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This is really crazy given what has happened since 2. Back in 2. 00. 0, I don't think anyone would have guessed JPM stock would outperform the S& P 5. People were bearish the financials after the collapse of the 1. JPM which had a large investment bank attached to it with trillions in notional derivatives outstanding. For years, JPM has been considered the first domino in the coming financial collapse. Yes, bears will argue that JPM got bailed out during the crisis etc. I've talked about that a lot here so won't go into it too much, but I disagree. I agree that the government bailed out the whole system, which is what it should do (that's what the Fed is for, and that's what the government has the power to do in extraordinary situations). TBPS has increased even more than the stock (total return). Here's a chart from the proxy that is indexed to 2. That's a 1. 0. 5%/year return since 2. Let's say you knew that the worst financial crisis would come and almost destroy the country. People would have called you an idiot if you said, . My stock will return 1. I didn't sell any during or immediately after either. Investment Lessons. And here's sort of the lesson on investing. It was widely known that Dimon was a super- competent manager when he took over Bank One. I think he was already considered at the time one of the best managers in finance. When he left Citigroup, many thought C would collapse because Dimon was the detail guy that made sure everything was OK. No Dimon == noone looking at the details => eventual blowup. Everyone remembers the banking crisis of the 1. So the thought was 'thanks, but no thanks'. I've owned Bank One since forever and JPM too, but never allowed it to become a huge position because of that. Contrary to the claims of some best- selling books, the leverage built upon shrinking credit spreads was pretty well- known within the industry. It would have been wise to not be too exposed to financials at this point. But, when you own a great business run by great people, it is often better off to ride out the cycles than to try to time them. This is not really hindsight trading either, as I would have told you back in 2. I think I did even though this blog was not in existence back then) that JPM and GS would be the survivors in any crisis, and they would come out the other end bigger and stronger (as Charlie Munger says about how great companies grow; they grow in bad times, just like Rockefeller, Carnegie and everyone else did). The argument back in 2. JPM. This was one of the major red flags that kept some investors away. I have managed derivatives before so understood that notional amounts outstanding is not a measure of risk. When you are a big banker and dealer, you end up with huge amounts of notionals outstanding because, for example, if you issue bonds for an issuer, you sometimes do interest rate swaps to accommodate the client's cash flow needs. As a major FX dealer, you often use swaps as a tool to help risk- manage clients' risk exposure. After the financial crisis and after JPM has shown its resilience and management competence, it traded cheaply for a long time. Even the most prominent bank analysts would say things like, . I've heard that argument over and over again post- crisis. But these folks held a linear, static model in their heads. They didn't realize, or underestimated how the industry would adjust to new regulations and requirements. If the regulatory capital burden got too heavy in a line of business, they would drop it. They can cut expenses. They can reprice products as new regulations apply across the industry. The key in successful investing is being able to see the difference between cyclical and secular. It's true that this is very hard a lot of the time. But I never thought banking itself was in secular decline. Every year, Dimon has shown how much business needed to be done over the long term in banking. Regulations tend to be cyclical too as the pendulum can swing wildly from one extreme to the other. We are now seeing the pendulum start to swing back the other way. As Dimon says, a lot of this can be done (simplify regulations) without congressional action. By the way, I have a lot to say about this, maybe in future posts, but I do believe that this max exodus out of hedge funds too is cyclical, as is the move towards machines (vs. I do believe that most hedge funds probably don't deserve to exist, and machines will more and more take over money management, but I think it will still be very cyclical. I always heard comments like, ? He has been buying before, during and after the crisis at 'high' prices. He focuses on what a business can earn on a normalized basis over time, so he doesn't care about the short term outlook. He doesn't care about what other people say. He doesn't worry about downturns as strong institutions should be managed to survive and grow in such situations. Trading in and out to avoid such dips is a loser's game. Tangible Book. Dimon says it was a no- brainer to buy back stock at 1x tangible book, but says this year that it still makes sense to buy back stock at 2x TBPS. That would be over $1. Who would have even guessed JPM would be closing in on $1. Well, JPM is a big bank so it may not be able to grow that much more than GDP over time, so let's just say earnings grow at nominal GDP. This has probably bottomed out and should head higher. I don't think there are any time bombs at JPM, but it will sort of be a race on the economy picking up steam and interest rates normalizing versus credit trends bottoming out. Which leads to my next digression. Models and Odds: Ed Thorp Book. I was actually going to make this a whole separate post; maybe I still will. This goes back to the argument about stocks being expensive or not, wondering about being short because the market is overpriced and losing money for years on end etc. I just finished this book by Ed Thorp: A Man for All Markets. And I have to say it's one of the best books I've read in a long time. It's not a manual like Securities Analysis or the Greenblatt books, but an autobiography. Some may be disappointed by the lack of mathematical details, but this is not meant to be that sort of book. In any case, the math involved in what he talks about is widely available now anyway. But the thinking that went behind figuring all this out is fascinating. Other than his adventures in Las Vegas, I've been involved in just about every area he talks about in the book, from options, warrants, convertible bonds, closed- end funds, even the Palm stub trade, statistical arbitrage etc. The stock lending side is often not as visible). For Buffett fans, there is a whole chapter on Warren Buffett, which is fun to read. They knew each other and Buffett even checked him out over dinner long ago. I knew Buffett made his money buying small/microcaps back then, but it was surprising that a good half of the outperformance came from the small cap bias. Early in my career, I spent a lot of time creating models; economic models, stock market valuation models, statistical models, single stock valuation models, technical trading systems, mean- reversion trading models (early stat- arb) etc.. And what struck me while reading the Thorp book was the difference between the typical economist who creates models and the traders that write models. Economists plug in all these numbers and tell you that the economy should do this or that, and that the market should be valued here or there. And sometimes, they get all caught up in their models and think they are absolutely right and get their head handed to them. One benefit of working at a large firm was that I sat through many presentations (people pitching big banks to fund their proprietary trading models/ideas). For example, he created the option model before or at the same time as Black- Scholes etc. This model told you what an option or warrant was theoretically worth. But the model would have been useless if there wasn't a way to capture the price difference. You can hedge the option by trading the stock and capture any mispricing. All of the strategies that Thorp was involved in had very specific odds attached to them, including the possibility of adverse outcomes. What are the odds of this or that? What happens when you are on an expected, normal losing streak? You have to have enough capital to be able to stay in the game. Traders' models usually have a ? If you ask them, but what if reality deviates from the model? It made sense on the surface; stocks are expensive so we must hedge our equity exposure. The problem is that, as I have shown in previous posts, overvaluation is a very poor reason to go short the market or put on hedges (well, it might make sense to do some hedging). I've seen the bubble in Japan in 1. U. S. It was stunning how many funds were hurt during the late stages of the bubble and weren't around to capitalize when they were proven correct. The problem with overvalued markets is that the odds of a blow- off are pretty high, and when things blow off, the more expensive things are, the higher they go. So, if you own a bunch of value stocks and hedge using the S& P 5. Lou Pastorini - Homes for sale in Middle Village, Homes for sale in Maspeth, Homes for sale in Glendale, Homes for sale in Forest Hills, Homes for sale in Rego Park, Ridgewood, Woodhaven, Woodside. SELLERS! If you're planning to sell your home in the next few months, this FREE service is designed to help establish your home's current market value. 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Murder of his son (5) using a spade at Bishops wood near Eccleshall. January 1. 3th 1. Sarah Westwood (housewife)4. Administering arsenic. August 1. 7th. 18. William Beard (servant)3. Murder of Elizabeth Griffiths at Wednesbury. January 2. 5th 1. Paul Downing. Charles Powys. Jointly charged with murder. April 5th 1. 84. 5John Brough (farmer)3. Murder of his brother, Thomas, at Biddulph. April 9th 1. 85. 3Charles Moore (labourer)3. Murder of a couple, Mr. Blackbourn at Castle Church, Stafford. June 1. 4th. 18. 56. William Palmer (surgeon)3. Murder of John Parsons cook – He was the first person to be convicted of poisoning by strychnine. August 8th. 18. 57. George Jackson (labourer)2. Murder of Mr. Charlesworth, at Abbots Bromley. January 5th. 18. 61. Samuel Twigg (bricklayer)3. Murder at Bilston. January 4th. 18. 62. David Brandrick (puddler)3. Murder at Bilston. December 2. 6th 1. Charles Brough (collier)2. 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