May

11

 Someone had said that, "We shall find out when the tide runs out who all have been swimming nude". Now, I want to believe that such wisdom was an advance warning of things to come.

Someone had also said that Derivatives area a weapon of Mass Destruction and I really treasure such pearls of wisdom that can come only from experience & foresight of the coming future.

Someone had also said that one would only buy those companies that were deep in the value and had a margin of safety. One just wishes, why don't experts stick to their expertise only and not experiment with swimming with the sharks in so many novel ways.

One also does not understand if timing never was of any importance, then how a large loss line item can be attributable to "terrible timing".

One also does not understand that if the large horde of cash is finding no good investment avenues and it is not being returned to the stockholders in the most tax efficient way (agreed dividends are a tax leak and hence one never should hope for them) of stock buybacks then that is a good indication of more to come. I see there is a possible argument that hordes of cash can keep one on the optimal risk reward trade-off curve and that a return of such a valuable thing as cash to the investors cannot be utilized by them in any better way including replication because they are not as great investors. But then less than great investors are continuing to hold larger exposure to the big stock.

Something is missing in my logic. I guess I like to think in circular arguments and can never understand the straightforward phenomenon that could explain all this.

Oh ok, it was also said by many that Cash is King. Then so be it. Long live the King.

George Parkanyi responds:

Well, the tide's back in and everyone is quickly swimming to shore to put their clothes back on. Anyway, not every nude swimmer draws the same attention. (I know, my sister-in-law inadvertently set up a family get-together at a "clothing optional" resort. Imagine our surprise, not to mention the kids'.)

Hydrogen bombs and anthrax are weapons of mass destruction. Derivatives are bets (perhaps weapons of mass embarrassment on occasion). Given a choice — I pick derivatives.

If experts stuck to their own expertise, they might not learn to look at things differently and add to their expertise (or, in the case of some, do everyone a favor and answer a new calling).

Timing? Sometimes a grand entrance ends in a face-plant. (terrible timing) People trip over stuff all the time. But they do get up, and the show does go on (then timing indeed does not matter).

If you buy back your own stock, you use up your cash, but if you later needed the cash, you need to go out for financing. In a credit crisis, if part B isn't what it used to be, then your buy-back may look a little foolish. Then there's opportunity cost - what if something you really liked suddenly goes for half-price, but you've used up all your cash buying back your own stock?

There is such a thing as "optimal risk reward trade-off curve"? Do they sell them on E-Bay?

Interesting. What would happen if you ever did get caught in a circular argument? How would you get out of it to think about something else?

Cash is useful. Elvis is King.


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