Unless it’s GameStop or AMC of course.
Brk.b is an important exception but yeah agreed.
I mean there’s a 7.57% gap on the Mexican exchange and a 7.6% gap on the US market at current exchange rates and the likelihood the deal goes through is about 99.99%. The buyer is the majority owner and the founding family, there won’t be any surprises for them along the way - and they’re getting a steal.
Why? Staying in cash in this environment feels insane, and right now a massive chunk of my net worth is in cash. It’s active bankroll so I want to avoid the risk of the stock market or even an index. The goal is the maximum risk-free gain.
I was holding it before the acquisition, so I have a good understanding of the business, the value of it, and that the buyers are getting a steal and they know the business inside and out.
I wouldn’t call it a desperation move at all. When the acquisition was announced I was bemoaning not having more liquid money to put into it, and I have even considered using margin but I don’t want to risk a big fluctuation blowing me out of position. It drilled for a week or two maybe a month ago because, I think, someone with a big position (likely a merger arb firm) got margin called over another position.
This is liquid bankroll I need to keep relatively stable so it’s enticing to have what I view as a very low risk investment that should trade in a tight band. If I had more experience with this kind of stuff and figured out a good hedge, I’d consider taking a lot of leverage.
Including USD?
My plan has been to call you about this if I can figure out the hedge and see how much you end up deciding to take lol…
Yes. Personally I have 70% USD stocks. 25% international. 5% crypto. I still think if the USD crashes then nothing matters anymore but I would never put any large amount of my relative net worth into 1 thing. Risk is too high.
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On my phone right now, but you’re characterizing this as a risk free way to earn 8% over an undefined period while being exposed to peso risk. (I disagree that it’s risk free, but put that aside.) If you’re comfortable doing that, why not just invest directly in peso denominated government bonds that yield substantiality higher than US bonds?
And if you’re not comfortable investing in Mexican government bonds at higher yields, you should ask yourself why you view this as being risk free.
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Spidercrab posts are so frustrating and refreshing at the same time. Investing with no edge is no fun but realizing you probably have no edge is what makes one good at investing.
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Can I interest you in some Celcius?
No one has ever gone broke investing in nearly risk free things! Like AAA rated mortgage backed securities! They have three As!
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The third A is for Savings!
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I generally agree. I’ve got like the vast majority of my liquid net worth in dollars, and about 27% of my retirement accounts in cash, 24% foreign stocks (ADRs) and 48% US stocks.
Problem is I obviously have to keep a working bankroll liquid - the rest of my bankroll I want in very low risk assets ideally. I did the max on I bonds last year and this year and will add another 10K on 1/1.
So a merger arb that I think is a lock to go through that only has currency risk feels perfect to me, but I’m certainly open to ideas/suggestions.
I’m still bearish about the broader markets and don’t want much exposure.
Because the underlying business still has value if the peso gets absolutely wrecked, and I would only do it if I could hedge the peso risk. To be clear I already have a position in this stock in my IRA and another in my HSA, and a small one in a regular brokerage account. The question here is whether I can hedge off the currency risk and pile into it for a huge sum of money (to me).
It seems like your alternative is hedging off the business risk (which imo is act of God risk, I guess bird flu risk is a thing too) and piling into the peso risk.
Well I only view it as risk free (let’s say 99% risk free) if I can hedge off the peso risk.
I feel like such a dope having had any money in total bond funds with interest rates at zero. I knew short term only was better. So dumb.
I’m just going to do whatever @spidercrab does. He seems like he’s got this shit on lock.
Great beer choices as well
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If I could pick like 10 people here, and they each took like $10,000 and managed it themselves for a year or two, and promised to spend 3-5 hours a week on it and like 2 hours up front with me telling them my method in detail (but not requiring them to use it), I’d bet on the majority beating the market. The number is probably much higher, but I’m just trying to make a point.
This group of people is uniquely situated to be capable, but for any individual it’s easy to argue the risk is not worth the reward of going for it.
I’m beating the market by double digits in six months. Super small sample but there are things happening that boost my confidence in it thus far - like predicting a business would lose significant profit and revenue in one side of the business, make more on the other side, and net out at annual earnings of around $0.20 per share - and both things happened and they made $0.05 last quarter.
I’m only up slightly in that stock, but the fact that I seem to have correctly assessed the business makes me more confident I can do this.
Anyway I definitely don’t encourage everyone to manage all their own money like that as opposed to buying and holding the indexes, but I bet a lot of people here could beat the market if they set some money aside to toy around with.
Of course you also have to enjoy it, and that’s a whole other thing.
stonkercrab itt
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I am still just buying a mix of Vanguard funds in the company 401k twice a month like a chump.
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I guess good luck on whatever you choose to do. But 2 things to consider:
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there hasn’t even been a formal offer made yet as far as I can tell. And there’s no indication of when that potential offer would close. So I think it’s crazy to consider this any kind of a sure thing.
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I think you should take a more serious look at Mexican government bond yields vs USD bond yields. That spread should illustrate how costly it’s going to be to hedge the peso risk. Alternatively, you could look at peso forward rates to get a sense of what you could lock in for pesos to be received in the future, except you don’t have any idea how long in the future you’d need to hedge for.
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Definitely doesn’t make you a chump. There’s a guy I know through poker who’s a good investor, he beat the market over a 30-40 year period by a decent amount, and he’s a very intelligent guy so I don’t think he just ran good. But when I was getting started his advice was something to the effect of, “Don’t. You can probably beat the market, but I found that I hated being beholden to the stock ticker and always having that stress of having to track it. Buy index funds and avoid the stress.”
I told him I appreciated it and knew it was good advice, but I kind of just had to know if I could do it and I thought I’d enjoy the process, but if either wasn’t true I’d heed his advice. I do enjoy the process, but I also appreciate his point too. It definitely costs me some sleep sometimes.
At the time he was trying to exit his positions at the right time and convert it to index funds, but last I checked he couldn’t give it up.
Anyway the point is, aside from the difficulty in beating the market, you might do so only to find out it’s not worth the mental stress or time.
No they declared their intent and the price, but as of the last earnings call they haven’t filed it formally. The thing is, a lot of investors think it’s worth a lot more than the offer, so I actually think the stock is more likely to go up than down if it falls through. But I guess you never know. I suppose there’s a chance they don’t have the funding security if they’re taking too long to file, but it could also move very fast once they file and the expectation seemed to be that they would do so sometime around July-Oct.
Yeah I admit to having no idea how costly that hedge would be, since I haven’t yet found a good way to do it. If it’s too costly, then it wouldn’t be worthwhile and at that point it’s not a risk-off thing for me and I need to keep the size of my position reasonable - as it currently is. It’s big, but it’s probably under two buyins for my current game, so it’s an amount I’d be (relatively) comfortable playing a hand of poker for.
Could you elaborate on this? Currency is my weakness in financial knowledge, so I’m not sure exactly what you mean.
BRK is arguably not “1 thing”.
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