Thanks to Warren Buffett

I usually scarcely write lately, I am still too busy having fun building a house. Today was an exception. After reading a critical article about Warren Buffett I did comment on it. I prefer to post my last comment to that same article in this blog. So here we go…

“Thou shalt not bear false witness against thy neighbour.”

Thanks for providing me the inspiration to write. It is something I enjoy doing and you caused it. I will comment for the 2nd and probably the last time. You seem to have lost touch with reality and like negative attention, so maybe I am giving you pleasure too :).

I want to highlight and make sure that one of the many flaws in your reasoning does not go unnoticed.

Implying that Buffett trades on inside information based on a phone call you saw on a movie makes you lose objectivity and therefore credibility. Specially when you admit that you have no idea what they talked about in that call shown in the movie. In that case you should not imply false things unless you want to look bad. Defending and hanging on to that idea makes you look fool. Some, like me, might start to think you are a conspiracy theory freak.

I cannot provide you a link to the transcript of Buffett’s phone conversation nor know what he talked about. That’s precisely why I would not imply anything bad about it. I guess any healthy person should not make up and spread an insider trading accusation based on scarce unproven information. As I see it you basically imply Buffett is an insider trader because you think it’s a too big coincidence that Wells Fargo is his biggest position and that he received a phone call from a top government official. Implying insider trades with no proof portraits you as an uglier human being than the image you try to unsuccessfully spread of Buffett. That alone makes me lose respect on all your other arguments, like the one where you imply that Buffett was forced to work as a child. That last one is comic, you made me laugh there :). With your criticisms you are likely achieving the opposite of what you want.

Anyways back to Wells Fargo: Buffett had bought the biggest amount of Wells Fargo years before 2008/2009 and anyone who studied well Buffett knows he loves that company since already decades. He said that it would be the one and only company he would buy if he had to chose only one stock. Is it strange that being a focused investor he has a lot of it ?

I also, like you, did never receive a phone call from Paulson but probably unlike you I did buy (thanks god !) the biggest amount of Wells Fargo in 2008/2009/2010. Why did I buy it ? Because I thought it was cheap. I guess Buffet, knowing the company probably way better than me, thought the same and he added to his positions. It never occurred to me that he was insider trading, certainly not after watching the movie you mention. It’s also funny the kind of sources you use to make up your accusations :).

As I see it you seem to love to draw negative criticisms and chose Buffett, exactly the opposite kind of person, in order to get them. But alas your arguments seem to have a small amount of objectivity. I would take an honest look at myself if I was in your skin in order to avoid losing touch with reality.

Disclosure:

I love Buffett and owe a lot to him so maybe I am not considered too objective defending him. I think that learning about Buffett and understanding the way he thinks about investing made me as wealthy as I wanted. Like David Hume, one of my heroes, I believe that a man is made up of the ideas he has in his head and having the same ideas to another human being makes you quite similar, if not identical, except phisically, to him. That’s why when I had less money and wanted more I chose to be like the person I thought was one of the best investors. I chose Buffett. I studied all I could about him. I wanted to think like him and therefore spot opportunities like he did. In a few years of study, when my ideas, and therefore myself, changed, I started making money. It all was natural. Buffett taught me how to fish. I now, thanks to him, have enough to be financially independent and stopped working at 38. I could not be happier.

I am also long Wells Fargo being my biggest portfolio holding: http://www.kuchita.com/view/sumo.php

PD: For more about how David Hume thinks about the nature of human beings read his great book A treatise on Human Nature. Probably one of the best books I’ve ever read, and he started writing that master work when he was only 16 ! Isn’t that incredibly mature and intelligent ?!

Best !
jrv

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XIV Pricing Model Based On VIX Front Month Futures

I updated the XIV pricing model in order to calculate its price directly based on front month VIX futures.

I explained here how it was done: XIV historical data and pricing model since VIX futures available (2004)

Like that I can directly calculate the XIV price by inputting the VIX futures and do not need to use VXX data in order to do it.

Anyone who has bought the older version of the XIV model can contact me in order to get the new version. You may use my mail which you should already have.

In these times of a possible return to volatility I am increasingly interested in getting into the short volatility trade once again. That’s why I am starting to play with the vix funds pricing models once more.

Very recently I did 2 things:

1) I just slightly increased my VXX shorts.
2) Being bearish on treasuries and profiting from the recent long term US treasuries increase I got once again back into the short treasuries trade :) . The difference now is that instead of using TLT or its derivatives, this time, I shorted a TMF call. TMF is a 3x leveraged long term (20+ years) US treasuries fund. I wrote an in the money call option. Specifically this call: TMF Aug 2014 45.000 call (short).

I like using the TMF fund via a written call because:

1) It’s 3 times leveraged so I can use considerably less money to trade.
2) It’s a written call, so as a derivative, I can use again less money.
3) Commonly with leveraged funds, it has a bad index tracking. That, as well as the fund fee, works in my favour when I short it.
4) It’s a call so I do not have to worry to pay dividends on my short position.
5) As a corollary of 1) and 2) I pay less on short interests. I use little money relative to shorting TLT, the non leveraged version of the same treasuries.

Regarding volatility I like the XIV and SVXY funds (inverse VXX) each time more, specially now that I am getting to understand them better. I have the idea to divide the volatility trade between VXX and XIV/SVXY. I’ll probably divide my short by buying half of the short positions using the latter funds. I might do that only if the volatility increases, in order to decrease the amount at risk. For the time being the volatility of the front month VIX futures is still below the historical average, so I am in no hurry at all. I’m just warming up for the eventual possibility, and patiently waiting, like a hunter after its prey.

Cheers!
jrv

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