The objective of this website is to show that a rational and mathematically optimzed investment strategy will not only outperform the market, but will help to stabilize financial markets, which is a prerequisite for economic stability and growth
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| The objective of this website is to show that a rational and mathematically optimzed investment strategy will not only outperform the market, but will help to stabilize financial markets, which is a prerequisite for economic stability and growth |
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The Friendly Bear Investment Philosophy The objective of this not for profit website is to show that you can contribute to stabilize financial markets and at the same time outperform the stock market indices by using the friendly bear investment strategy. The friendly bear investment strategy tries to optimize risk based investment returns based on value investing principles and mathematical optimization. The strategy is based on many years of research and is a combination of techniques used by successful investors like: - Identifying misvaluations based on a risk based discounting of future cash flows - Mathematical optimal money management - Assessment of business risk based on competitive position and cyclicality - Exploiting Stock market volatility - Exploiting accounting flaws - Exploiting option valuation flaws The interesting outcome of this research was that a friendly bear strategy not only outperforms the broader stock market indices in the long term, but also has a stabilizing effect on the financial markets. The friendly bear strategy exploits market inefficiencies that are caused by irrational panic, speculative greed, irrational herd behaviour and risky betting of short term investors. The aim of this website is to promote rational investing strategies, which maximize long term risk based investment returns and have a stabilizing effect on financial markets. More stable financial markets will contribute to everybody's welfare. Friendly Bear attacks Amedisys (AMED) Description: Home Health Services Stock Price: $16.81 Valuation: Price/Free Cash Flow of about 6 Cause of low valuation: Compiance issues, changes in regulations and fees, US health care reform Misvaluation Case: Stable non-cyclical business, strong cash flows Conclusion: Undervalued Implied Volatility: 70 Exploiting Strategy: - sell Januaty 2013 put 15: $3.20(August 19, 2011) - Additional Cash collateral: $800 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 19,2011 End Date: unknown Guess? (GES) Description: Apparel & Accessories Stock Price: $30.32 Valuation: Price/Free Cash Flow of about 11 Cause of low valuation: Fear for a recession, which will hurt consumer spending and strong competition Misvaluation Case: High profit margins and several years of consistent profit growth, the company is run by the founding Marciano family Conclusion: Undervalued Implied Volatility: 70 Exploiting Strategy: - sell Januaty 2013 put 30: $7.40 (August 19, 2011) - Additional Cash collateral: $1500 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 19,2011 End Date: unknown ING Group (AMS:ING) Description: Diversified Financial Institution Stock Price: €5.48 Valuation: Adjusted Price/Free Cash Flow of about 5 Cause of low valuation: Needed a bail out from the Dutch Government, European sovereign debt fears Misvaluation Case: Strong and stable bank and insurance company, has a strong market position in the Netherlands, generates high levels of cash, strong credit ratings, Conclusion: Undervalued Implied Volatility: 70 Exploiting Strategy: - sell December 2015 put 6: €2.50 (August 19, 2011) - Additional Cash collateral: €300 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 19,2011 End Date: unknown Bank Of America (BAC) Description: Diversified Financial Institution Stock Price: $6.97 Valuation: Adjusted Price/Free Cash Flow of about 15 Cause of low valuation: High credit losses and the risk of significant losses due to legal claims related to the acquired Countrywide mortgage business Misvaluation Case: Generates high amounts of Cash and is potentially very profitable Conclusion: Undervalued Implied Volatility: 100 Exploiting Strategy: - sell January 2013 put 7.50: $2.50 (August 19, 2011) - Additional Cash collateral: $400 Expected geometric annual return: 40% Realised profit/loss: none Realized return: none Start Date: August 19,2011 End Date: unknown The Coca-Cola Company (KO) Description: Global non-alcoholic beverage company Stock Price: $67.10 Valuation: Price/Free Cash Flow of about 15 Cause of low valuation: Out of favour by risk seeking investors and market panic Misvaluation Case: Very conservative balance sheet, diversified highly profitable and stable businesses, strong record of dividend increases Conclusion: Undervalued Implied Volatility: 10 Exploiting Strategy: - buy January 2013 call 72.50: $3.25 (August 19, 2011) - Sell January 2012 call 72.50: $1.20 (August 19, 2011) - Buy January 2012 call 72.50: $0.05 (January 5, 2012) - Sell February 2012 call 70.00: $1.11 (January 5, 2012) - Additional Cash collateral: $300 - Cash received: $106 (January 5, 2012) Expected geometric annual return: 25% Realised profit/loss:$115 Realized return: none Start Date: August 19,2011 End Date: unknown Johnson & Johnson (JNJ) Description: Diversified healthcare company Stock Price: $63.14 Valuation: Price/Free Cash Flow of about 10 Cause of low valuation: Operational problems and product recalls, expiring patents and out of favour by risk seeking investors Misvaluation Case: Very conservative balance sheet, diversified highly profitable and stable businesses, strong record of dividend increases Conclusion: Undervalued Implied Volatility: 10 Exploiting Strategy: - buy January 2013 call 67.50: $3.35 (August 19, 2011) - Sell January 2012 call 67.50: $1.50 (August 19, 2011) - Additional Cash collateral: $300 - Sell April 2012 call 67.50: $0.58 (January 20, 2012) - Cash received: $58 (January 20, 2012) Expected geometric annual return: 25% Realised profit/loss: $150 Realized return: none Start Date: August 19,2011 End Date: unknown Berkshire Hathaway (BRK.B) Description: American Conglomerate run by legendary investor Warren Buffet Stock Price: $68.33 Valuation: Adjusted Price/Free Cash Flow of about 13 Cause of low valuation: Insurance losses caused by the Japan earthquake and market panic Misvaluation Case: Very solid well run company Conclusion: Undervalued Implied Volatility: 30 Exploiting Strategy: - Sell January 2013 put 70: $9.75(August 19, 2011) - Additional Cash collateral: $3000 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 19,2011 End Date: unknown Aegon (AMS:AGN) Description: Dutch Life insurer Stock Price: €2.861 Valuation: Adjusted Price/Free Cash Flow of about 4 Cause of low valuation: Needed support from the Dutch government in 2008/ Fear of sovereign debt and losses because of legal claims Misvaluation Case: Aegon has high credit ratings, stable cash flows, excess capital and will start paying a dividend. Conclusion: Undervalued Implied Volatility: 50 Exploiting Strategy: - Sell December 2015 put 2.4: €0.8 (August 11, 2011) - Additional Cash collateral: €100 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 11,2011 End Date: unknown RWE (ETR:RWE) Description: German utility operator Stock Price: €26.22 Valuation: Adjusted Price/Free Cash Flow of about 7 Cause of low valuation: Decision of German government to stop close nuclear power plants Misvaluation Case: RWE operates in a non cyclical stable business in a duopoly with E.ON and has relatively stable earnings and free cash flow. They also have more than 3 billion of real estate, which they can sell to lower debt. They have closed unprofitable shops to increase profitable. Conclusion: Undervalued Implied Volatility: 35 Exploiting Strategy: - Sell June 2013 put 26: €5.85 (August 11, 2011) - Additional Cash collateral: €1300 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: August 11,2011 End Date: unknown Salesforce.com (CRM) Description: Customer Relationship Management Software and cloud Services Stock Price: $150.41 Valuation: Price/Adjusted Free Cash Flow of about 250 Cause of high valuation: High growth potential of cloudcomputing services Misvaluation Case: Fast growth not sustainable, very high valuation, harly making a proft, selling stocks to finance operations leading to dilution Conclusion: Overvalued Implied Volatility: 30 Exploiting Strategy: - Sell Short CRM (July 22, 2011) - Additional Long Stock collateral: $1500 Expected geometric annual return: 2% increase above long stock return Realised profit/loss: none Realized return: none Start Date: July 22,2011 End Date: unknown Kimberly Clark (KMB) Description: Personal Care Stock Price: $67.90 Valuation: Price/Adjusted Free Cash Flow of about 15 Cause of low valuation: Risk seeking traders are not interested in a highly profitable, but boring company Misvaluation Case: Non cyclical stable business and stable earnings. High ROE of 25% and strong competitive position. Conclusion: Undervalued Implied Volatility: 12 Exploiting Strategy: - Buy January 2013 call 70.00: $2.95 (July 22, 2011) - Sell January 2012 call 70.00: $1.30 (July 22, 2011) - Buy January 2012 call 70.00: $3.60 (October 7, 2011) - Sell January 2012 call 72.50: $2.10 (October 7, 2011) - Initial Cash collateral: $400 - Cash paid: $150 (October 7, 2011) - Cash paid: $133 (January 20, 2012) - Sell January 2012 call 72.50: $0.70 (October 7, 2011) - Cash received: $70 (January 20, 2012) Expected geometric annual return: 25% Realised profit/loss: -363 Realized return: none Start Date: July 22,2011 End Date: unknown Pepsico (PEP) Description: Beverage, food and snack company Stock Price: $66.17 Valuation: Price/Free Cash Flow of about 15 Cause of low valuation: Risk seeking traders are not interested in a highly profitable, but boring company Misvaluation Case: Non cyclical stable business and stable earnings. High ROE of 25% and strong competitive position. Conclusion: Undervalued Implied Volatility: 12 Exploiting Strategy: - Buy January 2013 call 67.50: $3.8 (July 21, 2011) - Sell January 2012 call 67.50: $1.95 (July 21, 2011) - Additional Cash collateral: $400 - Sell February 2012 call 67.50: $0.52 (January 20, 2012) - Cash received: $52 (January 20, 2012) Expected geometric annual return: 25% Realised profit/loss: $195 Realized return: none Start Date: July 21,2011 End Date: unknown Supervalu Inc. (SVU) Description: US food retailer Stock Price: $9.22 Valuation: Price/Free Cash Flow of about 3-4 Cause of low valuation: Mediocre profit margins, has made large goodwill amortizations, has a huge debt load of 3-4 times EBITA and revenues has dropped for several years with an increased risk of default or the need to raise capital by selling shares. Misvaluation Case: Supervalu operates in a non cyclical stable busines and has relatively stable earnings and free cash flow. They also have more than 3 billion of real estate, which they can sell to lower debt. They have closed unprofitable shops to increase profitable. Conclusion: Undervalued Implied Volatility: 30 Exploiting Strategy: - Sell January 2013 put 10: $2.70 (July 20, 2011) - Additional Cash collateral: $500 Expected geometric annual return: 25% Realised profit/loss: none Realized return: none Start Date: July 20,2011 End Date: unknown Wal-mart Stores (WMT) Description: The world's largest retailer Stock Price: $53.89 Valuation: Price/Free Cash Flow of about 10 Cause of low valuation: Increased competition, economic slow down, low expected growth, out of favour by risk seeking investors Misvaluation Case: WMT operates in a no cyclical stable business, has very stable cash flows, is market leader and as a result has the strongest bargaining power with suppliers, has a strong brand, has a large amount of potentially undervalued real estate Conclusion: Undervalued Implied Volatility: 10 Exploiting Strategy: - buy January 2013 call 55: $3.25 (July 20, 2011) - Sell January 2012 call 55: $1.60 (July 20, 2011) - Buy January 2012 call 55: $3.40 (December 5, 2011) - Sell April 2012 call 60: $1.08 (December 5, 2011) - Additional Cash collateral: $300 - Cash paid: $72 (December 5, 2011) Expected geometric annual return: 25% Realised profit/loss: $180 Realized return: none Start Date: July 20,2011 End Date: unknown National Bank of Greece Preferred Shares Series A (NBG-A) Description: Largest Bank of Greece Stock Price: $8.04 Valuation:Shares callable at $25 Cause of low valuation: 12 billion exposure to Greek government bonds, which might default, and increase in non performing loans due to the sever recession in Greece. No dividends paid on preferred shares. Misvaluation Case: Greek unit is still profitable and Turkish unit is very profitable and rapdily growing, NBG has strong a tier 1 ratio of about 12% and has financed it loans for more than 90% with deposits. If NBG does not default, the preferred shares should rise back to $25 with a potential dividend of more than $2. Conclusion: Undervalued Implied Volatility: not applicable Exploiting Strategy: - buy NBG-A: $8.04 (July 20, 2011) Expected geometric annual return: 20% Realised profit/loss: none Realized return: none Start Date: July 20,2011 End Date: unknown Aeropostale (ARO) Description: Discount teen apparel retailer Stock Price: $17.39 Valuation:Price /Free Cash Flow of about 7 Cause of low valuation: Recent drop of same store sales and profits below forecast due to competition and less consumer spending Misvaluation Case: ARO has no debt, very strong margins and a high return on equity and a historic track record of growth Conclusion: Undervalued Implied Volatility: 30 Exploiting Strategy: - sell January 2013 put 17.50: $3.30 (July 20, 2011) - buy January 2013 put 17.50: $7.40 (October 3, 2011) - sell January 2014 put 10.00: $2.80 (October 3, 2011) - buy January 2014 put 10.00: $1.90 (December 5, 2011) - sell January 2014 put 15.00: $4.00 (December 5, 2011) - Initial Additional Cash collateral: $900 - Cash payment: $130 - Cash payment: -$210 Expected geometric annual return: 25% Realised profit/loss: -$320 Realized return: none Start Date: July 20,2011 End Date: unknown |