Ignoramus22564 wrote:
On 2010-05-05, John R. Carroll wrote:
Ignoramus32324 wrote:
On 2010-05-05, John R. Carroll wrote:
Ignoramus32324 wrote:

Participation of DT is an encouraging factor for me. I have no idea
how low OTE will go, but I do think that chances are tilted in my
favor.

I do too but not for any reason beyond DT's increase in their position.


My son is now reading a "investing for kids" book. He asked me about
risk. This is a topic where I can go on a huge tirade if I am not
restrained. What such books usually do not explain, is that risk is
mostly about how much you pay for something. Risk is a possibility of
overpaying for a "dog" asset, not volatility.

I watched Blankfein on Charlie Rose recently. Did you see it?
Every time the discussion turned to market making, Blankfein spoke about his
customers buying and selling risk.
I don't think he mentioned anything physical even once.
I lost a lot of respect for Rose because of this interview.
He appeared to want to ask about the abuse a market maker can inflict but
never went beyond allowing the response to be another attempt to restate
what making a market means. Rose is either dumb or he had agreed not to ask
certain direct questions as a condition of getting the interview.



I asked him, imagine that you buy an industrial machine, in unknown
condition. If the machine is bad, you can sell it for $200, if the
machine is good, you can sell it for $1,000. I asked, do you think
that it is a risky purchase? He said, yes. My next question was, what
if I paid only $100 for the machine, is that a risky purchase? Then a
light bulb lit in him and he said, not at all.

Well, there is one risk and that is that the market for whatever the asset
is won't exist when you want to sell.
That's what happened to the derivatives market.
Then third party repo failed. I still can't believe how large the TED spread
got.


Buying viable businesses in a distressed country awash in bad news, is
like buying an unknown condition metalworking machine for less than
scrap value. At a price like that, all surprises with the machine will
be good surprises. I may lose money, still, but I estimate chances to
be in my favor.

The only drawback is a lack of specific knowledge not about the company or
industry but about what k00kie thing people might do in reaction to what's
happening in the general economy. You can't, for instance, factor in mass
suicide!
LOL

I've never bought equity in the absence of specific positive knowledge in
advance of the market. I also set my trigger prices in advance at both the
low and high side.

--
John R. Carroll