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Old 08-05-2012, 03:15 PM   #41
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Originally Posted by Meadbh View Post
My IPS is annotated with specific instructions to step away from the fancy shmancy stuff.
I've experimented with lots of different investing styles just so that I can learn the mechanics of the execution and see the flaws in person.

That way when I'm 75 years old I won't still be curious about triple-inverse-leverage beever cheeze futures, and hopefully I won't con myself into thinking that it might be a good idea to put all my portfolio into them.

The main thing I've learned is that active investing is a lot more work... and I'm getting lazier every year.


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Old 08-05-2012, 04:45 PM   #42
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Originally Posted by imoldernu View Post
I agree... and not "many", but most. A major factor in the growth of business over the past 25 years.
As to the profits from derivatives, there is no question. When a single trader can earn $4 Billion in one year, that is certainly opportunity. There is no question that the success of the industry is what leads investment funds of all types into the business.

Having agreed to the success, also comes with the caution that derivatives are zero $ gain instruments, that come with a downside risk.

Correct... but a lot of what we do are a zero sum game...... with a profit to the financial intermediary.... but I can say that about almost any kind of insurance.... it is a zero sum game... except for the profit that the insurance company takes out.... This in and of itself does not make them bad....

When the losses occur, except for those involving fraud there is little news.

That is true, but the point that they are doing what is intended does not make news... when a company makes a lot of money from a derivative (or loses a lot), they also have the opposite happening somewhere else in their company which is why they bought it in the first place...

A five minute "news" search brings up a few of the larger recent losses that represent the "other side".

ANALYSIS-Banks face valuation losses as Libor discarded | Reuters

Some fallout for EU Libor banks

This has more to do with the problem with LIBOR and how it was being measured than the derivatives.....

U.S. regulator raps Enbridge on safety - The Globe and Mail

Enridge $300 million derivatives loss

I did not see the article talking about their loss.... and if they did lose $300 million, it does not say if the derivative did what they wanted it to do...

JPMorgan traders may have hidden derivatives losses | Reuters

JP Morgan Losses

I had mentioned this already.... from what I have read, they were trying to hedge against the much bigger risk of their loan portfolio... but did it badly and wrong... not like they were gambling...

U.S. regulator raps Enbridge on safety - The Globe and Mail

$1 Billion loss - Sicily

U.S. regulator raps Enbridge on safety - The Globe and Mail

Royal Bank of Scotland $723 Million Loss

U.S. regulator raps Enbridge on safety - The Globe and Mail

Japan Banks $750 Million

The same article is quoted on these, so I can not comment.....

CME, burned by MF Global, "monitoring" Knight Capital | Interactive Investor

MF Global and Peregrine

Isn't this the fraud you were talking about And not fraud of the derivatives themselves... Not a problem with the derivatives .....

I guess my concern comes from the fact that everyone I know, talk to or write with comes back with the same answer...
Basically that concerns about derivatives belong in the same room with endtime prophets.
...and so, getting used to being a human pincushion.
Fortunately some company here in the sewing box... Born, Warren, Krugman, Buffet and a few others....

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Old 08-05-2012, 05:13 PM   #43
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Originally Posted by Nords View Post
I think you're going far out on a mighty thin limb to compare Berkshire's "derivatives" to the products that other financial firms are using.

They're long-term puts

To me it seems only fitting that BRK, which has a large insurance business, sell insurance on the stock market.
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Old 08-05-2012, 06:12 PM   #44
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The same article is quoted on these, so I can not comment.....

MY jumpy mouse got me into trouble.... I ended up doing do much cutting and pasting, that I gave up and watched the olympics...
It gets hard to sound intelligent, when ya end up talking to yourself...

Don't think I can face doing it again...

...anyway... pleased to find someone who has been into derivatives (I haven't) which surely accounts for any misplaced paranoia.

A few questions (when you have time)....

First... Slicing and dicing? Who usually initiates this?

And a follow up... Where and how does tracking take place?

Let's say a portfolio of commercial properties.

My initial concern about the danger of derivatives was when I learned that Harvard University lost 12 billion dollars from its endowment fund between 2008 and 2009. Made me wonder if the Harvard brain trust wasn't smart enough to avoid this kind of loss, who would be?

Now the Illinois Teachers' pension fund is More than $40 Billion underfunded, taking a big hit in 2008. The current plan is to continue to invest in high risk OTC derivatives, to recoup the losses.

Risky investments further compromise IL TRS pension fund - Illinois Review

It's stories like this that make me question legitimacy, and the idea that derivatives are basically insurance instruments.

Of course, the final question that makes me nervous... In the case of a liquidity crisis (a possibility considering the TBTF stress test results) what happens when a counterparty cannot settle. I see Citigroup or Bank of America being a far greater problem than the entire EU, and cannot conceive of any way the Treasury or the IMF or even the return of Alan Greenspan could fix it.

Am truly not trying to win an argument, but to find some answers that others may be able to explain.

Thaks for your reply.
.................................................. .........
the missing links:

Enbridge profit hit by derivative losses | Investing | Financial Post

Sicily Swap Losses Burden Debt Amid Liquidity Crunch - Businessweek

IT and mis-selling losses hit RBS -

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