Hello Everyone! I am starting this thread to post my best investment ideas that I have or will be executing. I am a CFA and CPA working in the asset management industry and have experience investing since 2007 including stocks, options and futures. My analysis will be based on info I hear/read up on from analysts, hedge funds, portfolio managers, financial news, filings and other randomness. My goal is to organize my research here and hope to provide some valuable insights. Join in and offer your thoughts! Call me out or poke holes in my analysis if I'm not making sense! Love hearing others' perspective! Cheers, Sai Disclaimer: My posts relate to my own portfolio decisions. You bear responsibility for your own investment research and investment decisions. I do not provide any personal/individualized investment advice or advice regarding suitability of any particular investment.
Hi, welcome! Your intro sounds very interesting. Good luck with your journal. PS: I've borrowed some portions of your disclaimer; I hope you don't mind
There are many website that can give you useful trading information. I found that the Tradorax website contains a lot of insight about trading. I use the economic calendar and the asset index to stay updated on the trading market. Enjoy
Yeah not sure about Tradorax, dont see any info other than to sign up for a brokerage account - are you using them Natalie? looks like they aren't licensed or regulated - be careful I personally use this site for an economic calendar. It also explains the economic indicators for anyone that is a beginner or hasn't heard of them before. FOMC meeting today at 2PM!! http://mam.econoday.com/byweek.asp?cust=mam&lid=0 For general market feel/visualization I use the site finviz. It's pretty solid, gives you a great visual representation of S&P 500, World or ETF sectors. You can adjust to see performance over a specified time period as well.
you must be joking. it reminds me years ago posters on yahoo finance would post a sentence or two with a link. the address would replace an obvious letter with an asterisk. believe it, nobody cares. on this chat board there are posters, with a surfeit of hubris, who worry that their broker will front run their trades.
Alright folks, here is an investment idea that I have come across from a buddy that was working at a hedge fund. It's not super popular and a lot of the asset management firms can't really even invest in it due to restrictive mandates. But it's super easy to get into and quite liquid as it trades on the NYSE. I am talking about JPM TARP warrants. Disclaimer: I am long these warrants. JPM’s stock price is currently depressed relative to its fundamental valuation. The JPM TARP warrants, trading on the NYSE, present an attractive opportunity to participate in the company’s growth. They provide a truly asymmetric risk/return profile. JPM’s stock price need only increase 1.7% cumulative in 3 years to breakeven, yet they have the potential to compound in the mid-20s assuming conservative estimates. Stock Price: $58.77 Warrant Price: $17.53 Strike: $42.246 Expiry: Oct 28, 2018 Intrinsic Value: $16.524 (i.e. currently trading at a 6% premium to intrinsic) TARP Warrants Before I explain further, just a quick note on TARP warrants for those that are unfamiliar: In the financial crisis in 2008, the Federal government injected $245 billion into the banking system using tax payers’ money to provide liquidity to several banks as part of the Troubled Asset Relief Program (TARP). In return, the Treasury received preferred equity and warrants as a deal sweetener. Given that the U.S. Treasury’s mission is to promote economic growth rather than profit from institutions, as the banks started paying back the TARP funds, the U.S. Treasury sold the warrants to private investors as markets recovered. They are now listed on the main U.S. financial exchanges. Unique Features of the warrants These warrants have unique financial features which present an attractive opportunity to participate in JPM’s growth compared to other LEAPs and stock warrants. They contain a number of anti-dilutive properties that are not commonly known to investors: 1) The expiry date is long term (October 28, 2018) · When initially sold to the public they had an expiry of 10 years. Presently there are almost 3 years to expiration, which is a longer time horizon than any OTC option. 2) Exercise Price Adjustment for Dividends · Anti-dilutive feature which helps maintain warrant value 3) Adjustment to the Number of Shares each warrant can buy · Warrant Share Number will be increased as of the record date for each quarterly dividend declared in an amount above $0.38/share (last dividend was $0.44 on Jan 4, 2016) · Anti-dilutive feature which can result in being able to exercise the warrants for more shares than originally purchased by the time of exercise 4) Very low time premium · The warrants offer unprecedented low cost for long dated options on America’s largest banking institution by asset size. · Currently the warrants are trading at a 6% premium to intrinsic value even though there are still 3 years to expiration. There is a significant amount of time before expiration, which investors typically pay a large premium for; presently, premium is quite low for such a long time horizon. · JPM need only a 1.7% return in 3 years to breakeven on the warrants. [$58.77 *1.017 = $59.77, $59.77 less strike of $42.246 = $17.53 (current price of warrants)] Bullish Case for JPM I have several points as to why I am bullish on JPM but don't want to go on too much of a rant. In brief, 1) they are continually increasing market share, 2) they have a great balance sheet, 3) excess capital (they are not only consistently increasing dividend's but also perform share buybacks) 4) they have very low valuation multiples in comparison to competitors as well as historic averages. 5) Jamie Dimon, the CEO, just bought $25MM worth of shares in January. That doesn't happen often considering CEOs are already compensated so heavily with their company's own stock through stock option plans/bonuses. I wanted to add more to my warrant position in January but was already pretty heavily invested so I laid off. Funny because the day I contemplated adding more I didn't and the next day my buddy sent a link detailing Dimon's purchase haha I trade and I invest. The difference in this idea is that it is an investment. Therefore, as where I normally would have a stop, I actually double down when the price dips. When it hit $15/$16 in September I bought some more - it was trading below book value at that point. At these levels the warrants are still very attractive. Valuation I did this valuation around January or so, using data off of Bloomberg, but it is still relevant. JPM’s structure of various business lines can make it difficult to price with a fair multiple. There is the traditional bank side (loans, branches, credit cards) and the institutional side (investment banking, asset management, etc.). For instance, one would be willing to pay a higher multiple of earnings for recurring/steady earnings from its asset management business compared to its volatile investment banking business. As a starting point, I will assume a multiple of 12x to be applied to the entire enterprise as a conservative estimate relative to historic norms.* *Its current P/E ratio of 10x is low relative to its historical averages and compared to its competitors in the industry. Its average P/E ratio since 2003 is about 14x while the average of others in the industry is around 15x. Value based on P/E Multiple Applying a 12x multiple to current consensus forward earnings of $6.12/share (for 2016) implies a value of $73/share. This valuation is still on the lower end of the scale as it does not account for the larger earnings potential of JPM due to the current low interest rate environment. If net interest margin (NIM) were to increase 0.5% to 2.7% (which were more normal rates), earnings would be approximately $7.40/share, and applying a forward multiple of 12x implies a value of $89. Of course a discount on this figure would need to be taken to determine today’s value since interest rates will not rise to make that feasible in the short term. Nevertheless, this is a large margin of safety based on the current stock price of $59. Obviously, one huge factor in NIM increasing is the Fed increasing rates back up. Looks like the picture isn't as rosy as we thought it would be up to this point as initially 4 rate hikes were planned but the warrants still have 3 years to expiry. Nevertheless, I still find the buy compelling based on the valuation argument below for Tangible BV. Value based on Tangible Book Value Growth Tangible book value has grown an average of 12% since 2006 (above 10% each year except 2013). Assuming a conservative 10% growth rate relative to historical norms brings tangible book value from $43 to $63/share by 2018. A return of 15%** on tangible common equity yields earnings of about $9.45/share for 2018. Using the same 12x multiple it implies a share price of roughly $113. Discounting this back at 10% yields a value of $77 and at 8% yields an $83 stock price. Given a $113 stock price in 2018, this yields a CAGR of 37% for the warrants versus 16% for the stock. **The average return on JPM’s tangible equity since 2003 (excluding atypical years of 2008/2009) is 15%. If all years from 2003 are included, average return is 14%. JPM Specific Risks A couple additional risks worth mentioning: 1. Another oversight in risk management such as the London Whale incident for which a trader lost on several bets in complex derivatives and managed to cover up his losses for months, resulting in a $1B penalty to JPM. JPM has ability to absorb such fines however the risk is that such charges delay growth. 2. Investors maintain current view and JPM continues trading at unjustly cheap valuation multiples at warrant expiration. Final Thoughts The above valuations provide a large margin of safety and with a long term view in mind there is a strong potential for high returns wIth limited downside risk when using the TARP warrants as a leveraged medium to invest in JPM. Many investors are not aware of the unique benefits of the TARP warrants and JPM offers significant upside earnings potential as the lending/interest rate environment normalizes.