleed territory (SP500 CAPE10 around 38), rates can’t go lower, the market’s mood is euphoric, wild speculation has driven investment out of the market. The restart from covid is much slower than expected due to hesitation and unfortunate problems re: AZN and JNJ virus adenovirus vaccines plus slow ramp-up of other vaccines. All of which is a bad backdrop.

But the thing that is really catching my attention these last few days especially in light of the market mania/euphoria... and which I neglected to discuss in my post above... is the delta/delta+ strain.

Rate of reproduction almost 3x worse than original covid. More deadly too; Taiwan had a headline a couple of days ago about people dying 2-3 days after infection; Malaysian news today talked about surprising numbers of people dying from delta strain in the ambulance to the hospital.

It can already break past the AZN vaccine rather well (only 64% protective vs symptomatic infection and that will only trend lower over time) and in unvaccinated populations, delta spreads like wildfire. Australia have this week documented delta strain infections occurring ‘in passing’ as one person simply walked past another. A rate of spread that took original covid a month may well be achieved in dense populations in just over a week by delta.

The USA has large regions of unvaccinated people in certain states. Right now delta is still establishing itself there - though it has already gone up from perhaps 10% of new infections last week (16th June articles) to around 20% of new infections this week (articles 1 day ago).

Despite the risk delta presents, many areas of the US are rapidly opening up, cancelling mask rules, insisting on returning to the office, cinemas, drinks, eating out, flying. It is pure, absolute, insanity. You can ignore delta, but delta will surely not ignore you.

I believe we are extremely likely to see a sudden major decline in the SP500 within the next 2 months, much in the manner of March 2020. A crash or correction. The present public ignorance of the degree of threat posed by delta and the blissful market euphoria as we go sailing on at CAPE 38, reminds me exactly how the market felt in February 2020. I couldn't understand at that time how things were sailing along smoothly onwards and upwards. But at some point margin-fueled euphoric sentiment will certainly be overridden by reality.

My present vision of the future looks like this: as the spread of delta rises from 20% of US cases today closer to 80-90% of cases late July, i.e. about 3-4 weeks time, there will be new lockdowns, scare stories of suddenly over-running A&E wards that had been doing well, surprise levels of deaths in elderly care homes that were vaccinated.

I think it will cause a chain reaction of panic-driven events similar to the surprise collapse of Archegos in March 2021. I think we'll see crashes in specific stocks that were known to suffer badly in 2020 due to covid - the 'reopening plays' - leading to surprise large margin calls on hedge funds and investors - leading to big banks panicking and reducing available margin/credit, ripple effects on other stocks and the broad market, as highly-margined accounts go pop due to individual stocks dropping by shocking amounts. Whether it will be just a correction or a full-blown crash, I have no idea. But that's what I expect to see and why I expect to see it.

And in places like Indonesia, Bangladesh - dense populations, poor health background, mostly unvaccinated - it is going to be very very bad as soon as delta takes hold. Scenes of chaos and suffering throughout the developing world as we saw in India a month ago, might also be the trigger to a broad market panic, for example a panic starting in Emerging Markets stocks & bonds then rippling inwards to the core economies from there.

Finally, given the progress covid has made in the last 12 months in evolving towards far higher rates of spread and lethality (and lately, new symptom patterns that are more easily confused with harmless diseases) … I do not believe delta is likely to be the worst strain of covid that the world will see this year, and I do not think this euphoric (oil & stock) market will easily ignore the real world impact of any such worse strains.

Vaccination and boosters, facemask policies and local lockdowns, will allow much of the western world stagger on and muddle through, but there could be some very bad times still to come.

In any event, the US market’s high CAPE10 level is ridiculous. Even absent the imminent catastrophe of the delta strain reaping its way through unvaccinated populations of the developed and undeveloped world over the summer, this market looks like a fool's game.

I will not be a part of it. If I miss out on some profits, so be it.

(And let us hope that I am wrong in my expectation of how bad delta and subsequent mutant strains will be.)

comp

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Re: The Trading Log

#422090

Postby Itsallaguess » June 25th, 2021, 5:39 am

compscidude wrote:
Ultimately I have to ask myself if I have better-than-market insight into the future of the oil price or oil companies, or the link between the oil price and share prices in the present environment, and the answer I keep coming to is ‘probably not'..


Was the answer to that question different when you asked it of yourself before investing nearly 40% of your portfolio in the BP and RDSB oil majors though comps?

compscidude wrote:
The backdrop is a market filled with rampant wild speculation & gambling


Could a really quite heavy investment in oil-majors, based on what seems like nothing more than a 'gut feel that things will get back to 2019-normal soon' perhaps be a really good example of that?

On paper, a highly focussed bet on oil, based on an investors 'gut feel' might seem, to some people at least, to be nothing more than 'wild speculation and gambling' in itself....

Cheers,

Itsallaguess
Last edited by Itsallaguess on June 25th, 2021, 5:52 am, edited 1 time in total.

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Re: The Trading Log

#422091

Postby compscidude » June 25th, 2021, 5:50 am

p.s. To any deeply offended long-term oil investors: I appreciate that the cost of extracting oil varies by field and also varies over time as oil is taken out, not merely as a single variable at company level [1]; and I appreciate that barrels are not merely 'there' in book but assessed with grades of probability, costs of extraction, local risks, etc, etc. I appreciate too that life is more complex than 'backwardation = oil goes up' or 'share price is basically book value'. I'm simplifying a model in order to highlight the new variables & making a point about how the nature of the model is changing substantially.

[1] For anyone interested in more serious valuation models for oil companies, Wood Mackenzie offer a lot of interesting material both free & paid for:

https://www.woodmac.com/news/opinion/wh ... resilient/

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Re: The Trading Log

#422102

Postby compscidude » June 25th, 2021, 7:00 am

On paper, a highly focussed bet on oil, based on nothing more than 'gut feel' might seem, to some people at least, to be nothing more than 'wild speculation and gambling' in itself....


Hello,

Warnings have previously been issued on this thread to certain people by Lemon Fool moderators, and their posts removed, relating to them posting on this thread some poorly veiled attacks on others, rather than making any serious or substantive discussion of investment topics & investment climate on the thread. I would hope that, on paper, this is not that sort of thing.

Some general observations, to any who are interested:

1) To anyone who sincerely thinks that putting e.g. 25% of savings each into BP & RDSB for 8 months with a huge slab of cash on the side counts as 'wild speculation and gambling' - I suggest you write *at once* to the governments of Norway & Saudi Arabia, and ask what on earth they think they've been doing this last 50 years or so - with their ridiculous habit of yolo-ing their entire country's economy into a single sector & commodity. Clearly, their degenerate gambling with not just personal wealth but the prosperity of tens of millions of people is a matter of far more urgent concern and need of address than my rather tedious rambling posts here.

2) Or - dare I even mention them? - the 'gamblers' known formerly known as 'the HYP forum' may be in need of an intervention. (viewtopic.php?t=24538)

3) Likewise, it is interesting to reflect on the fact that around the year 2001, a completely normal British person with a dull FTSE100 tracker or income-oriented investment trust was holding a quite vast proportion of their portfolio in BP & RDSB too. Unfortunately at far, far higher prices than the 25-year low that I invested into. Even by 2007, when the world had moved on from having oil companies as the dominant sector, BP/RDSB still constituted around 15% of every Brit's pension fund: https://www.schroders.com/en/uk/private ... -33-years/. And if you held an income-oriented investment trust in those days... even more.

4) To anyone who quite sincerely does not know what I'm actually referring to by a 'backdrop of rampant wild speculation & gambling'. I suggest they peruse e.g. /r/wallstreetbets on reddit where you will find *millions* of younger people buying well out-of-the-money options on penny stocks... and using highly levered margin to buy the options. Then holding competitions to see who can wipe themselves out totally or become a living legend within one day using as much leverage as they can.

5) Likewise, if anyone wasn't aware that '20x account leverage on a single failing penny stock' or 'buying shares of a company that has already declared bankruptcy weeks ago, in the hope it might not happen' rather than 'a somewhat concentrated portfolio' is the backdrop of the market today that I was referring to. Here is some further reading from Charlie Munger & Jeremy Grantham that I hope will be interesting and illuminating. I have no doubt both Jeremy and Charlie will be happy to receive postal mail from concerned members of the public alerting them that there are market participants recklessly running around with concentrated 3-share portfolios with slabs of cash on the side. That's a classic indicator of the final stages of a bubble, I'll bet.

5a) Grantham, 2021: https://www.gmo.com/americas/research-l ... ast-dance/

5b) Munger, interview: https://www.theglobeandmail.com/investi ... cts-horse/

6) I note that Warren Buffett in 2020 held 45% of Berkshire Hathaways portfolio in not two, but one single stock (Apple). 40% by 2021. And in his personal account? 95%+ in a single stock all his life. I think it would be really wonderful if someone could step up to the plate and write a similar comment to him as I received here, pop it in the post, as he is clearly in far greater need of life lessons on what constitutes reckless gambling rather than a concentrated portfolio with cash on the side than I am myself. Truly, I would be very interested to hear how he replies.

6a) https://www.thestreet.com/.image/c_limi ... -aapl.webp

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Re: The Trading Log

#422232

Postby spasmodicus » June 25th, 2021, 12:13 pm

compscidude wrote:p.s. To any deeply offended long-term oil investors: I appreciate that the cost of extracting oil varies by field and also varies over time as oil is taken out, not merely as a single variable at company level [1]; and I appreciate that barrels are not merely 'there' in book but assessed with grades of probability, costs of extraction, local risks, etc, etc. I appreciate too that life is more complex than 'backwardation = oil goes up' or 'share price is basically book value'. I'm simplifying a model in order to highlight the new variables & making a point about how the nature of the model is changing substantially.

[1] For anyone interested in more serious valuation models for oil companies, Wood Mackenzie offer a lot of interesting material both free & paid for:

https://www.woodmac.com/news/opinion/wh ... resilient/


Hi Comp,

I agree that attempts to evaluate oil companies "fair value" amounts to guesswork, not because the science is wrong, but because of market sentiment. My own interest in oilies comes from having worked in the industry for 45 years. Back in the eighties I started and ran a small private company providing upstream focussed software and services to major and minor oil companies all over the world. It still exists, but I have largely retired from it.That does not, however, give me any special insight into the oil industry, as I was somewhat at the geeky data management and seismic interpretation end of exploration for the black stuff. I suppose the question for me is how to protect and even enhance the modest wealth that I built up over that period into my old age and hopefully have a bit of fun doing it. One thing I did learn is that oil co staff can be arrogant so and so’s (Shell especially stood out in this respect, so schadenfreude where it is due) but there are a lot of very able and highly motivated people working in this business. Unlike you, I just upped my stake slightly in BP in the belief that it will use its earnings, likely to be huge at $100/bbl, to diversify into renewables and transform itself into something that can be ethically invested in by millennial’s pension funds. Rather pragmatically, it has been pulling out of the North Sea (too much political and environmental interference here) but staying in the Gulf of Mexico (good old USA capitalism) and of course still has a 19% stake in Rosneft. Its share price probably won’t budge much, but I hope that it will spin off some decent dividends for a while. But does the market's aversion to non-woke industries really amount to a contrarian opportunity? In the case of the slave trade, it didn’t, but we will have to wait and see with the oil industry.

Working, or investing in the extractive fossil fuel industry (as I did) is nowadays socially akin to owning slaves, child molesting or joining ISIS. What makes it worse is that we are all actually rather dependent on oil and gas for our creature comforts. The UK govt. promises carbon neutrality by this or that date but they don’t have a proper plan and all those heat pumps and that extra insulation will have to be manufactured and paid for somehow. Carbon neutrality? Guess what, we’ll have to use fossil fuel energy to get there. Nuclear fusion? Whether it can be made to work economically or not, the hardware will mostly be constructed from steel, copper and exotic minerals dug up with energy from burning fossil fuel, by people that drive to work in petrol engined cars and live in houses with gas boilers.

Meanwhile the USA CAPE10 will teeter upwards, until the next reversal, whenever that may be. Instead of making their populations suffer the full financial effects of covid-19, like they would have done in the olden days, governments have been dishing out newly printed money which has to go somewhere and finds its way into unicorns, cryptocurrency speculation, house price inflation and the like. But not into oilies, which are deeply, deeply unfashionable. But even then, there can be only so many food delivery company IPOs before the entire working population will be employed carting takeaways around :lol: .


Regards,
S

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Re: The Trading Log

#427687

Postby compscidude » July 14th, 2021, 4:15 pm

I bought IBTA earlier today with 100% of my portfolio. Noting the trade at current price as I post. It's a $ bond ETF with 1-3 year duration US government bonds.

Current offer price as I write: $5.415. GBPUSD rate: 1.3887. GBP price: £3.899

Rounding to £3.91 buy price to cover fees/fx, though implied forex spread is almost non-existent on this and there's no stamp duty.

e.g. BUY 100% , IBTA, £3.91.

Why am I doing this trade? It effectively locks in the gain in USD terms I saw from buying oil companies last October when the GBPUSD rate was at 1.28.

I would rather have bought this fund at $1.41+ (as we saw last month), but, sadly Boris announced a new genius plan of 'let's try no rules lol and see what happens!' and I can't imagine it will do the GBP any favours. Likewise, seeing meme stocks being slaughtered 30-40% this week; market rises on narrower breadth. Some scary -0.5% sudden drops in the value of the pound in less than a minute, too. Finally I suspect the 'football fans don't need masks, we are invincible' national horror show I witnessed last week could push covid case rates rapidly higher too, which forced my hand a little.

I continue to believe there's a high probability of a crash or major correction in the coming months. Last crash, we saw GBPUSD plunge to 1.15 and I froze as a result of that, as I didn't want to crystallise a brutal currency loss even though the shares were on a good discount. I don't want to repeat that mistake, so I'm using foreign bonds to lock-in my forex rate in advance this time.

I hope to flip to ETFs/BRK at a good price later in the year hopefully.

To my fellow grizzly bears, some delightful bear food:

https://am.jpmorgan.com/us/en/asset-man ... e-markets/

best wishes to all, have a great summer, and hope your portfolios are all green and healthy

comp

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Re: The Trading Log

#427701

Postby compscidude » July 14th, 2021, 4:50 pm

The question of 'if you feel you can't pin a clear value on a share right now, then why on earth did you ever think you could earlier!' is interesting to reflect upon despite the manner in which it was presented on this thread.

The answer is that there are times in the market when you need extremely accurate models to turn a profit, and times when you could toss a coin to make decisions and easily make a fortune, and times when no matter how amazing and precise your model is, you will get crucified by any model error whatsoever (mortgage-backed securities being a case in point).

In the area of the spectrum between 'toss a coin to make endless easy money' and 'good models needed', there are times when an extremely crude, simplistic valuation technique will work very well. The trick then is to remember to watch out for valuations or circumstances changing to the point this is no longer true. Likewise, when valuations get too high, a very crude 'avoid almost everything / stay away from the market!' valuation technique can pay off perfectly well, even though it forgoes the opportunities that an amazing and precise model might permit.

An analogy:

I know that I can juggle with 3 balls.

I know that I can't juggle 10000 balls.

Could I juggle 9 balls? 13? Where would I draw the line? Honestly, I have no idea.

Likewise, seeing a group of 100-year old blue-chip companies, selling energy/plastics - two things that are 100% essential for human civilisation to exist - sitting at 25-year price lows - is that cheap, fair or expensive?

My gut said...probably very cheap? I don't need to be able to model a highly precise estimate of the value of oil or the value of the oil company to have an excellent chance of doing well or at least not doing badly, starting at that sort of price level.

You can then add in further hunches based on other information like a) watching Saudi Arabia hoovering up vast amounts of shares in western oil supermajors, or b) tracking vaccine progress in many clinical trials and observing a lack of cancelled trials / horror stories, or c) noting an incoming La Niña winter climate pattern, if you like.

But ultimately, 'probably very cheap?' is about as good as it usually gets in investing for us mere mortals, and holding back cash on the side is not a terrible hedge against being wrong.

The Dogs of the Dow mechanical investment strategy used a similar idea. Buy whichever blue-chip stocks seem unusually cheap, on some cheapness metric (they used dividend yield, divided into 10 stocks). It's a valid approach to valuation, to say 'generally I have a poor idea of the future, but out at the extremes of cheapness, that's not a problem!'

In summary: if things get sufficiently cheap, multi-decade lows, and when you have blue chip companies selling products everyone MUST buy, then even a horrifically awful valuation model becomes good enough to make decent money.

Ultimately though we must each invest in a manner that suits our own personal character, interests, tolerance of uncertainties, available time, needs financially, and the need to sleep soundly at night with decisions made.

I am very happy and comfortable with the way I do things, and I see that others are happy with the way they do things. We are not in competition with each other, it is not a race, or a war, there are no high scores, and there is no one true answer that fits everyone's full set of needs and pleasures in life; there never has been.

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Re: The Trading Log

#427704

Postby compscidude » July 14th, 2021, 5:03 pm

Oddly, with this IBTA trade, I don't know if I will make a £-terms gain or loss, it's probably 50/50.

Nor do I care if I make or lose money in £ terms on it.

It's simply about removing the problem of extreme, rapid, changes in the value of the £ making investing decisions difficult for international shares/indexes, especially in periods when there is limited time to make a decision and act.

The £ suddenly crashed below 1.15 vs the $ on 19th March 2020, for example.


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