Investment Thread

[Jeffrey]

No good place for short-term money with no risk. That's why people have no choice but to plow into equities if they want growth (but that requires much more risk).

Strongly agree, high dividend stocks are currently hard to resist.

[SlimSlowSlider]

Thanks, everyone. I really enjoy this thread and the input from the professionals and/or active traders.

[Jeffrey]

2020 was a very strange and unique year. In some ways, maybe many, life is forever changed. This creates the perfect opportunity for investors to convince themselves this time is different, the rules of speculation have changed. Well, they haven’t and never will.

What five companies had the largest market capitalizations twenty years ago and how many are still top five? Microsoft. What’s happened to Cisco, GE, and Exxon?

How many of the original four FANG stocks do you expect to be top five twenty years from now? I suspect one, Amazon, with extreme evolution. I suspect Netflix (which is the only one currently not top five) might even look like Blockbuster twenty years from now.

History repeats, the market cycles, greed kills, and fear also kills. Maintain your preferred asset allocation regardless of your emotions. This very simple technique ensures you’re always selling high and buying low. And, unless you have game, don’t step into the paint, just buy index funds with the vast majority of your retirement funds.

[bundabergdevil]

2020 was a very strange and unique year. In some ways, maybe many, life is forever changed. This creates the perfect opportunity for investors to convince themselves this time is different, the rules of speculation have changed. Well, they haven’t and never will.

What five companies had the largest market capitalizations twenty years ago and how many are still top five? Microsoft. What’s happened to Cisco, GE, and Exxon?

How many of the original four FANG stocks do you expect to be top five twenty years from now? I suspect one, Amazon, with extreme evolution. I suspect Netflix (which is the only one currently not top five) might even look like Blockbuster twenty years from now.

History repeats, the market cycles, greed kills, and fear also kills. Maintain your preferred asset allocation regardless of your emotions. This very simple technique ensures you’re always selling high and buying low. And, unless you have game, don’t step into the paint, just buy index funds with the vast majority of your retirement funds.

I find the chart below soothing when the chicken littles are saying this downturn will be different.

JPMorgan.jpg

Edit: It's not a great sized picture but it's a chart of the market since 1900 with notable events like WWI, WWII, Stagflation, etc noted.

[YmoBeThere]

The intro is a bit long:

[Jeffrey]

In the thick of the evening, when the dealing got rough,
She was too pat to open and too cool to bluff,
As I picked up my matches and was closing the door,
I had one of those flashes I'd been there before, been there before.

- Robert Hunter

[WillJ]

Not an investment question per se, but I'm curious whether anyone can come up for an explanation for why Leon Black paid Jeffrey Epstein hundreds of millions of dollars for "tax advice" that doesn't involve blackmail. I really can't explain it any other way, but perhaps some smart person on this board can convince me otherwise.

[bundabergdevil]

Why on earth is GameStop in financial news? I didn’t even know that place existed and I’m not clear why Reddit users are involved. Weird.

[Mtn.Devil.91.92.01.10.15]

Why on earth is GameStop in financial news? I didn’t even know that place existed and I’m not clear why Reddit users are involved. Weird.

I'm peripherally aware of this and eagerly awaiting the answer.

[budwom]

Lately I've noticed a lot more print and TV ads for investment firms which say they are fiduciary in nature...I can't vouch for any of them, but if they're on the up and up, this is a positive trend...

[Channing]

I'm peripherally aware of this and eagerly awaiting the answer.

A subreddit thread focused on stock picking decided to make GME their cause and focus. Some (or maybe just one) hedge funds have aggressively short positions in GME and the subredditers wanted to take a stand against shorting the stock (unclear why they chose GME, but some others, like BBB, have had similar scenarios recently) and banded together for a short squeeze (for those of you who don't watch Billions, (i) you should and (ii) a short squeeze is defined here: https://en.wikipedia.org/wiki/Short_squeeze). There are zero fundamentals in GME that support any of the value run-up and it is, functionally, vigilante market manipulation (and I say that without making a value judgment, since the large institutional investors have swayed the markets for years). I'll be very interested to see if the SEC gets involved here.

[elvis14]

Why on earth is GameStop in financial news? I didn’t even know that place existed and I’m not clear why Reddit users are involved. Weird.

Was trading IM's with a guy at work just now. A couple of weeks ago he bought 150 shares of GME at $20. It's was at $360 not too long ago (10 minutes later it's at $345, but still...)

Haven't figured it out yet...wish I would have caught that train.

[bundabergdevil]

A subreddit thread focused on stock picking decided to make GME their cause and focus. Some (or maybe just one) hedge funds have aggressively short positions in GME and the subredditers wanted to take a stand against shorting the stock (unclear why they chose GME, but some others, like BBB, have had similar scenarios recently) and banded together for a short squeeze (for those of you who don't watch Billions, (i) you should and (ii) a short squeeze is defined here: https://en.wikipedia.org/wiki/Short_squeeze). There are zero fundamentals in GME that support any of the value run-up and it is, functionally, vigilante market manipulation (and I say that without making a value judgment, since the large institutional investors have swayed the markets for years). I'll be very interested to see if the SEC gets involved here.

Sporked you, thanks. Appreciate the explanation. The bolded confuses me, too. Weird story.

[YmoBeThere]

Why on earth is GameStop in financial news? I didn’t even know that place existed and I’m not clear why Reddit users are involved. Weird.

I'm peripherally aware of this and eagerly awaiting the answer.

So, there are rules against fomenting panic in a stock. This was done to protect companies from bear raids, where those with negative views of a company's stock would sell large amounts of shares short to drive its price down*. So, with regards to GameStop, a mall/strip mall based retailer of video games and consoles, their shares have had massive moves up. So, is there a fundamental reason for this or are people fomenting upside panic in the stock? There are lots of issues with this scenario, an important one being that 164% of the companies shares were sold short. And alot of the upside appears to be shorts covering their positions. The 164% of shares short isn't supposed to be possible, brokers are supposed to locate stocks before allowing the short sale. In my opinion, as a sometimes short seller, this is a failure of the regulators of the market to do their jobs. This brings up the issue of regulatory capture, etc. So, lots of things going on here.



*Lots of practical aspects to this, perhaps most important that loans to companies may have covenants with regards to equity value. Should the value of the company drop too much, the debt may be callable, putting the company in a cash/liquidity bind.

[Jeffrey]

Not an investment question per se, but I'm curious whether anyone can come up for an explanation for why Leon Black paid Jeffrey Epstein hundreds of millions of dollars for "tax advice" that doesn't involve blackmail. I really can't explain it any other way, but perhaps some smart person on this board can convince me otherwise.

Yes, Epstein was an expert at tax and estate planning and, many believe, saved Black at least one billion dollars. Black believes the savings is closer to three billion dollars.

I strongly believe many of the bad Epstein actors were very high level government employees, and they will never face justice. The 2008 deal Epstein got was absolutely ridiculous given the massive amount of horrible crimes he was known to have committed. Those government employees never legally made the level of money required to benefit from Epstein’s tax and estate planning techniques. Why did they enable Epstein to continue his known criminal behavior for eleven more years?

[WillJ]

Yes, Epstein was an expert at tax and estate planning and, many believe, saved Black at least one billion dollars. Black believes the savings is closer to three billion dollars.

I strongly believe many of the bad Epstein actors were very high level government employees, and they will never face justice. The 2008 deal Epstein got was absolutely ridiculous given the massive amount of horrible crimes he was known to have committed. Those government employees never legally made the level of money required to benefit from Epstein’s tax and estate planning techniques. Why did they enable Epstein to continue his known criminal behavior for eleven more years?

I realize that Dechert (a law firm) issued an opinion that the fees were for services rendered, but I don't see how that works. Forbes states that Black's net worth is $9 billion. I believe that the top federal estate tax rate is 40% and that the top New York estate tax is 16%, for a combined tax rate of 56%....so the total inheritance tax Black would face (if he remained in New York, which I very much doubt he would) would be $5 billion. I find it difficult to believe that Epstein had some magic sauce that saved Black 60 percent of his estate tax bill, or at least Epstein didn't have a sauce that wasn't also available from many other sources at *much* lower cost. I'm quite certain, for example, that you could get very competent estate tax advice for *much* less from any of a number of Wall Street advisers. Black is a very astute guy...this just doesn't make sense to me.

I think Epstein was also blackmailing Leslie Wexner, too. You can't just tax-advise your way to being a billionaire.

[Jeffrey]

I realize that Dechert (a law firm) issued an opinion that the fees were for services rendered, but I don't see how that works. Forbes states that Black's net worth is $9 billion. I believe that the top federal estate tax rate is 40% and that the top New York estate tax is 16%, for a combined tax rate of 56%...so the total inheritance tax Black would face (if he remained in New York, which I very much doubt he would) would be $5 billion. I find it difficult to believe that Epstein had some magic sauce that saved Black 60 percent of his estate tax bill, or at least Epstein didn't have a sauce that wasn't also available from many other sources at *much* lower cost. I'm quite certain, for example, that you could get very competent estate tax advice for *much* less from any of a number of Wall Street advisers. Black is a very astute guy...this just doesn't make sense to me.

I think Epstein was also blackmailing Leslie Wexner, too. You can't just tax-advise your way to being a billionaire.

No doubt, Epstein’s fees were extreme! However, if he truly was perceived to be the absolute best, then a 5-10% fee, of the total estimated savings, seems reasonable to me. The client still keeps 90-95% of the estimated savings.

It’s my understanding Black had a GRAT, created by a highly acclaimed attorney (referred by Epstein), and Epstein found a major problem, with the GRAT, and Epstein came up with a solid solution. If true, then I could understand why Black would perceive Epstein to be the absolute best and pay him 5-10% of the estimated savings. It’s also my understanding they eventually parted ways because Black was no longer willing to pay Epstein’s extreme fees!

[WillJ]

No doubt, Epstein’s fees were extreme! However, if he truly was perceived to be the absolute best, then a 5-10% fee, of the total estimated savings, seems reasonable to me. The client still keeps 90-95% of the estimated savings.

It’s my understanding Black had a GRAT, created by a highly acclaimed attorney (referred by Epstein), and Epstein found a major problem, with the GRAT, and Epstein came up with a solid solution. If true, then I could understand why Black would perceive Epstein to be the absolute best and pay him 5-10% of the estimated savings. It’s also my understanding they eventually parted ways because Black was no longer willing to pay Epstein’s extreme fees!

Interesting...you obviously have more knowledge of this world than I do, but it still seems like an incredible story to me. Billionaire paying extraordinary fees to smart-but-unqualified man with whom he cavorted with underage girls in house filled with hidden cameras? Occam's razor suggests blackmail.

On GRATs, it seems like the basic idea is to encumber the assets enough (without harming cash flow) so that they qualify for a illiquidity discount in the valuation...is there more to them than that? Also, are GRATs so different from one another that there aren't off-the-shelf versions that would work for your average billionaire?

[Jeffrey]

On GRATs, it seems like the basic idea is to encumber the assets enough (without harming cash flow) so that they qualify for a illiquidity discount in the valuation...is there more to them than that? Also, are GRATs so different from one another that there aren't off-the-shelf versions that would work for your average billionaire?

It’s my understanding most billionaire’s GRATs are unique, given the various sources of funds and distribution desires. They are definitely not cookie cutter agreements and there’s substantial potential for problems.

I’m not sure the “average billionaire” has a GRAT or two. Many US billionaires have signed The Giving Pledge.

[duke79]

It’s my understanding most billionaire’s GRATs are unique, given the various sources of funds and distribution desires. They are definitely not cookie cutter agreements and there’s substantial potential for problems.

I’m not sure the “average billionaire” has a GRAT or two. Many US billionaires have signed The Giving Pledge.

Good basic discussion of how GRAT's work:

https://www.journalofaccountancy.com...ty-trusts.html

A good story today on Bloomberg.com about the relationship between Leon Black and Jeffrey Epstein: (may be behind a paywall for some)

https://www.bloomberg.com/opinion/ar...y?srnd=premium

I'm in the camp of being extremely suspicious of the nature of the real relationship between Jeffrey Epstein and some of these super-rich men. Why would these very rich and smart and successful people be paying hundreds of millions of dollars to Jeffrey Epstein for "tax and financial advice" (most of which, apparently, was total nonsense and would, in some cases, subject the rich guys to tax fraud charges) when they could hire the most experienced and knowledgeable tax and accounting experts for much, much less money? It truly makes no sense, IMHO.

PS: Jeffrey, I hope you bought GME three weeks ago!