Anonymous Billionaire - is he trading Brazil stocks or call options?

[Stymie]

This Bloomberg article talks about Luiz Alves Paes de Barros making 1,000% return on his stocks?

https://www.bloomberg.com/news/arti...ionaire-ready-for-spotlight-after-1-000-rally

When you make those kind of returns on a stock - is that possible? What is he really investing in?

I would view this guy as more an option trader that has figured out a way to buy call options without having to pay a premium. He is focused on the underlying value of a business and then buys the stock when it's close to zero so the payoff is either zero or unlimited upside. This shows the same payoff graph as a long call option or cheap stock.

If this is what makes him a Billionaire - than congrats to him. The option trader mind should be able to replicate what he is doing if they can access the financials of many of these small companies to uncover hidden gems and have enough capital to buy and hold for years as he has done.

The advantage of this strategy is low transaction costs and taxes until the position is sold for a large profit. There is no market impact costs other than the original buy/subsequent sell. If you buy the stock outright, then no margin calls or interest expense while you wait a few years for this 10x bagger. It does happen on occasion.

The option trader mindset has an advantage over the stock trader in my opinion.

 

[birzos]

"Perfecting patience is all I’ve done over the past 50 years," Barros says. "I love when things get bad. When it’s bad, I buy."

Becoming a billionaire is simple, perfection in your approach, the problem is that you have to interact with society and therefore you need to filter out the rubbish at a microscopic level. You either do that by being taught, do it by painful experience, or cheat (please don't do this).

For most traders to generate their 2% they siphon a few other traders accounts, at billionaire levels you are siphoning in the millions, so you have to take the other side of institutions and public traders. But get it wrong by an atom and you will lose your shirt, given that more people have climbed Everest than are billionaires, the world will talk about it but very few understand the simplicity of it.

 

[dealmaker]

"Perfecting patience is all I’ve done over the past 50 years," Barros says. "I love when things get bad. When it’s bad, I buy.".

Isn't that what Warren Buffett does too, didn't he buy BAC, GS, GE, HOG during credit crisis?

 

[birzos]

Isn't that what Warren Buffett does too, didn't he buy BAC, GS, GE, HOG during credit crisis?

Of course, put your capital to work when the market is at the extremes of the normal distribution, not during the noise.

 

[Stymie]

Isn't that what Warren Buffett does too, didn't he buy BAC, GS, GE, HOG during credit crisis?

I would argue that Warren Buffett's strategy is very different from most investors. If you look at where he has made his real money, stocks like GEICO, it was all about dollar averaging down till he owned the whole company. He then removes the incompetent management and uses balance sheet leverage to act like an owner and direct investments with long term payoffs. He also demands a regular dividend in all investments to reduce his costs basis and provide more capital to be redeployed where he can get the highest return and lowest tax liability.

He has never paid a dividend out to his own shareholders and has refused to offer such by voting it down at the AGM each year. He has a controlling stake so we have no option.

What I like about his investments is using convertible bonds or preference shares to get a high yield and participate in a stock rally - effectively a free call option on the stock. He has clearly stated that he has no intention of owning BAC once they force him to convert to stock. He has only done that with WFC although he may be rethinking that one now..

 

[birzos]

I would argue that Warren Buffett's strategy is very different from most investors. If you look at where he has made his real money, stocks like GEICO, it was all about dollar averaging down till he owned the whole company. He then removes the incompetent management and uses balance sheet leverage to act like an owner and direct investments with long term payoffs. He also demands a regular dividend in all investments to reduce his costs basis and provide more capital to be redeployed where he can get the highest return and lowest tax liability.

He has never paid a dividend out to his own shareholders and has refused to offer such by voting it down at the AGM each year. He has a controlling stake so we have no option.

What I like about his investments is using convertible bonds or preference shares to get a high yield and participate in a stock rally - effectively a free call option on the stock. He has clearly stated that he has no intention of owning BAC once they force him to convert to stock. He has only done that with WFC although he may be rethinking that one now..

Yes, but that's a different strategy, be frugal with your own money and get other people to pay for it, that is an income trade. The credit crisis investment is a capital trade.

 

[dealmaker]

"Perfecting patience is all I’ve done over the past 50 years," Barros says. "I love when things get bad. When it’s bad, I buy.".

In 1939 Sir John Templeton bought 104 stocks that were trading on NYSE under a $1, 37 of which were in bankruptcy. 5 years later when he liquidated his position 100 out of 104 were profitable bets...This was in the book "The Lessons of Great Minds of Investing". Buying "when there is blood on the streets" is a tried and true strategy.

 

[dealmaker]

I would argue that Warren Buffett's strategy is very different from most investors. If you look at where he has made his real money, stocks like GEICO, it was all about dollar averaging down till he owned the whole company. He then removes the incompetent management and uses balance sheet leverage to act like an owner and direct investments with long term payoffs. He also demands a regular dividend in all investments to reduce his costs basis and provide more capital to be redeployed where he can get the highest return and lowest tax liability.

He has never paid a dividend out to his own shareholders and has refused to offer such by voting it down at the AGM each year. He has a controlling stake so we have no option.

What I like about his investments is using convertible bonds or preference shares to get a high yield and participate in a stock rally - effectively a free call option on the stock. He has clearly stated that he has no intention of owning BAC once they force him to convert to stock. He has only done that with WFC although he may be rethinking that one now..

I'd argue, that has been his strategy after his fund got too big...Earlier in his career his fund look like a mutual fund where 80% of his assets were in stocks....

 

[Sig]

In 1939 Sir John Templeton bought 104 stocks that were trading on NYSE under a $1, 37 of which were in bankruptcy. 5 years later when he liquidated his position 100 out of 104 were profitable bets...This was in the book "The Lessons of Great Minds of Investing". Buying "when there is blood on the streets" is a tried and true strategy.

Since bankruptcy eliminates the ownership of common shareholders that story is highly unlikely to be true. Sometimes they throw common shareholders a bone with an option to buy stock in the new company, but that's a second investment. Even then its pretty implausible that even that was the case for 37 companies.

 

[smallStops]

Really interesting story. I simply can not not notice the 50 years!!!!