Author Topic: Most Intriguing Investment Idea of the Day Thread  (Read 28904 times)

ChpBstrd

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Most Intriguing Investment Idea of the Day Thread
« on: January 18, 2023, 06:46:18 PM »
I know we should all be holding VTI/VTSAX and a Vanguard bond fund, but I'd like to get a sense of what investment ideas are catching the eyes of Mustachians and tempting them to take individual asset positions.

Maybe after a couple of years the lesson of this thread will be (a) a Mustachian brain trust can pick a badass portfolio, or (b) this is why you stick to indexing, because everyone has lots of seemingly good rationales that don't pan out. Either way we're better off.

Rules

Any publicly investable asset is eligible (stocks, bonds, options, ETFs, specific real estate, CDs, whatever). The assumption is you have to B&H, so please no journal entries about one's day trading strategy. As time passes and things change, you may revoke your suggestions. Participants are encouraged to track the outcomes of their picks long-term, but it is not a contest for the highest return because we should be thinking in terms of risk-adjusted returns, not getting lucky. You obviously do not have to own the asset.

Please include the following:
     Asset name (ticker, CUSIP, option details, zillow URL, etc. so that others can follow it)
     Price as of now, or yield in the case of interest-paying deposits
     Rationale (why you think this particular investment will outperform its risk profile)
« Last Edit: January 18, 2023, 06:52:33 PM by ChpBstrd »

ChpBstrd

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #1 on: January 18, 2023, 08:15:30 PM »
I'll start.

Asset: Junk bonds for GEO Group (ticker GEO) maturing 4/15/26. CUSIP: 36162JAB2.
Price: $932.68 per bond, minimum of 5.
Rationale: With a yield-to-maturity of 9%, you'd think GEO was on the verge of going out of business. Actually it's a profitable private prison operator and reentry services provider that experienced large increases in free cash flow in 2020 and 2021. It has a 70% debt/assets ratio and 2.4x interest coverage. A debt restructuring deal and a Moody's downgrade occurred in 2022, but the deal pushed the company's next major debt maturity to 2026. FCF declined later in 2022 as the company deleveraged. Dividends to common shareholders were cut to zero long ago (which is good for bondholders and shows managerial common sense during a time of adversity). The firm's primary risks seem to be (1) political opposition to private prisons and an executive order for the DOJ not to renew contracts and (2) the increasing influence of ESG concerns as major investment banks are declining to underwrite GEO's debt.

I think when 2026 rolls around, we'll either have another Republican president who will reverse Biden's executive order just like Trump did to Obama's, AND/OR GEO will have cultivated private and/or foreign funding sources. Plus I think incarceration will go up as pandemic-era delays in the courts are worked through, and as immigration legislation proves elusive as ever. Also, have you seen the latest crime rates? There is little reason to think a recession in 2023-2025 will hurt GEO, and for that reason the bonds seem safer than average from market beta (the stock's beta is 0.7). In the short run, the bond is callable next month at $1020. It would not be a bad outcome to earn 9.36% in a month in the unlikely event your bond was chosen to contribute to GEO's deleveraging project, but if you don't win that game you'll have to settle on earning 9% per year for the next 3 years and 2 months.

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #2 on: January 19, 2023, 01:35:04 AM »
Time to reveal my largest holding.
Vanguard Federal Money Market Fund (VMFXX), 7 day SEC yield 4.37%

CNN Fear/Greed at "greed", S&P 500 RSI near oversold, corporate earnings haven't come out yet, inflation falling rapidly is priced in.  Pessimism was so 2 weeks ago! (When CNN Fear/Greed showed "fear").

I plan to hold cash (VMFXX) for 1-2 months while the market overcomes its optimism.

Finances_With_Purpose

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #3 on: January 19, 2023, 04:55:21 AM »
PTF

SilentC

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #4 on: January 19, 2023, 07:47:36 PM »
I think there are a lot of levered telcos that are interesting and they are likely to outperform in a recession.  Right now with maybe the exception of T-Mobile having a market share story sentiment is about at a 1.7 on a 1-10 scale.  There is no sign of anything improving but sometimes you can “invest into the abyss” and the rationale for doing so now would be insanely weak sentiment, single digit P/Es and cost of capital so high that eventually some adults might get at the helm of some of these companies and stop plowing money into mid single digitally IRR projects when they can pay down debt yielding 11%.  Maybe worth buying a basket of smaller ones and most likely they’ll just grind down but if there is any hint that capital discipline is around the corner you could have some multi-baggers in your portfolio in a hurry.  They are also a good de-inflation hedge, who knows maybe we get a “medium” landing and suddenly a lot of their cost pressures evaporate. 

Rufus.T.Firefly

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #5 on: January 19, 2023, 08:23:27 PM »
I'll play along. I have started investing fake money through Investopedia's simulator so as to avoid the temptation of putting real money down while I found out if I have any ability to perform analysis. I'll post the positions I'm taking.

Taiwan Semiconductor Manufacturing Company Limited (TSM)
Price: 81.35 (Jan 10th)
Rationale: Killer financials over the past decade, trading at a P/E of ~14 and a historical ROIC of 28%. The main risk appears to be the threat of invasion from China. They are actively building fabs in US and Japan (and probably Europe) to head off this issue. I believe the short term risk of invasion is much lower than the market is estimating.


EverythingisNew

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #6 on: January 19, 2023, 11:09:38 PM »
I recently moved some money into TLT $107.95 (20 year bond ETF). I see this rising as the likelihood of rate hikes decreases. My strategy is to hold TLT until rates drop (should go up in anticipation), sell when rates first drop, and switch to S&P 500.

Stocks that I like long term: ABNB $99.10 (I think there will be more young professional gypsies in the future who abnb long term instead of rent apartments), INTC $28.42 and MU $56.36 (the government is pushing US chip development, new factories are being built for big growth, and these stocks have taken a beating this past year).
« Last Edit: January 19, 2023, 11:14:17 PM by KateFIRE »

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #7 on: January 19, 2023, 11:53:30 PM »
I recently moved some money into TLT $107.95 (20 year bond ETF). I see this rising as the likelihood of rate hikes decreases. My strategy is to hold TLT until rates drop (should go up in anticipation), sell when rates first drop, and switch to S&P 500.
Two people with opposite views can actually be in agreement on different time frames.  I hold a tiny position in TMV (-3x TLT) because I believe markets are underestimating the Fed's resolve on "higher for longer" Fed funds rate.  I'm not sure how many months I will hold TMV.

When it appears inflation is lower and stable, I would expect TLT to have gains as long term rates fall.  Note TLT lost 31% in the past 12 months, while ZROZ fell 41%.  So if you invest in ZROZ and rates fall, it could have even stronger gains than TLT.

BicycleB

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #8 on: January 20, 2023, 09:58:44 AM »
Asset: VDE (Vanguard Energy Index fund)
Price: $125.13 as I write.
Rationale: Bought just before New Year's after reading an account of China's abandonment of COVID restrictions, and some Western comments that believed it would take China a while (six months, maybe) to gear up/ reopen. My assumption is they'll gear up much faster - everybody sick at once, then a burst of activity all at once, affecting energy prices. A more direct manufacturing materials index would have been a better pick but I imagine a temporary advantage over the next few months if my "theory" proves out.

From this perspective, trigger for sale should presumably be articles noting China's rapid reopening, especially if they point to increased buying of oil and other materials. Bonus points as sale trigger if articles note price increases for oil and other materials, or a divergence in which energy or manufacturing materials pricing rises less/ falls more than broader prices. Weak sauce, but there you go.

I don't have much confidence in this but put some $ into it, partly for other portfolio reasons.

« Last Edit: January 20, 2023, 11:04:06 AM by BicycleB »

Finances_With_Purpose

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #9 on: January 20, 2023, 11:31:13 PM »
Asset: VDE (Vanguard Energy Index fund)
Price: $125.13 as I write.
Rationale: Bought just before New Year's after reading an account of China's abandonment of COVID restrictions, and some Western comments that believed it would take China a while (six months, maybe) to gear up/ reopen. My assumption is they'll gear up much faster - everybody sick at once, then a burst of activity all at once, affecting energy prices. A more direct manufacturing materials index would have been a better pick but I imagine a temporary advantage over the next few months if my "theory" proves out.

From this perspective, trigger for sale should presumably be articles noting China's rapid reopening, especially if they point to increased buying of oil and other materials. Bonus points as sale trigger if articles note price increases for oil and other materials, or a divergence in which energy or manufacturing materials pricing rises less/ falls more than broader prices. Weak sauce, but there you go.

I don't have much confidence in this but put some $ into it, partly for other portfolio reasons.

I really wanted to buy energy funds 1-1.5 yrs ago, before the world got a little crazier, but I didn't have free cash sitting around at the time that I would allow myself to use for my own picks/investing, so I never did get around to it.  I wish I had. 

SilentC

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #10 on: January 21, 2023, 09:32:14 PM »
Asset: VDE (Vanguard Energy Index fund)
Price: $125.13 as I write.
Rationale: Bought just before New Year's after reading an account of China's abandonment of COVID restrictions, and some Western comments that believed it would take China a while (six months, maybe) to gear up/ reopen. My assumption is they'll gear up much faster - everybody sick at once, then a burst of activity all at once, affecting energy prices. A more direct manufacturing materials index would have been a better pick but I imagine a temporary advantage over the next few months if my "theory" proves out.

From this perspective, trigger for sale should presumably be articles noting China's rapid reopening, especially if they point to increased buying of oil and other materials. Bonus points as sale trigger if articles note price increases for oil and other materials, or a divergence in which energy or manufacturing materials pricing rises less/ falls more than broader prices. Weak sauce, but there you go.

I don't have much confidence in this but put some $ into it, partly for other portfolio reasons.

I really wanted to buy energy funds 1-1.5 yrs ago, before the world got a little crazier, but I didn't have free cash sitting around at the time that I would allow myself to use for my own picks/investing, so I never did get around to it.  I wish I had.

There is still some decent upside to a lot of names in the sector but you have to go to smaller market caps and worse balance sheets.  The Exxons and Chevrons have had a pretty full run relative to small cap brethren.

ChpBstrd

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #11 on: January 24, 2023, 09:09:40 PM »
Asset: SLM (Navient Corporation) bonds maturing 6/15/2029, CUSIP:78490FLW7 
Price: $781, yield to worst is 10.837%
Rationale: Navient, which was spun off of Sallie Mae in 2014, sits on a leveraged pile of student loans. 70% of these are federally insured, and some are exempt from bankruptcy protection. That means Navient is going to collect even if they must garnish wages. Navient had been winding down a portfolio of existing student loans they acquired, but has recently gotten back into the business of originating private student loans. They're also expanding to provide collection services, an anti-cyclical business. Moody's does not like their 4% equity-to-assets ratio but notes the high quality of Navient's debt assets, settling on a Ba3 junk rating. Depending on how you look at it, Navient is either an overleveraged house of cards waiting to blow over when the next spike in defaults leaves them without the ability to make interest payments or they are a bargain sitting atop a portfolio with limited potential losses.

I think in the event of a recession, we'll see renewed student loan demand, low defaults on student loans, and an expansion of Navient's collections business to cover more than just a nominal percentage of net income. If they become unemployed, I think consumers have a lot of room to cut back before they default and trigger garnishments on their student loans. Note that household debt payments as a percentage of income has returned to 2019 levels and yet remains historically low.



Even in the event of a default, bond investors would likely divvy up a very large portfolio of high-quality assets, some of which is explicitly insured. This puts a floor on any potential losses and makes these bonds safer than they appear. 
« Last Edit: January 24, 2023, 09:13:59 PM by ChpBstrd »

roomtempmayo

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #12 on: January 25, 2023, 08:43:22 AM »
I think when 2026 rolls around, we'll either have another Republican president who will reverse Biden's executive order just like Trump did to Obama's, AND/OR GEO will have cultivated private and/or foreign funding sources. Plus I think incarceration will go up as pandemic-era delays in the courts are worked through, and as immigration legislation proves elusive as ever. Also, have you seen the latest crime rates? There is little reason to think a recession in 2023-2025 will hurt GEO, and for that reason the bonds seem safer than average from market beta (the stock's beta is 0.7). In the short run, the bond is callable next month at $1020. It would not be a bad outcome to earn 9.36% in a month in the unlikely event your bond was chosen to contribute to GEO's deleveraging project, but if you don't win that game you'll have to settle on earning 9% per year for the next 3 years and 2 months.

I have price notifications set up on GEO Group and CoreCivic.

If the political winds shift, both are capable of going 10x or more, and are likely to go 5x.

CoreCivic's 52 week low is $8.39, and as recently as 2015 it was over $40.  In 1997, it was $146.  The price has been depressed by politics for the past 25 years, but it's not hard to imagine them becoming the contractor for detaining hundreds of thousands of migrants during the next administration.

I don't buy individual stocks, so this is all just hypothetical to me, including the ethical questions stocks like these imply.

nouseforausername

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #13 on: January 25, 2023, 09:51:13 AM »
Asset: VDE (Vanguard Energy Index fund)
Price: $125.13 as I write.
Rationale: Bought just before New Year's after reading an account of China's abandonment of COVID restrictions, and some Western comments that believed it would take China a while (six months, maybe) to gear up/ reopen. My assumption is they'll gear up much faster - everybody sick at once, then a burst of activity all at once, affecting energy prices. A more direct manufacturing materials index would have been a better pick but I imagine a temporary advantage over the next few months if my "theory" proves out.

From this perspective, trigger for sale should presumably be articles noting China's rapid reopening, especially if they point to increased buying of oil and other materials. Bonus points as sale trigger if articles note price increases for oil and other materials, or a divergence in which energy or manufacturing materials pricing rises less/ falls more than broader prices. Weak sauce, but there you go.

I don't have much confidence in this but put some $ into it, partly for other portfolio reasons.

I really wanted to buy energy funds 1-1.5 yrs ago, before the world got a little crazier, but I didn't have free cash sitting around at the time that I would allow myself to use for my own picks/investing, so I never did get around to it.  I wish I had.

There is still some decent upside to a lot of names in the sector but you have to go to smaller market caps and worse balance sheets.  The Exxons and Chevrons have had a pretty full run relative to small cap brethren.

Re: Energy

I sold VDE in the lead up to the Ukrainian War and missed a chunk of the run-up. But, VDE's chart is pretty cyclical, and it appears late cycle.

The EIA is forecasting ~0 growth in US energy consumption over the next two years -- 2023 (-.9%) and 2024 (up 1%).

I've really liked PBF for a while. Refineries just print $ and if some regulatory hurdles are lowered for smaller US refiners, they could be more attractive. But, a lot of that is priced in already.

pegleglolita

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #14 on: January 26, 2023, 03:50:01 PM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

Michael in ABQ

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #15 on: January 26, 2023, 04:05:22 PM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

I can't hear EvilCorp without thinking of this comic. I actually thought about registering a company called EvilCorp years ago, but it was already taken.
https://www.penny-arcade.com/comic/2000/12/20/think-oni

Finances_With_Purpose

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #16 on: January 26, 2023, 09:24:09 PM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

I buy treasurys too! 

Dicey

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #17 on: January 26, 2023, 11:32:29 PM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         
Thank you for this. I thought I had somehow stumbled into the wrong forum.

nouseforausername

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #18 on: January 27, 2023, 05:48:30 AM »
Re: VTECP, also look at Wagner Group's IPO this spring.

TomTX

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #19 on: January 27, 2023, 08:44:55 AM »
I-bonds. As long as you can hold for at least a year it's almost entirely upside.

sisto

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #20 on: January 27, 2023, 10:18:44 AM »
CD's I was surprised at some nice rates. I moved $100K I had been holding in cash. Also planning to likely shift my bond allocation to iBonds. When I retired in 2021, I moved a chunk of $ I had in equities over to a bond fund and it's been a big fat loser. My situation changed and now I need to shift my allocation to better align. I will hold more cash than previously planned, but I believe between the CD's and iBonds things will work out nicely.

ChpBstrd

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #21 on: January 27, 2023, 10:54:48 AM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

I've also noticed an evil theme in my picks. Because I (and most economists) predict a recession within the next 18 months, I anticipate a decline in consumer and business spending, forward growth estimates, and valuations. That leaves me favoring vice companies, debt collectors, and taxpayer-funded EvilCorps like defense and private prisons on the rationale that their earnings will be uncorrelated with the rest of the market. I'm also favoring fixed income over equity in anticipation of possibly falling rates and stock multiples in the post-recession future. And yes, on the evil theme I also own a six-figure amount of US treasuries that have appreciated since I bought them.

The coming recession also makes it harder for the already-unpopular Joe Biden to be re-elected. If a Republican is elected in 2024, conditions will tilt to favor the student loan collectors, private prison operators, and other "EvilCorp" donors like the resource extraction and attention economy industries. It's too early to invest in those sectors because commodity prices and tech multiples will both decline in a recession.

Mr Mark

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #22 on: January 27, 2023, 08:05:29 PM »
OK ChpBstrd, I'll play!

How about GSBD Goldman Sachs BDC. [edit: as of post, at $15.50 per share]

Currently paying close to 12% dividend and down 20% past year. Have the Vampire Squid itself extracting financially engineered profits for you!

Quote: <Goldman Sachs BDC, Inc. is a business development company specializing in middle market and mezzanine investment in private companies. It seeks to make capital appreciation through direct originations of secured debt, senior secured debt, junior secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt and, to a lesser extent, investments in equities. The fund primarily invests in United States. It seeks to invest between $10 million and $75 million in companies with EBITDA between $5 million and $75 million annually.>

YMMV
« Last Edit: January 28, 2023, 11:48:59 AM by Mr Mark »

blue_green_sparks

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #23 on: January 27, 2023, 09:58:04 PM »
I carry some of these "defined benefit", spy indexed ETFs for funds I may need to tap into pretty soon. Volatility is somewhere between stocks and bonds, I'd say.
https://www.innovatoretfs.com/define/

Innovator Buffer ETFs are a revolutionary product line that offers
investors exposure to price return of a broad equity market (e.g., U.S.
equity, emerging markets, international developed), up to a cap, with
built-in downside buffer levels, over an outcome period of
approximately one year.


You do get to pay a 0.79% admin fee for not having to setup the options yourself, but I have been pleased with their performance so far. 

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #24 on: January 28, 2023, 04:19:15 AM »
@blue_green_sparks - I've also heard of buffer ETFs called simple, which is a good characteristic for a new product like this.  If you create a new thread, I have more questions and opinions about it.

Must_ache

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #25 on: January 28, 2023, 09:23:17 AM »
I work for Chubb (CB) and it's a fantastic company.  I'm not giving any insider information here, but they are proud of the fact that they consistently beat the competition. 

And in general I think it would be good to hold KBWP right now - a property & casualty insurance ETF.  It's isn't going to rocket up like TSLA or anything, but it's a sound investment.

Insurance is in a hard market right now - carriers are generally able to charge what they need to and be profitable.  Insurance tends to be very recession-proof, it's a necessity so the demand for insurance doesn't decline too much in bad times.   Also, with interest rates going up, insurers will make more money in the short to medium term.  They make some of their profit by holding onto your premium and investing it until it is time to pay claims. 

In the last ten years it has gained 13.6%/yr with only two negative years that were no worse than -3%.  When I compare it to the S&P they are highly correlated and it looks like you're getting less return for something less sexy.
« Last Edit: January 28, 2023, 09:25:59 AM by Must_ache »

CorpRaider

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #26 on: January 29, 2023, 03:04:15 PM »
LUV

JupiterGreen

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #27 on: January 31, 2023, 08:54:07 AM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

I love you for this. Reading some of these literally made my stomach turn. I'm not rooting for higher rates of incarceration or tightening the noose on younger generations with more student debt and predatory lending (or a GOP Whitehouse win in 24 from that matter).  Private for-profit prisons need to be made illegal.
« Last Edit: January 31, 2023, 08:56:24 AM by JupiterGreen »

PDXTabs

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #28 on: January 31, 2023, 10:30:11 AM »
Hot on the heels of a couple of the recommendations above, I'm investing heavily in EvlCrp (VTECP), which makes these innovative machines that turn orphaned kittens into a fine pulp that is used to produce pellets that power other machines that convert the normally wasted sounds of human suffering and exploitation into sonic weapons for joint corporate-military operations.  Along with for-profit incarceration and inescapable student loans made to 18-year-old kids at extortionist rates, I really see it as a growth industry with almost unlimited potential for investor yield and literally no down side!  :D         

I've also noticed an evil theme in my picks. Because I (and most economists) predict a recession within the next 18 months, I anticipate a decline in consumer and business spending, forward growth estimates, and valuations. That leaves me favoring vice companies, debt collectors, and taxpayer-funded EvilCorps like defense and private prisons on the rationale that their earnings will be uncorrelated with the rest of the market. I'm also favoring fixed income over equity in anticipation of possibly falling rates and stock multiples in the post-recession future. And yes, on the evil theme I also own a six-figure amount of US treasuries that have appreciated since I bought them.

The coming recession also makes it harder for the already-unpopular Joe Biden to be re-elected. If a Republican is elected in 2024, conditions will tilt to favor the student loan collectors, private prison operators, and other "EvilCorp" donors like the resource extraction and attention economy industries. It's too early to invest in those sectors because commodity prices and tech multiples will both decline in a recession.

I'm not overweight private prisons. But if I was going to be overweight private prisons I would pick CXW (CoreCivic) because that's the private prison that Hawaii can't kick.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #29 on: February 02, 2023, 08:32:53 AM »
In an effort to steer us clear of the evil corp. themes developing, I will offer a vanilla company that looks promising.

Expeditors International of Washington, Inc. (EXPD)
Price: 117 (as of 2/2). Price is jumping rapidly in the last two days - it was an even better deal three days ago.
Rationale: They appear to be an excellently-run company with solid returns and significant growth. The industry of global trade logistics is not going anywhere in the long-term. The P/E ratio appears to be indiscriminate broad stroke of market opinion that a recession is imminent and thus all shipping logistics and global trade will be harmed. This has created a situation that will be rectified when the market realizes a darling of a company has been valued at P/E of 12.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #30 on: February 02, 2023, 10:58:58 AM »
Asset: Bull call spread on the VIX expiring Oct. 18, 2023 (258 days) at the 14/15 strikes.
Price: Pricing is tricky. The bid-ask spread is very wide for VIX options this far out, so it would take a real order to discover the price. The current mid for this trade is $0.85. So if your order got executed at this price, and the VIX was >15 on Oct. 18, you'd receive back $1, a 17.6% return in 8.5 months.
Rationale: Stocks have rallied because Powell said the word "disinflation" a couple of times in yesterday's press conference. The VIX volatility index has collapsed to 17.8. This strikes me as an odd place for the market to be when most recession prediction signals are waving the red flag, we've had federal fund rate increases to an extent that has never NOT been followed by recession, M2 is falling in an unusual way, a residential housing bubble is in the process of bursting, the 10/2 yield curve is down to levels last seen in the early 80s and the VIX has been above this level most of the time for the past 3 years. For the VIX to be below 15 in October, all the recession warning signals would have to be wrong at the same time and the soft landing scenario would have to come true.

Besides, I don't think the market understands that rapid, multi-quarter disinflation is an excellent real-time recession indicator. Look at what happened to annualized PCE prior to and/or during the 2008, 2001, and 1990 recessions: https://fred.stlouisfed.org/series/PCE. In other words, there's a good chance inflation is falling because we're going into recession. And if we're going into recession, volatility will be higher than 15. Even if we somehow dodge a recession, there's a good chance VIX will be higher than 15 anyway.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #31 on: February 03, 2023, 09:21:04 AM »
Is there a difference between "intriguing" and "wise"? If so, here's one of the former. :)

Asset: APE (AMC Entertainment Holdings Inc. Preferred Equity Unit)
Price: $3.04 as of 10:48 am EST, per Yahoo Finance.
Rationale: High likelihood of being merged with its sister stock, ticker AMC (AMC Entertainment Holdings Inc., - currently about $6.60), in an event that would give each APE the same price as each AMC, presumably at a value higher than the price of APE though lower than the price of AMC. This is an arbitrage play that presumes the prices will converge as planned.

"High" is a judgment call, based on reading yesterday's Money Stuff column by Matt Levine (link below). Levine wrote previously that after AMC became a meme stock, management leaned into its status, selling new shares to harvest capital from the arguably senseless investor enthusiasm; he also previously wrote that in such a situation, it probably makes sense to take the money and find uses for it. Due to limitations on the number of common shares (AMC) issuable, management created APEs, which are fractional units of preferred stock. The new class is intended to ultimately merge with the AMC shares such that 1/100 of a preferred share = one AMC share; one APE already = 1/100 of a preferred share.

The whole exercise occurred due to the difficulty of getting retail shareholders to vote. To change the number of shares issuable and take full advantage of investor willingness to buy shares, 50% of all shares must vote yes, not just 50% of shares that vote. This doesn't happen in a straight vote because retail shareholders don't bother. The preferred share issuance was possible without such a vote, and was done with terms that do allow passage of a merger between shares based only on a majority of the shares that vote on the proposition. Management already sold a large enough block of APEs to a single (institutional?) investor that the vote to approve merger now seems likely, Levine suggests. Assuming it happens, the price of APE and AMC will converge on some middle value.

https://www.bloomberg.com/opinion/articles/2023-02-01/amc-has-some-clever-apes

Whether that value is higher than today's APE value is subject to caveats of course, including:

1. No telling whether management will find enough use for the money to keep the share price above current APE price.
2. If the merge doesn't happen, you're stuck with APE as is - a stranded bit of preferred in a company with inflated unclear value.
3. But wait, part of the current value is anticipation of the merge. If merge fails, logically APE price should go down down down.
4. Even at current price, APE is a penny stock. Among other things, you will need to enable purchase of penny stocks to buy it. That's what my brokerage required, anyway.

ETA 2:50 EST, 12:50 forum time: What's the correct convergence price, based on current share prices and numbers of shared issued? The number of APEs vs AMC is nearly 2:1, with perhaps more APEs being issued, so a rough starting point would be raise the APE price by one third of the difference from AMC. For example:

6.20 AMC  (5 minutes ago)
2.83 APE   (5 minutes ago)
---
3.37 difference
divide by 3
---
1.12 addition to APE
2.83
---
3.95 projected price of both APE and AMC after conversion, supposing current value is spread out among the new shares

So maybe maybe maybe 40% gain? (1.12 / 2.83 = .395)

PS. Fwiw, below is a link to the proposed charter amendment for turning the APEs into common stock. It anticipates the vote to occur (or be recorded?) in a special shareholder meeting March 14 (first mentioned page 1), the last day of trading for APEs to be March 14 (page 3) if the merge is approved, and I assume the first day of the new common stock to trade being March 15. From details like this in the SEC filing, management appears to think it's a done deal.

https://www.sec.gov/Archives/edgar/data/1411579/000110465923007550/tm232700-1_pre14a.htm#tPN2

ETA: useful part above; remainder is personal details in case of reader interest.
4. Despite high stated number of shares traded per Yahoo Finance, I appear to have moved the market by making orders of less than $10,000. Perhaps this volatility implies many bots, a thin market, difficulty getting out without crashing prices . <--ETA 1:44 EST below

I could be wrong about 4. It's the first time I ever bought a penny stock. It appeared that millions of shares had traded, so I assumed a couple thousand would make little difference. I wasn't quite dumb enough to enter a market order, even though "bid" and "ask" were something like $2.80 and $2.81 at the time, but I put in a limit order above the current price (say 2.85) because I wanted a quick response. My order filled four cents above bid/ask midpoint. I wanted more, acted similarly twice, and you can see in the minute by minute charts that my 3 orders appear to have triggered a prices just happened rise from 2.80 to the low 2.90s in about 10 minutes during my orders, establishing a big spike for the day. ETA 11:26 EST - now $3.07.

Maybe Probably it wasn't me. I set limit on a fourth order of 2.90; the price rose above that, not due to me. I cancelled the order and the price rose again. Did I trigger excitement in others, or just happen to catch a wave unrelated to me?


ETA 1:44 EST, aka 11:44 am forum time: Reviewing today's AMC fluctuations, the common stock (ticker AMC) started shooting up 8 or 10 minutes before my trades. APE followed suit with a lag. Presumably I caught the first half of that copycat surge, but my tiny trades had little effect. Strikes above are from this edit.

Like I said, intriguing but maybe not wise. Will be appreciatively reading any remarks from wiser readers while I undergo this live-fire education.
« Last Edit: February 03, 2023, 02:36:35 PM by BicycleB »

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #32 on: February 03, 2023, 10:41:15 PM »
@Bicycle_B - If you compare price changes of AMC stock, ARKK, QQQ and SPY you will see the same shape in Friday's price moves.  Opening much lower on jobs data, climbing to breakeven for the day, then falling again.

A year ago I had a similar experience to your "am I moving the market?  what is going on?".  I was selling ETHE, Greyscale Ethereum Trust, and the market moved lower after each trade.  It turns out the Fed meeting minutes had been released, and new and worrying things mentioned in those minutes caused market drops - to which ETHE is very sensitive.  I learned something by digging deeper after getting the feeling I was moving a very large market.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #33 on: February 03, 2023, 10:59:48 PM »
Warning: do not try the following investment, you will lose everything.  I expect a number of -100% returns and maybe one return that makes up for it.  I'm investing less than 1% of my portfolio in this to control risk.

Earlier this week, I bought OOM VIX calls.  Since the VIX may fall anyways and wipe out any investment, I might as well plan to lose 100% and buy out of the money. If the VIX rises, that multiplies my investment (and lets me invest a smaller amount).

I'm targetting the Jan 2023 CPI report on the assumption the market still expects rapidly falling inflation.  Annie Duke's "Thinking In Bets" can be applied to active investments, at the risk of triggering people by saying the word "bet".  The market has priced in rapidly falling inflation, so all other possibilities mean investing against the market.  Inflation could fall more slowly, could stop falling, or rise slightly - all reasonable and possible, but none of them priced in.  Historically nobody predicts inflation accurately, so I've got that going for me as well.  What I don't know - because I can't predict it either - is when.  So this VIX call "bet" is intended to be one of a series of losing investments, one of which will pay off if the market receives shocking inflation news.

In my view, 99.9% of people should avoid this investment, and I'm not even sure if I'm in the other 0.1%.  But I won big in June 2022, so maybe I'm just reliving past glories by losing small positions in VIX calls.  I have carefully limited it to under 1% of my portfolio, which means I can afford -100% repeatedly on VIX calls.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #34 on: February 04, 2023, 03:32:11 PM »
@Bicycle_B - If you compare price changes of AMC stock, ARKK, QQQ and SPY you will see the same shape in Friday's price moves.  Opening much lower on jobs data, climbing to breakeven for the day, then falling again.

A year ago I had a similar experience to your "am I moving the market?  what is going on?".  I was selling ETHE, Greyscale Ethereum Trust, and the market moved lower after each trade.  It turns out the Fed meeting minutes had been released, and new and worrying things mentioned in those minutes caused market drops - to which ETHE is very sensitive.  I learned something by digging deeper after getting the feeling I was moving a very large market.

Thanks, @MustacheAndaHalf. Good to know I'm not crazy!*

*At least because of that feeling. :)

clarkfan1979

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #35 on: February 04, 2023, 04:08:42 PM »
LUV

@CorpRaider

I bought LUV in May 2020 for $23.05 and sold for $39.05 in October 2020. I wanted to hold long-term, but my mortgage broker told me that I needed to convert it to cash to qualify for a rental house re-finance. I later found out that not to be true, because I could have also used 60% of retirement accounts to qualify.

At what price did you buy LUV? What are your projections for up-side? How long will it take?

I could see some upside in 18-24 months beyond normal market returns. I don't really have any extra cash at the moment. I have to fund my Roth with index funds first.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #36 on: February 04, 2023, 04:19:21 PM »
Does anyone know where to find the Fed's guidance on how fast they intend to sell down the balance sheet per month?   The media is very good about reporting the headline FFR increase/decrease and have even educated the public on how much a "basis point" is.   Maybe because the effect on money supply is harder to understand/explain they don't seem to pay much attention to what is arguably the more powerful tool....

BicycleB

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #37 on: February 04, 2023, 06:15:34 PM »
Does anyone know where to find the Fed's guidance on how fast they intend to sell down the balance sheet per month?   The media is very good about reporting the headline FFR increase/decrease and have even educated the public on how much a "basis point" is.   Maybe because the effect on money supply is harder to understand/explain they don't seem to pay much attention to what is arguably the more powerful tool....

While we're waiting for the right answer: Here's the remark in February 1's Federal Open Market Committee Statement on Monetary Policy that "the Committee will continue reducing its holdings of Treasury securities and agency debt and agency-backed mortgage securities, as described in its previously announced plans." (p. 1 of four page pdf, linked). Haven't read the previous statements to find those plans.

https://www.federalreserve.gov/monetarypolicy/files/monetary20230201a1.pdf
« Last Edit: February 04, 2023, 06:18:42 PM by BicycleB »

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #38 on: February 04, 2023, 10:00:01 PM »
Does anyone know where to find the Fed's guidance on how fast they intend to sell down the balance sheet per month?   The media is very good about reporting the headline FFR increase/decrease and have even educated the public on how much a "basis point" is.   Maybe because the effect on money supply is harder to understand/explain they don't seem to pay much attention to what is arguably the more powerful tool....
I believe it ramped up, then stayed at the same rate since September of $95 billion/month.  At the current rate of $1 trillion/year, I assume they are not winding down their entire $8 trillion balance sheet.

Quote
This process swung into full gear in September when the Fed said it would permit up to $60 billion a month in Treasury debt and $35 billion per month in MBS to fall off its balance sheet
https://www.reuters.com/business/finance/feds-balance-sheet-drawdown-could-sunset-next-year-2022-12-22/

Financial.Velociraptor

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #39 on: February 05, 2023, 01:47:45 PM »
Does anyone know where to find the Fed's guidance on how fast they intend to sell down the balance sheet per month?   The media is very good about reporting the headline FFR increase/decrease and have even educated the public on how much a "basis point" is.   Maybe because the effect on money supply is harder to understand/explain they don't seem to pay much attention to what is arguably the more powerful tool....
I believe it ramped up, then stayed at the same rate since September of $95 billion/month.  At the current rate of $1 trillion/year, I assume they are not winding down their entire $8 trillion balance sheet.

Quote
This process swung into full gear in September when the Fed said it would permit up to $60 billion a month in Treasury debt and $35 billion per month in MBS to fall off its balance sheet
https://www.reuters.com/business/finance/feds-balance-sheet-drawdown-could-sunset-next-year-2022-12-22/

Thanks @M&1/2

So $1T/yr divided by the reserve fraction is what, $10T/yr reduction in M2??  To me, that is more significant than whether or not we add 25 bp next meeting or not.  Winding down the balance sheet extinguishes money supply immediately and with well understood multipliers.  Interest rate changes have an undetermined level of money supply impact as it might or might not materially change supply/demand in credit creation and there is a "long and variable" lag to outcome.   Someone at the Fed has read Bernanke's PhD dissertation.

ChpBstrd

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #40 on: February 06, 2023, 02:51:35 PM »
Does anyone know where to find the Fed's guidance on how fast they intend to sell down the balance sheet per month?   The media is very good about reporting the headline FFR increase/decrease and have even educated the public on how much a "basis point" is.   Maybe because the effect on money supply is harder to understand/explain they don't seem to pay much attention to what is arguably the more powerful tool....
I believe it ramped up, then stayed at the same rate since September of $95 billion/month.  At the current rate of $1 trillion/year, I assume they are not winding down their entire $8 trillion balance sheet.

Quote
This process swung into full gear in September when the Fed said it would permit up to $60 billion a month in Treasury debt and $35 billion per month in MBS to fall off its balance sheet
https://www.reuters.com/business/finance/feds-balance-sheet-drawdown-could-sunset-next-year-2022-12-22/

Thanks @M&1/2

So $1T/yr divided by the reserve fraction is what, $10T/yr reduction in M2??  To me, that is more significant than whether or not we add 25 bp next meeting or not.  Winding down the balance sheet extinguishes money supply immediately and with well understood multipliers.  Interest rate changes have an undetermined level of money supply impact as it might or might not materially change supply/demand in credit creation and there is a "long and variable" lag to outcome.   Someone at the Fed has read Bernanke's PhD dissertation.
I agree that QT is now far more consequential than the next couple of 0.25% rate hikes. The decreases in money supply, as measured by M1 and M2, are unprecedented, and the effects are unpredictable. The effects of a constricting money supply are unknown, although there is a mathematical increase in monetary velocity as the number of dollars declines.





Is this is why gold prices did not go through the roof, even as inflation raged for the past two years? Gold is mined every day, but US dollars are literally becoming rarer. We're in this weird position where the goldbugs' argument is flipped around on them, and by their own logic dollars are now better investments. Also note that Bitcoin has fallen. Its supply constraints are no match to a literal reduction in the supply of dollars.

Question: Will the Feds stop QT before we slip into deflation?

BicycleB

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #41 on: February 06, 2023, 03:27:09 PM »

Question: Will the Feds stop QT before we slip into deflation?

Assuming uncertainties exist in the Fed's collective mind about what is the power and speed of QT's effect, along with the lag time in the effect of interest rates, it seems reasonable to think we could get month to month deflation before the Fed is ready to stop QT. We might be on the brink of that already!

However, they might see the trend fast enough to reduce QT before year to year deflation, and perhaps keep year over year deflation within brief tolerable bounds.

But hey, overshooting and having serious (say, over 2% for a measurable period) or prolonged (more than 6 months) deflation seems possible too. In that case, I assume they will lighten QT pretty fast - I don't think they want deflation.

(this post is what you get by typing instantly while waiting for wiser answers, though)




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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #42 on: February 08, 2023, 07:33:45 PM »
Is this is why gold prices did not go through the roof, even as inflation raged for the past two years? Gold is mined every day, but US dollars are literally becoming rarer. We're in this weird position where the goldbugs' argument is flipped around on them, and by their own logic dollars are now better investments. Also note that Bitcoin has fallen. Its supply constraints are no match to a literal reduction in the supply of dollars.
Keeping enough context, but focusing on USD vs Bitcoin: USD is up about +7% versus the Euro, with a spike over twice that during 2022.  Compare that to BITO (Bitcoin Futures ETF) which fell 64% last year.  Suffice to say I don't agree USD and Bitcoin are related.

The price moves of ARKK (-67%) or TQQQ (-79%) seem closer to what Bitcoin experienced.  And Bitcoin's volatility seems closer to aggressive growth stocks or 3x Nasdaq 100 as well.  Because Bitcoin is so high risk, I think it becomes the first thing people sell when markets turn downwards.  Perhaps it is no better than ARKK, but BITO could serve as a leading indicator of investor fear.

Speaking of fear, yesterday's -1% drop on the S&P 500 finally pushed CNN's Fear & Greed Index down from "extreme greed" to "greed".  Admittedly, the numeric change was minimal, and I don't know how they drew the line between those categories.
https://edition.cnn.com/markets/fear-and-greed

ChpBstrd

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #43 on: February 09, 2023, 08:44:46 AM »
Is this is why gold prices did not go through the roof, even as inflation raged for the past two years? Gold is mined every day, but US dollars are literally becoming rarer. We're in this weird position where the goldbugs' argument is flipped around on them, and by their own logic dollars are now better investments. Also note that Bitcoin has fallen. Its supply constraints are no match to a literal reduction in the supply of dollars.
Keeping enough context, but focusing on USD vs Bitcoin: USD is up about +7% versus the Euro, with a spike over twice that during 2022.  Compare that to BITO (Bitcoin Futures ETF) which fell 64% last year.  Suffice to say I don't agree USD and Bitcoin are related.

The price moves of ARKK (-67%) or TQQQ (-79%) seem closer to what Bitcoin experienced.  And Bitcoin's volatility seems closer to aggressive growth stocks or 3x Nasdaq 100 as well.  Because Bitcoin is so high risk, I think it becomes the first thing people sell when markets turn downwards.  Perhaps it is no better than ARKK, but BITO could serve as a leading indicator of investor fear.

Speaking of fear, yesterday's -1% drop on the S&P 500 finally pushed CNN's Fear & Greed Index down from "extreme greed" to "greed".  Admittedly, the numeric change was minimal, and I don't know how they drew the line between those categories.
https://edition.cnn.com/markets/fear-and-greed
Yes, I personally agree that neither gold nor cryptocurrencies are currencies. Many people disagree though, and see them as competitors to the USD, Euro, Yen, etc. I do recall both being suggested by many pundits and commenters on this board as an inflation hedge in recent years.

The hypothetical play would be to trade dollars for gold/crypto, watch the dollars lose value, and then trade the gold/crypto back into dollars, pocketing the difference and preserving purchasing power. That plan utterly failed during the worst outbreak of inflation in 40 years. But what was the reason it didn't work?

You are correct that cryptocurrencies are not connected to USD, and I would add neither is gold. Even the promoters of the trade were saying that these were bets on the behavior of other investors. I.e. "get into gold/crypto now before the inflation panic makes everyone want these assets!!!"

As it turns out, periods of high inflation are exactly the time when the Fed makes dollars more attractive to own, by raising interest rates and doing QT. This part was missing from the goldbugs' / cryptobugs' plan, and contributed to the plans' failure. The other failed component was the assumption that other investors would reflexively pile into crypto/gold if the Fed printed a ton of dollars or if inflation started going up. The investors stayed in USD because of their expectations about what the Fed would do.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #44 on: February 09, 2023, 11:39:00 AM »
Is this is why gold prices did not go through the roof, even as inflation raged for the past two years? Gold is mined every day, but US dollars are literally becoming rarer. We're in this weird position where the goldbugs' argument is flipped around on them, and by their own logic dollars are now better investments. Also note that Bitcoin has fallen. Its supply constraints are no match to a literal reduction in the supply of dollars.
Keeping enough context, but focusing on USD vs Bitcoin: USD is up about +7% versus the Euro, with a spike over twice that during 2022.  Compare that to BITO (Bitcoin Futures ETF) which fell 64% last year.  Suffice to say I don't agree USD and Bitcoin are related.

The price moves of ARKK (-67%) or TQQQ (-79%) seem closer to what Bitcoin experienced.  And Bitcoin's volatility seems closer to aggressive growth stocks or 3x Nasdaq 100 as well.  Because Bitcoin is so high risk, I think it becomes the first thing people sell when markets turn downwards.  Perhaps it is no better than ARKK, but BITO could serve as a leading indicator of investor fear.

Speaking of fear, yesterday's -1% drop on the S&P 500 finally pushed CNN's Fear & Greed Index down from "extreme greed" to "greed".  Admittedly, the numeric change was minimal, and I don't know how they drew the line between those categories.
https://edition.cnn.com/markets/fear-and-greed
Yes, I personally agree that neither gold nor cryptocurrencies are currencies. Many people disagree though, and see them as competitors to the USD, Euro, Yen, etc. I do recall both being suggested by many pundits and commenters on this board as an inflation hedge in recent years.

The hypothetical play would be to trade dollars for gold/crypto, watch the dollars lose value, and then trade the gold/crypto back into dollars, pocketing the difference and preserving purchasing power. That plan utterly failed during the worst outbreak of inflation in 40 years. But what was the reason it didn't work?

You are correct that cryptocurrencies are not connected to USD, and I would add neither is gold. Even the promoters of the trade were saying that these were bets on the behavior of other investors. I.e. "get into gold/crypto now before the inflation panic makes everyone want these assets!!!"

As it turns out, periods of high inflation are exactly the time when the Fed makes dollars more attractive to own, by raising interest rates and doing QT. This part was missing from the goldbugs' / cryptobugs' plan, and contributed to the plans' failure. The other failed component was the assumption that other investors would reflexively pile into crypto/gold if the Fed printed a ton of dollars or if inflation started going up. The investors stayed in USD because of their expectations about what the Fed would do.
I completely agree with you on this. That's exactly why I'm heavily invested in cash right now. Sitting on ~$350K between Cash, CD's, and iBonds. I think I will likely continue to do that and move away from the bonds I hold in my IRA ~$170K worth. I was always nearly 100% equities during accumulation and then shifted some over to bonds when I retired.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #45 on: February 09, 2023, 01:28:50 PM »
Asset: VDE (Vanguard Energy Index fund)
Price: $125.13 as I write.
Rationale: Bought just before New Year's after reading an account of China's abandonment of COVID restrictions, and some Western comments that believed it would take China a while (six months, maybe) to gear up/ reopen. My assumption is they'll gear up much faster - everybody sick at once, then a burst of activity all at once, affecting energy prices. A more direct manufacturing materials index would have been a better pick but I imagine a temporary advantage over the next few months if my "theory" proves out.

From this perspective, trigger for sale should presumably be articles noting China's rapid reopening, especially if they point to increased buying of oil and other materials. Bonus points as sale trigger if articles note price increases for oil and other materials, or a divergence in which energy or manufacturing materials pricing rises less/ falls more than broader prices. Weak sauce, but there you go.

I don't have much confidence in this but put some $ into it, partly for other portfolio reasons.

I bought VDE when oil was cheap and bought more when it got silly cheap. I should probably give some serious thought to selling at least some of it now… thanks for the reminder. Definitely made a huge difference in my portfolio performance in 2022.

My original reasoning was two fold.

1) The price of oil was significantly cheaper than the value it added to the world and the companies that produced it wet therefore also undervalued. It seems like this is still true, which is an argument for staying in VDE.

2) Owning the means of production is a personal hedge against high fuel prices. Now that we’re FI the stash is large enough that shares of oil producers I own through VTSAX are probably sufficient for this purpose.

Current argument to hold: supply looks tight enough that any number of shocks could push prices and profits higher yet.

Arguments to sell:
1) Despite a hesitant admission of the need for oil and gas for the foreseeable future this week the Biden administration is at least publicly hostile towards oil companies. It’s just good populism, no one shed any tears when they sold oil at a loss in 2020 but everyone gets mad when they make record profits now… that probably puts a limit on how high profits can go.
2) I live in a petrostate. My hedge might be making me overweight on oil and I do believe it will eventually go away. Not this decade but eventually it will! I don’t want to be the last one holding the stock when it does.

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #46 on: February 10, 2023, 06:12:32 AM »
1) Despite a hesitant admission of the need for oil and gas for the foreseeable future this week the Biden administration is at least publicly hostile towards oil companies. It’s just good populism, no one shed any tears when they sold oil at a loss in 2020 but everyone gets mad when they make record profits now… that probably puts a limit on how high profits can go.
My only bankruptcies in 2020 were small-cap oil stocks - oil had a brutal 2020.  Those companies aren't around to profit now, allowing other companies to take their market share.  Add in Russia and countries avoiding Russian oil, and you get 2022.  Unfortunately, providing context doesn't make a good story for the news or politicians.

While 2022 isn't likely to repeat, oil might keep up with the S&P 500 and even diversify recession risk.  Economists also worry more about next winter than this one, which could be worth researching for your investment thesis.

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #47 on: February 10, 2023, 10:16:40 AM »
1) Despite a hesitant admission of the need for oil and gas for the foreseeable future this week the Biden administration is at least publicly hostile towards oil companies. It’s just good populism, no one shed any tears when they sold oil at a loss in 2020 but everyone gets mad when they make record profits now… that probably puts a limit on how high profits can go.
My only bankruptcies in 2020 were small-cap oil stocks - oil had a brutal 2020.  Those companies aren't around to profit now, allowing other companies to take their market share.  Add in Russia and countries avoiding Russian oil, and you get 2022.  Unfortunately, providing context doesn't make a good story for the news or politicians.

While 2022 isn't likely to repeat, oil might keep up with the S&P 500 and even diversify recession risk.  Economists also worry more about next winter than this one, which could be worth researching for your investment thesis.

Yeah, I see 2020 as a clear example of the advantage of owning the energy index. The assets of the companies that go under are bargain deals for the companies that didn’t.

I’m sure Russia would like to see 2022 repeat, but I’m less certain they can actually pull it off.
https://us.yahoo.com/news/russia-says-cut-oil-production-100958234.html

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #48 on: February 24, 2023, 11:00:39 AM »
Asset:
FEDERAL HOME LOAN BANKS
Callable, Next Call 06-09-2023 @ 100.000
CUSIP: 3130AUX74
Maturity: 3/9/2028
Rating: AAA/AA+

Price:
$999.50
Yield to Worst: 5.762%

Rationale:
Today I'm intrigued by the observation that the yield curve is heavily inverted for US treasuries, but not so much for A-AAA Corporate Bonds, A-AAA Municipals, or government-backed A-AAA Agencies,.

In theory, the treasury yield curve is heavily inverted because investors expect interest rates to be cut in the next couple of years. There's higher demand for long-duration treasuries because investors want to lock in whatever rates they can get today before the rate cuts occur.

However, this same theory cannot explain why other fixed income assets do not have a similar inverted yield curve. We're not talking about a discount due to higher risk, because as you'll notice below the yield curve look different across various low-risk and risk-free assets. For treasuries, the highest yields occur at the 6-month duration. For FDIC-insured perfectly safe CDs, however, the highest yields are available at the longest durations. For AAA, government-backed agency debt such as the bond selected above, one can get much higher rates at 5 years maturity than with treasuries.

It seems there is an exploit possibility to buy the agency debt instead of treasuries, and lock in highly positive real rates of interest well after the rate cuts. Bear in mind, the treasuries/TIPS markets are predicting a 5-year inflation breakeven of 2.5%. If that happens, investors in these fairly-liquid bonds would be earning relatively large real returns without any significant risk.

MustacheAndaHalf

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Re: Most Intriguing Investment Idea of the Day Thread
« Reply #49 on: February 24, 2023, 01:21:17 PM »
My only bankruptcies in 2020 were small-cap oil stocks - oil had a brutal 2020. 
Yeah, I see 2020 as a clear example of the advantage of owning the energy index. The assets of the companies that go under are bargain deals for the companies that didn’t.
Just to provide an accurate impression, I bought one large cap oil stock (OXY) and three small or micro cap oil companies.  Of the three small stocks, two went bankrupt, which on the surface suggests sticking with an oil index.

The third small cap stock was Callon Petroleum (CPE), which I bought near $10/sh and sold near $46/sh roughly a year later.  But I also switched most of that investment to call options, which performed even better (9.6x).  Even when you divide the performance by 3 to reflect bankruptcies, the returns become +50% (stock) and +220% (call options).  So for me, it is more accurate to say indexing was inferior to buying beaten up stocks during 2020.

I suppose buying beaten up oil stocks was my best investment idea of 2020, but it was a larger part of "An experiment" where I sought to buy beaten up stocks and hold them until recovery or bankruptcy.

 

Wow, a phone plan for fifteen bucks!