Tuesday, April 29, 2008

Buffett On Mars/Wrigley

CNBC interview: Buffett On Mars/Wrigley

Thursday, April 24, 2008


Here is a brand new NY Times article from Roger Lowenstein (author of Warren Buffet - great book, and the better known book When Genius Failed: The Rise and Fall of Long-Term Capital Management), at Yahoo you don't need a login:

Triple-A Failure

From 2002 to 2006, Moody’s profits nearly tripled, mostly thanks to the high margins the agencies charged in structured finance. In 2006, Moody’s reported net income of $750 million.
BTW, Warren Buffett is a major shareholder of Moody's. In march there was a CNBC interview where he said this:
Well, it wasn't a mistake at the price we bought it. But in terms of the--the intrinsic business value of Moody's decreased last year. I mean, Wells Fargo stock was down last year. I don't think the intrinsic business value shrunk. In fact, I said I thought it probably increased a touch. And there's a lot of companies whose stock went down where the intrinsic business value did not go down, or maybe went up. But I--our holding a Moody's, which is a significant holding, they're--I don't think there's any question that the intrinsic business value of a Moody's shrunk last year, just as McGraw-Hill owns S&P and the S&P component of McGraw-Hill, it--they have less of a moat around them and they're going to be affected for a long time by the experience of the last couple years.
I think I remember he also said something that in order to dump the Moody's stock now, he would destroy the market and it is kind of impossible to sell now this big chunk, even if he wanted to. But maybe that was in relation to PetroChina, which he sold on the way up.
In case, click through here to the original reference.

Saturday, April 19, 2008

Huge Charts

STOCKscreener.info has a new maximum size for charts. Have a look at this huge UBS chart.

Here is a (also new) more moderate square sized chart of Credit Suisse for the same time frame.

Wednesday, April 16, 2008

Regression Lines

Small feature, but I am not aware of other places on the web where you can see this for free. STOCKscreener.info has now linear regression lines available for stock charts. It is maybe just a fun feature, but here are a few examples:

DJI.DJI chart
SP.MDE chart
DJI.DJI chart
To play around yourself, just click on any of the images.

Monday, April 14, 2008

Backtesting Moving Averages

Ever looked at a chart with a moving average (MA) and thinking if it would have resulted in an outperformance when buying and selling whenever the moving average would have been crossed. Even played around with different settings for the MA with whatever tool or web site you have used?

Now with STOCKscreener. i n f o you can SEE both, the moving average AND the backtested result immediately next to (below) each other:

Let's take the Euro Stoxx 50 Index and what everyone looks at, the 200 day moving average:

Buying whenever the moving average is crossed from below and selling on the way down, trading this index since 1987 would result in an overall gain of 436.65%.

Now this is indeed a decent outperformance of simply buying and holding. Buy and hold would result in a total gain of 307.55% (just 6.82% annually, before you get too excited:).

Here are the details of when the crossing (and buying and selling) of the MA took place.

So this is all nice and beautiful, but, maybe it is not very realistic that we would be able to get in and out of any financial instrument matching this index at exactly the prices of the intersections (for an index on top we would have to buy and sell an ETF, future, or mutual fund instead).
So let's say we do the same exercise with a transaction cost (and slippage) of 1% for a single buy or sell (so in and out costs us 2%).

Wow, all of a sudden the total return drops to a meager 54.33% (again, see the details here)! The big difference is because there have been 124 transactions, each costing us 1% of our capital, and then there is the compounding effect.

Hmm, ok, to make money in real life, what can we do. Of course, we can try to reduce the number of transactions while still capturing the big price movements. So here is the picture for using a 355 day moving average:

This reduces the number of transactions to 58, but as you can see above, still captures the big moves (and leaves out the big drawdown!). And the result improved a lot to 275.21%.
Still, not as good as the 200 day MA that had no transaction costs. If you look at the list of transactions, you will see that there are a view big profits and a lot of smaller losses.

We can introduce a third parameter, an extra threshold that needs to be crossed before a transaction will take place. This will avoid doing too many extra trades while the share price jitters around the moving average. So requiring the index price not only to cross but to cross an extra 1% before exercising a trade will more than half the number of transactions down to 22 and the profit jumps up to 453.36%, more than the initial result with the 200 day MA and NO transaction costs!

A threshold of 2% will increase the result even slightly more so. Anyway, the threshold will lead to fewer trades and a reduced number of small losses. But this also decreases the size of the big profitable trades a bit.

BTW, the moving average used is actually the simple moving average (SMA). Also, the results are as of 2008-04-14 and sure will change over time.

Feel free to play around yourself for an optimal set of parameters or experiment with other indices or stocks of your interest.

Sunday, April 13, 2008

Citigroup's Capital

Reuters: At Citigroup, a big loss is only part of the story

Here is some analyst remark:
And he identified plenty of exposures: $47 billion tied to "structured investment vehicles," $43 billion of leveraged loans to fund corporate buyouts, $29 billion of "super-senior" collateralized debt obligations, $24 billion of subprime mortgages, $21 billion of home equity loans with high loan-to- value ratios, $20 billion of commercial real estate trading assets and $4 billion tied to "monoline" insurers.
Let's see. That is USD 47+43+29+24+21+20+4=188 billion very very risky assets.

What is their equity in comparison?
Goodwill:                    41'204
Other intangible assets: 12'715
Total stockholder's equity: 113'598
Tangible equity: USD 59'679
Now if the risky assets get reduced in value by 32%, that would wipe out the entire equity.
On the other hand, in the good times, C made USD 20 billion profit a year.

BTW, according to Reuters or Google the market cap is still with 122.53 billion quite high in light of the tangible equity and risky assets (thought quite low in comparison to the former earnings power).

Saturday, April 12, 2008

Trading Journal

You can use STOCKscreener.info to organize your investment ideas and trading notes in close proximity to the basic underlying financial information in your own personal trading journal.

Read more about trading journals in general and how you can use STOCKscreener.info to keep one for yourself.

Wednesday, April 09, 2008

Box Sized Charts

STOCKscreener. i n f o   has now charts in a box size, providing a lot more space for the Y axis and still having room for more than a single chart in a row. For an example, see all all 2 year history charts of the SMI side by side in the new format:

SMI 2 years

Monday, April 07, 2008

Soros On CDS

- Credit Default Swaps USD 45 trillion outstanding world wide
- JP Morgan holds CDS in the amount of USD 16 trillion
- Bear Stearns had USD 2.5 trillion on CDS outstanding

See the whole Financial Times video interview: Soros

Pointer is from The Big Picture.

Here is a list of JP Morgan and other US investment bank derivatives volume.

That image is from Bear Stearns: The Smoking Gun(s) (and certainly not by Walter Bagehot), also found via The Big Picture.

And, the same blog as of 2008-03-29 has more on CDS: Debt Becomes Death, the Destroyer of Worlds

Friday, April 04, 2008

Luqman Arnold to UBS

Luqman Arnold's letter to UBS

Now not very exciting what Mr. Arnold has to say, but tell me, why don't the press (at least on the web) point you directly to the original source more often?!
...it is important from a prudential risk management viewpoint to observe that UBS’s leverage as measured by the ratio of total tangible assets to tangible equity doubled from approximately 40x at the end of 2002 to approximately 80x at the end of 2007; and that this leverage has increased again following the recently announced losses. UBS’s reputation has been comprehensively destroyed by proprietary trading activities totally divorced from any client business; the trading strategy exposed the bank to extreme concentration risk based on the single bet that US house prices would not fall.
Personally I think UBS should not sell the Investment Bank, but should absolutely stop any proprietary trading. Of course, there might be some top notch trading going on there that might well be worth spinning off.

Wednesday, April 02, 2008

China Correction

OK, with all the sub-prime attention, but as everyone has expected sooner or later, Chinese stock market is in the middle of correction, or bubble burst:

SSEC.SS chart
The Shanghai Composite Index is:

-45% from the high

-7% below the two week moving average

NY Times: To See a Stock Market Bubble Bursting, Look at Shanghai
"These days my family quarrels a lot," says Zhang Liying, 55, a retired hotel waitress who with her husband invested all their savings in the stock market. “My husband asked me to sell; I wanted to hold for a while. Now my husband condemns me as so stupid that we lost our family’s savings.”

Si Dansu, 68, and a retired engineer, is even more distraught, but she blames the government.

“I devoted my whole life to the country. I went to the countryside after graduation, and worked as an engineer in a Shanghai factory until retirement. I invested almost all my savings and retirement fund in the market 10 years ago. But now I’m totally penniless. All my stocks went down.”

Other parts of Asia are as bad, or worse. In India, stock prices have plunged 31 percent in Mumbai; they are off 31 percent in Japan and a whopping 53 percent in Vietnam, another booming economy. Angry investors have burned a securities regulator in effigy in Mumbai, and some are in tears in Ho Chi Minh City, Vietnam.

“Some of them have cried,” says Nguyen Quang Tri, 74, a retired cement company manager who was visiting a Ho Chi Minh City brokerage house this week. “I have my own equity, but most of the people here borrowed money from the bank.”
“Look,” he said, “it took two years to go from 1,000 to 6,000 but two months to go from 6,000 to 3,500.”
The Shenzhen Component Index has still some height of fall, thought:

399001.SSE chart

Tuesday, April 01, 2008

SMI Watchlist

All 20 SMI charts spanning the last two years all on a single page (daily updated):

SMI Watchlist

Of course, you can create your own chart lists at STOCKscreener.i n f o, public too if you like.

If the big images are too much for you, here is a grid version, ten lines with all small charts.

Zuberbühler on UBS

Remarkable video with the boss of the Swiss Federal Banking Commission:
EBK-Direktor Daniel Zuberbühler zur UBS

UBS CS Marcet Cap

Here is an interesting comparison (in German) of UBS and CS market capitalisation on the Philipp Vontobel Investment blog:

Vergleich UBS-CS

Unfortunately I am a bit late on this post. Things are moving very very fast and it will be interesting to follow recent and further developments.

Also from the PVI blog is another astonishing comparison, that of Nestle and UBS:

Also, if you are in a good mood because you don't own any UBS stock, or a bad mood because you do, you can give it a try and maybe win some of the fine wine Philipp is giving away via a lottery at his site.