Regret Minimization Framework by Jeff Bezos

sauce

Here’s the story as told by Brian Christian and Tom Griffiths, in their excellent book, Algorithms to Live By: The Computer Science of Human Decisions:

Regret can also be highly motivating. Before he decided to start Amazon.com, Jeff Bezos had a secure and well-paid position at the investment company D. E. Shaw & Co. in New York. Starting an online bookstore in Seattle was going to be a big leap — something that his boss (that’s D. E. Shaw) advised him to think about carefully. Says Bezos:

“The framework I found, which made the decision incredibly easy, was what I called — which only a nerd would call — a “regret minimization framework.” So I wanted to project myself forward to age 80 and say, “Okay, now I’m looking back on my life. I want to have minimized the number of regrets I have.” I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried. I knew that that would haunt me every day, and so, when I thought about it that way it was an incredibly easy decision.”

Keep Calm and Carry on investing - Howard Marks

• 90s were the best. and it doesn't get better. if it doesn't get better, then it gets worse.

Masayoshi at it again, first Sprint, now T-Mobile

sauce

SoftBank Group Corp.’s Masayoshi Son has a 300-year plan, so if combining Sprint Corp. and T-Mobile US Inc. takes a few years longer than he hoped, that’s OK.
Son, who became one of the world’s wealthiest men by turning Tokyo-based SoftBank into a telecommunications and technology powerhouse, still would like to merge the U.S. wireless providers, according to people familiar with his thinking. SoftBank owns more than 80 percent of Sprint after acquiring the majority stake in 2013, part of Son’s famed plan to build a business empire that can endure through the centuries.
Son considered buying T-Mobile in 2014, before abandoning the effort when officials at the U.S. Federal Communications Commission and Justice Department signaled they were against a theoretical merger. There’s a key figure who will determine if Son makes another run at T-Mobile: the yet-to-be named new head of the FCC. If Son feels that person is more amenable to a combination to take on market leaders AT&T Inc. and Verizon Communications Inc., he will probably try again, said the people, who asked to not be identified because the matter is private.

Keep going for the wins until you get the experience to make it easier the next time around

you have to keep going for the wins until you get them.

then it becomes easier. because you did it before.

http://joefahmy.com/2011/09/28/michael-jordan-on-tiger-woods/

The following is an article from ESPN the Magazine written by Michael Jordan back in May 2001. He talks about Tiger Woods, the killer instinct, and performing in the clutch. When I read this, I find so many similarities to stock trading. I hope that you also see the correlations, as we all strive to become better traders.

The ability to perform in the clutch comes from having the confidence to know that you can. Where does that confidence come from? From having done it in the past. Of course, you have to do it that first time, but after that, you’ve got a model you can always relate back to. It gives you comfort doing something you’ve done before.The athlete today with more of that kind of confidence than anyone is Tiger Woods. Look at his record. If he’s got a lead, he keeps it. If he needs a big shot, he makes it. And the more he does it—the more he comes through when he has to—the more confident he is he can do it again.Of course, Tiger’s an athlete for golf, nothing else. I can take him to a basketball court and bet him I can beat him 7 out of 10 times shooting left-handed, and he wouldn’t have a chance. That’s because my confidence is so strong. I wouldn’t feel any pressure.Golf? It’s the other way around. One time we played, he spotted me 5 shots a side. I go out and shoot 75. Guess what he shoots? 65. He didn’t beat me, be he didn’t lose. I’m pretty sure if he’d given me 12 strokes he’d have shot a 63. Fifteen strokes? I don’t know. I think I’d win that bet. But I’m not sure.The key to hitting a golf ball is the same as for shooting a jump shot. You just do something repetitively, until it works consistently. A golf swing or a basketball shot doesn’t have to be technically perfect to work for you. There are guys on the Tour who don’t have perfect swings like Tiger, guys with big loops in their swings, or somebody like Jim Furyk. But their swings work for them.Putting is not too far from a free throw. Just you and the technique. Very comparable. You’re doing something you’ve done a million times before. But you have to block everybody and everything from your mind. If you let yourself think “What if?” as you’re doing it, you won’t.What it gets down to is confidence and pride. Confidence is based on having done it before. Tiger’s confidence is so high because of his work ethic and his past success. And he performs the way he does in the clutch today because he has such confidence. If he wants to hook it around the damn tree, he’ll do it. The rest of us don’t have that confidence, or that past success, so when we hook the stupid ball, it hits the tree.Tiger’s pride is such that he won’t allow himself to be caught off guard. He always has to stay two or three steps ahead of his competitors. That’s why he won’t take a day off. I was that way too. There were days when I didn’t want to work out, practice, whatever, but I did it because I didn’t want that next guy catching me.That’s why, if the game is tied in the last two minutes or down the stretch, I feel I have an advantage over everyone. Tiger feels the same way. But if you fail in the closing minutes, if you’re unable to make the big play, it can work against you in the future. The funny thing is, I don’t remember ever failing.

The shot I made to win the NBA Championship against the Jazz in 1998—the shot people think was my last one ever—is probably my best-known clutch moment. But the biggest shot I ever made, the one I always go back to, the one that started it all, was in the NCAA Finals in 1982. The game-winner against Georgetown. And the truth is, I didn’t realize the magnitude of taking it, because I’d never had the experience before.

You see, I’d never taken the big shot. High school? Shoot, my team never got out of the sectionals. I can’t remember any really big shots or big plays early in my career. None. The only thing that was close was in the 1981 McDonald’s All-American Game at Wichita State, when I think I made a late steal or a free throw to win. But I don’t put that on the same page with real clutch.In that Georgetown game, I had no time to think. The play was designed for James Worthy, not me. We’d called time-out and Coach Smith said, “We’re going to try to get the ball into James. But James, if you can’t get it up, swing it around. Michael should have a wide-open shot.” I knew I was the second option, so it wasn’t as if the weight was on me. By the time the ball got to me, I just had to react. Maybe that helped.If we’d had a different play set up, or if I’d thought about it in the time-out? I don’t know, maybe things would have turned out different. I imagine I would have tried to stay calm and say to myself, “Hey Mike, it’s not the end of life,” and hope for the best. I know that at really clutch times, some people try to con themselves into thinking none of it matters. But I also know that’s just a rationalization, because it does matter.My whole NBA career I always thought back on 1982. I’m not saying you can’t be confident in the clutch if you’ve never made the big play before—obviously, I was already confident before that shot. But that one moment initiated so much. Every shot after that, I felt I could make. I responded so well in those situations because I had such positive thoughts. I thrived on last-second shots. It became a trait for me.Against Cleveland in the playoffs in 1989, we could have finished the first round in Game 4, but I missed a free throw with nine seconds left. Now everybody expected us to lose Game 5 and the series. But all I wanted was another opportunity, and when we had the chance to finish them off, I did, hitting that shot over Craig Ehlo.

Why did I miss that free throw in the first place? I think I didn’t focus. I may have let negative thoughts creep in. It’s not the only time I didn’t come through. In Game 1 against the Lakers in the 1991 Finals, our first title year, we fought back to go up by two. Then Sam Perkins hit a three-pointer to put them up by one. I took what I knew was the game-winning shot—I was sure I made it, but it went in and out. It’s in the IMAX movie. The shot goes all the way down and then comes out. We lost Game 1 but swept the next four. Why did the shot come out? It wasn’t meant to be.What happens to clutch guys in the big moments is that everything slows down. You have time to evaluate the situation, and you can clearly see every move you need to make. You’re in the moment, in complete control. It’s hard to get there, something has to have you thinking that you can do no wrong. But once you do get there, you can just come out at the start of a game and generate the feeling.Being the best means winning. In college, I never averaged more than 20 points a game. If I got hot, the other team would go to a zone and take away my individual performance. But we’d find a way to win, so who cares?So many young kids in the NBA don’t think that way. Now, as the Wizards president, when I look at some of the young guys out there, I’m not sure I’d draft them, because they haven’t developed that winning attitude. A kid like Kobe? In hindsight, yeah, I’d take him. But when he first came out, I can’t say that I would have.If we have the first pick this year, I may trade it instead of running the risk with some kid who still needs so much more education, so much more experience. There are no shortcuts. You can’t just “think” you can be clutch.My comeback…well, it may not even be a comeback. But here’s the thing: You’re a great player, you’re going to play the game you love—somewhere, somehow. I know the media isn’t going to leave me alone until I decide about my comeback. But for now, right now, I wish that kid Tiger would keep everybody off my back.Just watch him win.

Faber: 50% Crash Coming! (However. . . )

Bill Miller leaves Legg Mason, buys LMM managing Legg Mason Opportunities Trust, Miller Income Opportunities Trust

• Cyclical
• Disconnect
• Macro

https://en.wikipedia.org/wiki/Bill_Miller_(finance)

http://www.bloomberg.com/news/articles/2016-08-11/bill-miller-buys-legg-mason-s-stake-in-his-fund-company-lmm

The Opportunity Trust has been up and down in 2016: the fund rose almost 10 percent in July, but is still down 8.5 percent for the year. McLemore said the fund’s recent rebound has been fueled by a shift in investor sentiment toward cyclical stocks and away from defensive ones.

http://fortune.com/2016/08/11/bill-miller-legg-mason/

With Miller’s departure, Legg Mason said, Miller acquired Legg Mason’s stake in LMM, which provides investment management services to Legg Mason Opportunities Trust, Miller Income Opportunities Trust and related strategies.

Feb 2016
http://www.cnbc.com/2016/02/03/bill-miller-i-lost-20-but-still-bullish.html

Value investor Bill Miller told CNBC on Wednesday he lost 20 percent in a month, but he thinks it's a good time to buy.
Amazon lost 18 percent in the past month and the stock is a 10 percent holding for Miller, founder, chairman, and CIO of Baltimore-based LMM. But he said it's not only Amazon. "Everything is going down."
"It took Bill Ackman and David Einhorn a year to lose 20 percent. I lost it in a month. My fund is down 20 percent in the month," Miller said on "Squawk Box," referring to the respective heads of the Pershing Square and Greenlight Capital hedge funds.
Miller, who has a strong track record, said he's been fully invested, no cash, since the 2008 financial crisis, and he's still bullish. "Lower prices mean higher future rates of return."
"The S&P [500] yields about 2.3 [percent] and dividends grew last year 9 percent," he said. "It's sort of hard to see why anyone would own a 10-year Treasury when they could own the broad market at a higher current yield."
LMM, a partially owned subsidiary of Legg Mason, has $2.1 billion of assets under management. Miller is also portfolio manager of the Legg Mason Opportunity Trust fund.
With depressed oil prices and a slowdown in China's economy, stocks logged their worst January since 2009. February has also gotten off to a volatile start — raising questions about whether the U.S. economy may go into recession.
"People think the market has some special ability to see the future. [But] the market is just people just like you and me buying and selling," said Miller. "There's disconnect between what's actually going on [economically] and what the markets are reacting to."
Take oil as an example, he said, "[historically] 85 percent of the time oil goes down, the stock market goes up. And every recession since 1970 has been at least accompanied by higher oil prices."
But in the markets now, the opposite is happening. Plunging oil prices have been driving the stock market lower, while crude gains have been pushing stocks higher.
Miller said this doesn't make any sense because "lower oil prices are unequivocally good for the U.S." 

 http://www.bloomberg.com/news/articles/2015-08-02/stock-guru-bill-miller-is-back-but-the-questions-and-pain-linger

Is Bill Miller, 65, truly a great investor or does his aggressive stock-buying strategy, scooping up out-of-favor companies, merely magnify the broader market trends -- up a lot when times are good, down a lot when times are bad?Miller has always stuck to his investment decisions regardless of popular sentiment, said Raymond ‘Chip’ Mason, the Legg Mason Inc. founder who hired Miller in 1982.
“When he first bought Amazon, everyone said he was nuts,” said Mason. “But he was convinced he was right and it turns out he was.”
Miller’s shares of the ecommerce giant in the Opportunity Trust were purchased for an average of just above $20 a share. Today they trade for more than $525.
When Netflix lost 80 percent of its value between 2011 and 2012, Miller bought the stock at about $60 a share. “It is up more than 10-fold in three years,” he said.
Miller has made changes since the last recession. He is more sensitive to broad macroeconomic developments, a policy that kept him from investing in Europe during the Continent’s debt crisis in 2011. The fund also no longer buys hard-to-sell assets such as private equity stakes, said Samantha McLemore, Miller’s co-manager.Michael Mauboussin, a Credit Suisse executive who has known Miller for more than 20 years, said Miller was and still is a smart contrarian investor. The wild swings in his reputation, said Mauboussin, need to be put in perspective.

https://www.ft.com/content/0fd6dd5a-5fc7-11e6-b38c-7b39cbb1138a

Mr Miller’s funds are no longer large enough to move the needle inside a group that manages $757bn of assets in total, across nine separately branded investment boutiques, Legg Mason has decided.
A former military intelligence officer who studied philosophy before turning to investment, Mr Miller’s former fund, the Legg Mason Value Trust, outperformed the S&P 500 for 15 straight years.

The Legg Mason Opportunity Trust — which counts Quotient Technology, an online marketing business, and the housebuilder Lennar among Mr Miller’s top picks — has proved a volatile performer since its inception in 1999. It is in the bottom 11 per cent of funds in its category over the past 10 years, according to Morningstar, in the top 1 per cent over five years, and in the bottom 3 per cent over the past year.

Fail More, Fail Faster, Fail Better & Uniqlo Boss Tadashi Yanai

Don't be afraid to fail. Fail More, Fail Faster, Fail Better.

http://www.channelnewsasia.com/news/asiapacific/i-understand-failure/3034912.html

When asked why he was not satisfied with being second or third, Mr Yanai retorted: “There's no option for us to say that at the Olympics, we're just aiming for the bronze medal. We don’t say that.

“We want to do our very best to get the gold medal,” he added. 

 Citing the UK as an example, Mr Yanai said that the 10 Uniqlo stores in London now have been doing “exceptionally well” and are “all making profits”. He points to Asia’s economic boom as the greatest stimulator for the company’s growth, adding: “What the Chinese (did) could also happen in Southeast Asia.”  

 “Right now, I don't need a successor who is like me,”
Mr Yanai said. “A job like this can't be done alone. Therefore, ideally, I would want to form a team to split all this work up with a good CEO, and this person will continue to direct operations,” he added.
And he is anxious to get them started working as a team. “I want to know if my team of successors can do a good job as soon as possible. I hope they could assume the role of protecting the company's interests.”

If you just sell when things are going badly, you’re nothing more than an investor - Shigenobu Nagamori Nidec

brings tears to my eyes, deeply moved.

http://www.bloomberg.com/news/articles/2016-08-11/the-eccentric-billionaire-who-ignores-investors-to-get-them-rich

Nagamori says he’ll choose a successor by focusing on the same metric he uses for promotions: who makes the most money for Nidec.

“I told him he mustn’t sell. If you just sell when things are going badly, you’re nothing more than an investor,” Nagamori says. “I told him I can’t give advice on investing, but I can give any amount of advice on running businesses. If you’re going to sell the business, there’s no value in having me around.”

Nagamori decries what he sees as a lack of ambition in Japan. Too many young people are content with only “small happiness,” like going home to their children in the evening rather than working late to become their company’s next president, he says.

“Making the company bigger and leaving it behind.”

Bill Gross a Gold Bull now

http://www.bloomberg.com/news/videos/b/ebb80809-8d91-4f0c-b733-2b626295fc8e

"Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels," Gross said in his latest Investment Outlook note published Wednesday.
"I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."
Gross, who runs the US$1.5 billion Janus Global Unconstrained Bond Fund, said capitalism cannot function efficiently at zero-bound rates.
He reiterated that low interest rates may raise asset prices, but they destroy savings- and liability-based business models in the process.
"Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits," he said. "Central banks seem oblivious to this dark side of low interest rates. If maintained for too long, the real economy itself is affected as expected income fails to materialize and investment spending stagnates."
Overall, global monetary policies cannot succeed without nominal growth, Gross said. "The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund," Gross said.
"Without the latter, a credit-based economy ultimately -devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth."
Gross said in the United States, 4-5 percent GDP growth is necessary, in the euro zone 3-4 percent GDP growth and in Japan 2-3 percent GDP growth.

Soros: General Theory of Reflexivity

read more: 

https://en.wikipedia.org/wiki/Reflexivity_(social_theory)

http://macro-ops.com/understanding-george-soross-theory-of-reflexivity-in-markets/

transcripts: https://www.opensocietyfoundations.org/multimedia/george-soros-open-society-financial-crisis-and-way-ahead

by the way, reflexive is also a relation defined in mathematics.

 https://next.ft.com/content/0ca06172-bfe9-11de-aed2-00144feab49a#axzz4AQ9nyngv

Reflexive feedback loops have not been rigorously analyzed and when I originally encountered them and tried to analyze them, I ran into various complications. The feedback loop is supposed to be a two-way connection between the participant’s views and the actual course of events. But what about a two-way connection between the participants’ views? And what about a solitary individual asking himself who he is and what he stands for and changing his behavior as a result of his reflections? In trying to resolve these difficulties I got so lost among the categories I created that one morning I couldn’t understand what I had written the night before. That’s when I gave up philosophy and devoted my efforts to making money.
To avoid that trap let me propose the following terminology. Let us distinguish between the objective and subjective aspects of reality. Thinking constitutes the subjective aspect, events the objective aspect. In other words, the subjective aspect covers what takes place in the minds of the participants, the objective aspect denotes what takes place in external reality. There is only one external reality but many different subjective views. Reflexivity can then connect any two or more aspects of reality, setting up two-way feedback loops between them. Exceptionally it may even occur with a single aspect of reality, as in the case of a solitary individual reflecting on his own identity. This may be described as “self-reflexivity.” We may then distinguish between two broad categories: reflexive relationships which connect the subjective aspects and reflexive events which involve the objective aspect. Marriage is a reflexive relationship; the Crash of 2008 was a reflexive event. When reality has no subjective aspect, there can be no reflexivity.
* * *
Feedback loops can be either negative or positive. Negative feedback brings the participants’ views and the actual situation closer together; positive feedback drives them further apart. In other words, a negative feedback process is self-correcting. It can go on forever and if there are no significant changes in external reality, it may eventually lead to an equilibrium where the participants’ views come to correspond to the actual state of affairs. That is what is supposed to happen in financial markets. So equilibrium, which is the central case in economics, turns out to be an extreme case of negative feedback, a limiting case in my conceptual framework.
By contrast, a positive feedback process is self-reinforcing. It cannot go on forever because eventually the participants’ views would become so far removed from objective reality that the participants would have to recognize them as unrealistic. Nor can the iterative process occur without any change in the actual state of affairs, because it is in the nature of positive feedback that it reinforces whatever tendency prevails in the real world. Instead of equilibrium, we are faced with a dynamic disequilibrium or what may be described as far-from-equilibrium conditions. Usually in far-from-equilibrium situations the divergence between perceptions and reality leads to a climax which sets in motion a positive feedback process in the opposite direction. Such initially self-reinforcing but eventually self-defeating boom-bust processes or bubbles are characteristic of financial markets, but they can also be found in other spheres. There, I call them fertile fallacies—interpretations of reality that are distorted, yet produce results which reinforce the distortion.

The Bond King Gundlach on Brexit and since then

http://doubleline.com/dl/wp-content/uploads/Barrons-TheBondKingonBrexit.pdf

http://www.barrons.com/articles/jeffrey-gundlach-on-stocks-trump-and-gold-1468036872
dated 11th July 2016

Despite your risk aversion, you like emerging market bonds. What is the story there? 

It is a dollar play. The weaker dollar has been very good for emerging market debt, which is up 12% year to date. We expect the dollar will continue to be weak. For the past year or so, maybe even longer, there has been an incredible correlation between the probability that the Fed is going to hike interest rates and the value of the dollar. The probability of a rate hike is pinned to the ground right now. The market says there is almost zero chance the Fed will raise interest rates through November of this year. The dollar is going to have a hard time, despite the fact that it has been strong recently on the Brexit upset.

since then

How much lower could yields on Treasury bonds go? Could we see a 1% yield? 

We just passed the all-time low on the 10-year yield of 1.39%, which we saw in July 2012. It is no surprise the 10-year has been strong after Brexit. I’m not at all convinced that we are going to see much lower yields in the U.S. But even if we do, you’re talking about a de minimis profit. Even if the 10-year yield drops another percentage point, how much will you make? Less than 10%. There are better ways to speculate.

since then

Such as? 

Gold miners have a very high probability—if you bought them today and were disciplined—of making 10%. One of the things driving markets lower is a declining belief in—and enthusiasm for—central-planning authorities and the political establishment. In this environment, gold is a safe asset. There’s an 80% chance of making 10% in gold; the probability of a 10% gain on Treasuries is 20% at best. I’ve never seen a worse risk-reward setup.

since then

That doesn’t make for a very exciting portfolio. 

Our portfolios are high-quality bonds, gold, and some cash. People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500.

since then

Cashflow is the most important thing - Li Ka Shing interview

• the world changes a lot: you are doing well now, doesn't mean you should be set in your ways.
• always be very careful with cashflow 
• so you have the extra capital to get into any industry you want.
• cashflow is the most important thing.
• In development phase, don't forget about stability, in stability, don't forget about development.
• whatever industry I get into, I buy the books/publications about that industry.
• It got to the point, I was spending 20-30% of time in the factory and the rest thinking about what to do and planning for the future.
• Cheung Kong named after YangTze River.
• at 22, he seemed very humble but in his heart he was very arrogant, he said it is not good.
• Cheung Kong is named to remind him to stay humble to attract many 'streams' onto him.
• in company management use western management model with checks and balance.
• in internal philosophy, use the many useful parts of chinese Confuscian philosophy.

• wears seiko, cheap watch (comparatively) so he doesn't have to be careful with a $100K watch.
• his watch is 30min early.
• having money doesn't mean you will be happy but the reality is you can't do anything without money.
• view your charity as your own child and treat its assets apart from family assets.
• it is very important for people to have faith and religion.
• many wealthy people weighed down by mental stress.
• alway be industrious; the virtuous welcome onerous duties.
• seek improvement ceaselessly.
• tax companies extra 1% or 2%, poor people will benefit but important: no free lunches.
• education is primary purpose of his charity.
• 潮汕 has 17 million people but no university so he started Shantou University.
• happy person by nature, optimistic and driven. 

• he has a share certificate: AIG shares 2007 share price USD72.97 total market cap USD 189 Bn. in 2008 share price USD 1.25 market cap only USD 16.76bn down 91%
• he doesn't want to damage AIG reputation but just a lesson to his children.
• the lesson from this share certificate: be very careful managing company & don't invest like gambling.

A grey swan event coming to an end? and the shorting of credit - Bill Gross

We have had 40 years of a good run, 

bonds and real estate included!

He then goes on to explain why the "carry" trade will no longer provide the kind of returns investors are used to.

• Duration is unquestionably at risk in negative yielding markets. A minus 25 basis point yield on a 5-year German Bund produces nothing but losses five years from now. A 45 basis point yield on a 30-year JGB offers a current “carry” of only 40 basis points per year for a near 30-year durational risk. That’s a Sharpe ratio of .015 at best, and if interest rates move up by just 2 basis points, an investor loses her entire annual income. Even 10-year U.S. Treasuries with a 125 basis point “carry” relative to current money market rates represent similar durational headwinds. Maturity extension in order to capture “carry” is hardly worth the risk.

• Similarly, credit risk or credit “carry” offers little reward relative to potential losses. Without getting too detailed, the advantage offered by holding a 5-year investment grade corporate bond over the next 12 months is a mere 25 basis points. The IG CDX credit curve offers a spread of 75 basis points for a 5-year commitment but its expected return over the next 12 months is only 25 basis points. An investor can only earn more if the forward credit curve – much like the yield curve – is not realized.

• Volatility. Carry can be earned by selling volatility in many areas. Any investment longer or less creditworthy than a 90-day Treasury Bill sells volatility whether a portfolio manager realizes it or not. Much like the ”VIX", the Treasury “Move Index” is at a near historic low, meaning there is little to be gained by selling outright volatility or other  forms in duration and credit space.

• Liquidity. Spreads for illiquid investments have tightened to historical lows. Liquidity can be measured in the Treasury market by spreads between “off the run” and “on the run” issues – a spread that is nearly nonexistent, meaning there is no “carry” associated with less liquid Treasury bonds. Similar evidence exists with corporate CDS compared to their less liquid cash counterparts. You can observe it as well in the “discounts” to NAV or Net Asset Value in closed-end funds. They are historically tight, indicating very little “carry” for assuming a relatively illiquid position.

http://www.bloomberg.com/news/articles/2016-05-26/gross-trying-to-short-credit-to-reverse-four-decades-of-instinct

http://www.zerohedge.com/news/2016-06-02/bill-gross-explains-why-he-now-shorting-credit

https://www.janus.com/bill-gross-investment-outlook

Masayoshi Son: Everyone needs $100 million.

https://www.hottopics.ht/stories/how-to/masayoshi-son-ceo-lost-70bn-in-day-before-conquering-world/

 The conversation that followed reveals everything about Son’s audacity. Rather than leap gratefully at such an opportunity, Masayoshi Son advised his visitor that Joshin Denki would have to let go its existing suppliers and trade exclusively with Softbank. Why? Because his dedication to software would take Joshin Denki to the top. “If you want to be the number one PC dealer in Japan, you have to find the number one guy in software distribution. That’s me,” he said. 

Son loved to buy and sell, throwing money into 600 technology companies, including GeoCities, Ziff-Davis Publishing and the Comdex computer show. Some of these bets went disastrously wrong, such as Kingston Technologies, which lost Softbank $1 billion. 

Ziff-Davis’s chief executive, Eric Hippeau, introduced Son to a struggling small company called Yahoo, which wanted $5 million to develop its search engine tech. 

Famously, Masayoshi Son offered $100 million. Yahoo founder Jerry Yang replied that they didn’t need that much. 

To which Son countered: “Everyone needs $100 million.” 

Thus, Softbank owned more than one-third of Yahoo when it went public in April 1996. 

And Masayoshi Son was similarly prescient about Alibaba, offering a big sum to its CEO Jack Ma when he hadn’t even asked for it. As a result, Softbank got a third of Alibaba – a stake worth $75bn on the day the Chinese giant IPOd last month. SoftBank’s $20 million investment in Alibaba back in 2000 probably ranks as one of the greatest ever.

The only way to defend is to attack

Never defend your diminishing moat but attack into others' expanding moat.

Betting the House - Druckenmiller

http://www.businessinsider.sg/druckenmiller-on-concentrated-bets-2015-4/

The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. 

I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. 

I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved, which was if you see – only maybe one or two times a year do you see something that really, really excites you… The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully. 

-Stan Druckenmiller

Druckenmiller shared the story of he and Soros’ famous British pound short bet that “Broke the Bank of England.” Druckenmiller said that he had pitched his short idea to Soros and suggested that they put 100% of the fund in the trade.

Soros told Druckenmiller that was “ridiculous” and that they should put more even more on it. 

“That is the most ridiculous use of money management I ever heard,” Soros said to Druckenmiller. “What you described is an incredible one-way bet. We should have 200 percent of our net worth in this trade, not 100 percent. Do you know how often something like this comes around?” 

Carl Icahn bearish, sets out big short

http://www.businessinsider.sg/carl-icahn-turns-bearish-2015-5/

What Druckenmiller says

http://www.valuewalk.com/wp-content/uploads/2015/04/Druckenmiller-_Speech.pdf
http://www.bloomberg.com/news/videos/b/3eef9cc2-25dc-4657-bc5c-470f2886d727

• All your eggs in one basket. Buffett did it, Carl Icahn did it, Ken Langone did it.
• Diversification as taught in Universities is a lot of bullshit.
• Old warriors in a bear market for too long carry scars and cannot pull the trigger well.
• Visualize the situation 18 months from now. Invest in the future, not the present.
• The Feds move the market, not earnings. Focus on the movement of liquidity.
• Paul Volcker put short term bonds at 18% when inflation was 12% and he went all in 30 yr bonds at 14% p.a.
• 1989. UK rates linked to deutsche mark and German feared inflation and had a blazing economy while UK faced housing downturn. George Soros says bet 200% not 100%  shorting pound.
• 80% of big money made in bear markets and equities because of crazy things in response to bear markets.
• 2003. nominal growth in US is 9% and fed funds rate 1%.
• 2005. betted too early on the sub prime. but 2007 2008 were fun for him.
• 2015. April. US CPI nothing like Japan. no deflation ever before. 1st time in Fed history buying bonds and 0% rates.
• Since Greenspan -> Volcker in 1987, 150% debt to 390% debt. 2008 crisis brought it to 365%
• 2015 April. 18% of high yield debt issued in past year is energy.
• Japan didn't print money when US did. so their currency appreciated and now they had to. so did Europe.
• this current situation could be inflationary or deflationary but looking like deflationary esp if asset bubble burst.
• 2001. felt the dotcom valuations were high but went in anyway near the top because underperformance. lost $3bn in a day.
• Entitlement spending is high.
• Not sure how to get out of this current situation in 2015.

Central Banks have no end game - Druckenmiller

I was reading the Sohn Conference notes and Druckenmiller's presentation struck out at me.

some points:

• in February of 1981, the risk free rate of return, 5 year treasuries, was 15%. Real rates were close to 5%.
• If the Fed was using an average of Volcker and Greenspan’s response to data as implied by standard Taylor rules, Fed Funds would be close to 3% today.
• despite the US global outperformance, we currently have the most negative real rates in the G-7.
• And smoothing growth over a cycle should not be confused with consistently attempting to borrow consumption from the future.
• As valuations rose since then, R&D and office equipment grew by only $250b, but financial engineering grew $750b, or 3x this! You can only live on your seed corn so long.  
•  unlike the pre-stimulus period, when it took $1.50 to generate a $1.00 of GDP, it now takes $7
• Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.

http://www.bloomberg.com/news/videos/b/3eef9cc2-25dc-4657-bc5c-470f2886d727

Druckenmiller: Bankers should be just making loans only.

more Druckenmiller:

http://www.valuewalk.com/wp-content/uploads/2015/04/Druckenmiller-_Speech.pdf

Sohn Conference 2016

Forbes summary of Sohn Conference: http://www.forbes.com/sites/antoinegara/2016/05/04/battered-hedge-fund-stars-offer-up-new-ideas-at-sohn-investment-conference/print/

from:
http://www.valuewalk.com/2016/05/sohn-investment-conference-2016/?all=1

Sohn Investment Conference 2016

• 2016 Sohn Conference – highlights

• Stan Druckenmiller At Sohn “The Endgame” Transcript And Slides

• Notes from the IRA Sohn Next Wave speakers

• Carson Block Of Muddy Waters short OZRK At Sohn 2016

• Jim Chanos Betting Against China

• Larry Robbins attacks Buffett

• Larry Robbins CNBC interview

• Carson Block shorts Bank of the Ozarks – CNBC Interview

• Jeffrey Smith at the Sohn Conference

• Wall Street’s rising star Rosen is long Kraton

• Jeff Gundlach long GOLD pitch

• Stanley Druckenmiller long gold presentation

• Zach Schreiber short Saudi pitch

• Jim Chanos Says Valeant Worth Zero, Still Short Tesla

• Jim Chanos short MTN Group

• Chamath Palihapitiya Long Amazon $3T company

• Howard Marks: Bad decisions made in oil & gas sector

• Adam Fisher, Commonwealth on NIRP.

• Dan Ariely on hedge fund psychology and trust 

• David Einhorn, Greenlight Capital short CAT

• Carson Block, Piper Jaffray Duel Over Bank Of The Ozarks

• Gundlach CNBC interview full audio, video here