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Binary Options Review; Best Binary Options Brokers

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submitted by Babyelijah to u/Babyelijah [link] [comments]

IRC Log from Ravencoin Open Developer Meeting - Aug 24, 2018

[14:05] <@wolfsokta> Hello Everybody, sorry we're a bit late getting started
[14:05] == block_338778 [[email protected]/web/freenode/ip.72.214.222.226] has joined #ravencoin-dev
[14:06] <@wolfsokta> Here are the topics we would like to cover today • 2.0.4 Need to upgrade - What we have done to communicate to the community • Unique Assets • iOS Wallet • General Q&A
[14:06] == Chatturga changed the topic of #ravencoin-dev to: 2.0.4 Need to upgrade - What we have done to communicate to the community • Unique Assets • iOS Wallet • General Q&A
[14:06] <@wolfsokta> Daben, could you mention what we have done to communicate the need for the 2.0.4 upgrade?
[14:07] == hwhwhsushwban [[email protected]/web/freenode/ip.172.58.37.35] has joined #ravencoin-dev
[14:07] <@wolfsokta> Others here are free to chime in where they saw the message first.
[14:07] == hwhwhsushwban [[email protected]/web/freenode/ip.172.58.37.35] has quit [Client Quit]
[14:08] Whats up bois
[14:08] hi everyone
[14:08] hi hi
[14:08] <@wolfsokta> Discussing the 2.0.4 update and the need to upgrade.
[14:08] <@Chatturga> Sure. As most of you are aware, the community has been expressing concerns with the difficulty oscillations, and were asking that something be done to the difficulty retargeting. Many people submitted suggestions, and the devs decided to implement DGW.
[14:09] <@Tron> I wrote up a short description of why we're moving to a new difficulty adjustment. https://medium.com/@tronblack/ravencoin-dark-gravity-wave-1da0a71657f7
[14:09] <@Chatturga> I have made posts on discord, telegram, bitcointalk, reddit, and ravencointalk.org from testnet stages through current.
[14:10] <@Chatturga> If there are any other channels that can reach a large number of community members, I would love to have more.
[14:10] <@wolfsokta> Thanks Tron, that hasn't been shared to the community at large yet, but folks feel free to share it.
[14:10] When was this decision made and by whom and how?
[14:10] <@Chatturga> I have also communicated with the pool operators and exchanges about the update. Of all of the current pools, only 2 have not yet updated versions.
[14:11] <@wolfsokta> The decision was made by the developers through ongoing requests for weeks made by the community.
[14:12] <@wolfsokta> Evidence was provided by the community of the damages that could be caused to projects when the wild swings continue.
[14:12] So was there a meeting or vote? How can people get invited
[14:12] <@Tron> It was also informed by my conversations with some miners that recommended that we make the change before the coin died. They witnessed similar oscillations from which other coins never recovered.
[14:13] only two pools left to upgrade is good, what about the exchanges? Any word on how many of those have/have not upgraded?
[14:13] <@wolfsokta> We talked about here in our last meeting Bruce_. All attendees were asked if they had any questions or concerns.
[14:13] == blondfrogs [[email protected]/web/freenode/ip.185.245.87.219] has joined #ravencoin-dev
[14:13] == roshii [[email protected]/web/freenode/ip.41.251.25.100] has joined #ravencoin-dev
[14:13] sup roshii long time no see
[14:14] <@Chatturga> Bittrex, Cryptopia, and IDCM have all either updated or have announced their intent to update.
[14:14] == wjcgiwgu283ik3cj [[email protected]/web/freenode/ip.172.58.37.35] has joined #ravencoin-dev
[14:15] sup russki
[14:15] what's the status here?
[14:15] I don’t think that was at all clear from the last dev meeting
[14:15] I can’t be the only person who didn’t understand it
[14:15] <@wolfsokta> Are there any suggestions on how to communicate the need to upgrade even further? I am concerned that others might also not understand.
[14:17] I’m not sold on the benefit and don’t understand the need for a hard fork — I think it’s a bad precedent to simply go rally exchanges to support a hard fork with little to no discussion
[14:17] so just to note, the exchanges not listed as being upgraded or have announced their intention to upgrade include: qbtc, upbit, and cryptobridge (all with over $40k usd volume past 24 hours according to coinmarketcap)
[14:18] <@wolfsokta> I don't agree that there was little or no discussion at all.
[14:19] <@wolfsokta> Looking back at our meeting notes from two weeks ago "fork" was specifically asked about by BrianMCT.
[14:19] If individual devs have the power to simple decide to do something as drastic as a hard fork and can get exchanges and miners to do it that’s got a lot of issues with centralization
[14:19] <@wolfsokta> It had been implemented on testnet by then and discussed in the community for several weeks before that.
[14:19] == under [[email protected]/web/freenode/ip.72.200.168.56] has joined #ravencoin-dev
[14:19] howdy
[14:19] Everything I’ve seen has been related to the asset layer
[14:19] I have to agree with Bruce_, though I wasn't able to join the last meeting here. That said I support the fork
[14:20] Which devs made this decision to do a fork and how was it communicated?
[14:20] well mostly the community made the decision
[14:20] Consensus on a change is the heart of bitcoin development and I believe the devs have done a great job building that consensus
[14:20] a lot of miners were in uproar about the situation
[14:20] <@wolfsokta> All of the devs were supporting the changes. It wasn't done in isolation at all.
[14:21] This topic has been a huge discussion point within the RVN mining community for quite some time
[14:21] the community and miners have been having issues with the way diff is adjusted for quite some time now
[14:21] Sure I’m well aware of that -
[14:21] Not sold on the benefits of having difficulty crippled by rented hashpower?
[14:21] The community saw a problem. The devs got together and talked about a solution and implemented a solution
[14:21] I’m active in the community
[14:22] So well aware of the discussions on DGW etc
[14:22] Hard fork as a solution to a problem community had with rented hashpower (nicehash!!) sounds like the perfect decentralized scenario!
[14:23] hard forks are very dangerous
[14:23] mining parties in difficulty drops are too
[14:23] <@wolfsokta> Agreed, we want to keep them to an absolute minimum.
[14:23] But miners motivation it’s the main vote
[14:24] What would it take to convince you that constantly going from 4 Th/s to 500 Gh/s every week is worse for the long term health of the coin than the risk of a hard fork to fix it?
[14:24] == Tron [[email protected]/web/freenode/ip.173.241.144.77] has quit [Ping timeout: 252 seconds]
[14:24] This hardfork does include the asset layer right? if so why is it being delayed in implementation?
[14:24] <@wolfsokta> Come back Tron!
[14:24] coudl it have been implement through bip9 voting?
[14:24] also hard fork is activated by the community! that's a vote thing!
[14:24] @mrsushi to give people time to upgrade their wallet
[14:25] @under, it would be much hard to keep consensus with a bip9 change
[14:25] <@wolfsokta> We investigated that closely Under.
[14:25] == Tron [[email protected]/web/freenode/ip.173.241.144.77] has joined #ravencoin-dev
[14:25] <@wolfsokta> See Tron's post for more details about that.
[14:25] <@spyder_> Hi Tron
[14:25] <@wolfsokta> https://medium.com/@tronblack/ravencoin-dark-gravity-wave-1da0a71657f7
[14:25] Sorry about that. Computer went to sleep.
[14:26] I'm wrong
[14:26] 2 cents. the release deadline of october 31st puts a bit of strain on getting code shipped. (duh). but fixing daa was important to the current health of the coin, and was widely suppported by current mining majority commuity. could it have been implemented in a different manner? yes . if we didnt have deadlines
[14:27] == wjcgiwgu283ik3cj [[email protected]/web/freenode/ip.172.58.37.35] has quit [Quit: Page closed]
[14:27] sushi this fork does not include assets. it's not being delayed though, we're making great progress for an Oct 31 target
[14:28] I don’t see the urgency but my vote doesn’t matter since my hash power is still CPUs
[14:28] <@wolfsokta> We're seeing the community get behind the change as well based on the amount of people jumping back in to mine through this last high difficulty phase.
[14:28] So that will be another hardfork?
[14:28] the fork does include the asset code though set to activate on oct 30th
[14:28] yes
[14:29] <@wolfsokta> Yes, it will based on the upgrade voting through the BIP9 process.
[14:29] I wanted to ask about burn rates from this group: and make a proposal.
[14:29] we're also trying hard to make it the last for awhile
[14:29] Can you clear up the above — there will be this one and another hard fork?
[14:29] <@wolfsokta> Okay, we could discuss that under towards the end of the meeting.
[14:30] If this one has the asset layer is there something different set for October
[14:30] <@wolfsokta> Yes, there will be another hard fork on October 31st once the voting process is successful.
[14:31] <@wolfsokta> The code is in 2.0.4 now and assets are active on testnet
[14:31] Bruce, the assets layer is still being worked on. Assets is active on mainnet. So in Oct 31 voting will start. and if it passes, the chain will fork.
[14:31] this one does NOT include assets for mainnet Bruce -- assets are targeted for Oct 31
[14:31] not***
[14:31] not active****
[14:31] correct me if I'm wrong here, but if everyone upgrades to 2.0.4 for this fork this week, the vote will automatically pass on oct 31st correct? nothing else needs to be done
[14:31] Will if need another download or does this software download cover both forks?
[14:31] <@wolfsokta> Correct Urgo
[14:32] thats how the testnet got activated and this one shows "asset activation status: waiting until 10/30/2018 20:00 (ET)"
[14:32] Will require another upgrade before Oct 31
[14:32] thank you for the clarification wolfsokta
[14:32] <@wolfsokta> It covers both forks, but we might have additional bug fixes in later releases.
[14:32] So users DL one version now and another one around October 30 which activates after that basically?
[14:33] I understand that, but I just wanted to make it clear that if people upgrade to this version for this fork and then don't do anything, they are also voting for the fork on oct 31st
[14:33] Oh okay — one DL?
[14:33] Bruce, Yes.
[14:33] Ty
[14:33] well there is the issue that there maybe some further consensus bugs dealing with the pruneability of asset transactions that needs to be corrected between 2.0.4 and mainnet. so i would imagine that there will be further revisions required to upgrade before now and october 31
[14:33] @under that is correct.
[14:34] I would highly recommend bumping the semver up to 3.0.0 for the final pre 31st release so that the public know to definitely upgrade
[14:34] @under +1
[14:35] out of curiosity, have there been many bugs found with the assets from the version released in july for testnet (2.0.3) until this version? or is it solely a change to DGW?
[14:35] <@wolfsokta> That's not a bad idea under.
[14:35] <@spyder_> @under good idea
[14:35] @urgo. Bugs are being found and fixed daily.
[14:35] Any time the protocol needs to change, there would need to be a hard fork (aka upgrade). It is our hope that we can activate feature forks through the BIP process (as we are doing for assets). Mining pools and exchanges will need to be on the newest software at the point of asset activation - should the mining hash power vote for assets.
[14:35] blondfrogs: gotcha
[14:35] There have been bugs found (and fixed). Testing continues. We appreciate all the bug reports you can give us.
[14:36] <@wolfsokta> Yes! Thank you all for your help in the community.
[14:37] (pull requests with fixes and test coverage would be even better!)
[14:37] asset creation collision is another major issue. current unfair advantage or nodes that fore connect to mining pools will have network topologies that guarantee acceptance. I had discussed the possibility of fee based asset creation selection and i feel that would be a more equal playing ground for all users
[14:38] *of nodes that force
[14:38] <@wolfsokta> What cfox said, we will always welcome development help.
[14:38] So just to make sure everyone know. When assets is ready to go live on oct 31st. Everyone that wants to be on the assets chain without any problems will have to download the new binary.
[14:39] <@wolfsokta> The latest binary.
[14:39] under: already in the works
[14:39] excellent to hear
[14:39] == UserJonPizza [[email protected]/web/freenode/ip.24.218.60.237] has joined #ravencoin-dev
[14:39] <@wolfsokta> Okay, we've spent a bunch of time on that topic and I think it was needed. Does anybody have any other suggestions on how to get the word out even more?
[14:40] maybe preface all 2.0.X releases as pre-releases... minimize the number of releases between now and 3.0 etc
[14:41] <@wolfsokta> Bruce_ let's discuss further offline.
[14:41] wolfsokta: which are the remaining two pools that need to be upgraded? I've identified qbtc, upbit, and cryptobridge as high volume exchanges that haven't said they were going to do it yet
[14:41] so people can help reach out to them
[14:41] f2pool is notoriously hard to contact
[14:41] are they on board?
[14:42] <@wolfsokta> We could use help reaching out to QBTC and Graviex
[14:42] I can try to contact CB if you want?
[14:42] <@Chatturga> The remaining pools are Ravenminer and PickAxePro.
[14:42] <@Chatturga> I have spoken with their operators, the update just hasnt been applied yet.
[14:42] ravenminer is one of the largest ones too. If they don't upgrade that will be a problem
[14:42] okay good news
[14:42] (PickAxePro sounds like a Ruby book)
[14:43] I strongly feel like getting the word out on ravencoin.org would be beneficial
[14:44] that site is sorely in need of active contribution
[14:44] Anyone can volunteer to contribute
[14:44] <@wolfsokta> Okay, cfox can you talk about the status of unique assets?
[14:44] sure
[14:45] <@wolfsokta> I'll add website to the end of our topics.
[14:45] code is in review and will be on the development branch shortly
[14:45] would it make sense to have a page on the wiki (or somewhere else) that lists the wallet versions run by pools & exchanges?
[14:45] will be in next release
[14:45] furthermore, many sites have friendly link to the standard installers for each platform, if the site linked to the primary installers for each platform to reduce github newb confusion that would be good as well
[14:46] likely to a testnetv5 although that isn't settled
[14:46] <@wolfsokta> Thanks cfox.
[14:46] <@wolfsokta> Are there any questions about unique assets, and how they work?
[14:47] after the # are there any charachters you cant use?
[14:47] will unique assets be constrained by the asset alphanumeric set?
[14:47] ^
[14:47] <@Chatturga> @Urgo there is a page that tracks and shows if they have updated, but it currently doesnt show the actual version that they are on.
[14:47] a-z A-Z 0-9
[14:47] <@Chatturga> https://raven.wiki/wiki/Exchange_notifications#Pools
[14:47] There are a few. Mostly ones that mess with command-line
[14:47] you'll be able to use rpc to do "issueunique MATRIX ['Neo','Tank','Tank Brother']" and it will create three assets for you (MATRIX#Neo, etc.)
[14:47] @cfox - No space
[14:48] @under the unique tags have an expanded set of characters allowed
[14:48] Chatturga: thank you
[14:48] @UJP yes there are some you can't use -- I'll try to post gimmie a sec..
[14:49] Ok. Thank you much!
[14:49] 36^36 assets possible and 62^62 uniques available per asset?
[14:49] <@spyder_> std::regex UNIQUE_TAG_CHARACTERS("^[[email protected]$%&*()[\\]{}<>_.;?\\\\:]+$");
[14:50] regex UNIQUE_TAG_CHARACTERS("^[[email protected]$%&*()[\\]{}<>_.;?\\\\:]+$")
[14:50] oh thanks Mark
[14:51] <@wolfsokta> Okay, next up. I want to thank everybody for helping test the iOS wallet release.
[14:51] <@wolfsokta> We are working with Apple to get the final approval to post it to the App Store
[14:51] @under max asset length is 30, including unique tag
[14:51] Does the RVN wallet have any other cryptos or just RVN?
[14:52] == BruceFenton [[email protected]/web/freenode/ip.67.189.233.170] has joined #ravencoin-dev
[14:52] will the android and ios source be migrated to the ravenproject github?
[14:52] I've been adding beta test users. I've added about 80 new users in the last few days.
[14:52] <@wolfsokta> Just RVN, and we want to focus on adding the asset support to the wallet.
[14:53] == Bruce_ [[email protected]/web/freenode/ip.67.189.233.170] has quit [Ping timeout: 252 seconds]
[14:53] <@wolfsokta> Yes, the code will also be freely available on GitHub for both iOS and Android. Thank you Roshii!
[14:53] Would you consider the iOS wallet to be a more secure place for one's holdings than say, a Mac connected to the internet?
[14:53] will there be a chance of a more user freindly wallet with better graphics like the iOS on PC?
[14:53] the android wallet is getting updated for DGW, correct?
[14:53] <@wolfsokta> That has come up in our discussion Pizza.
[14:54] QT framework is pretty well baked in and is cross platform. if we get some qt gurus possibly
[14:54] Phones are pretty good because the wallet we forked uses the TPM from modern phones.
[14:54] Most important is to write down and safely store your 12 word seed.
[14:54] TPM?
[14:54] <@wolfsokta> A user friendly wallet is one of our main goals.
[14:55] TPM == Trusted Platform Module
[14:55] Ahhh thanks
[14:55] just please no electron apps. they are full of security holes
[14:55] <@spyder_> It is whats makes your stuffs secure
[14:55] not fit for crypto
[14:55] under: depends on who makes it
[14:55] The interface screenshots I've seen look like Bread/Loaf wallet ... I assume that's what was forked from
[14:55] ;)
[14:56] <@wolfsokta> @roshii did you see the question about the Android wallet and DGW?
[14:56] Yes, it was a fork of breadwallet. We like their security.
[14:56] chromium 58 is the last bundled electron engine and has every vuln documented online by google. so unless you patch every vuln.... methinks not
[14:56] Agreed, great choice
[14:57] <@wolfsokta> @Under, what was your proposal?
[14:58] All asset creation Transactions have a mandatory OP_CHECKLOCKTIMEVERIFY of 1 year(or some agreed upon time interval), and the 500 RVN goes to a multisig devfund, run by a custodial group. We get: 1) an artificial temporary burn, 2) sustainable community and core development funding for the long term, after OSTK/Medici 3) and the reintroduction of RVN supply at a fixed schedule, enabling the removal of the 42k max cap of total As
[14:58] *im wrong on the 42k figure
[14:58] <@wolfsokta> Interesting...
[14:59] <@wolfsokta> Love to hear others thoughts.
[14:59] Update: I posted a message on the CryptoBridge discord and one of their support members @stepollo#6276 said he believes the coin team is already aware of the fork but he would forward the message about the fork over to them right now anyway
[14:59] Ifs 42 million assets
[14:59] yep.
[15:00] I have a different Idea. If the 500 RVN goes to a dev fund its more centralized. The 500 RVN should go back into the unmined coins so miners can stay for longer.
[15:01] *without a hardfork
[15:01] <@wolfsokta> lol
[15:01] that breaks halving schedule, since utxos cant return to an unmined state.
[15:01] @UJP back into coinbase is interesting. would have to think about how that effects distribution schedule, etc.
[15:01] only way to do that would be to dynamicaly grow max supply
[15:02] and i am concerned already about the max safe integer on various platforms at 21 billion
[15:02] js chokes on ravencoin already
[15:02] <@wolfsokta> Other thoughts on Under's proposal? JS isn't a real language. ;)
[15:02] Well Bitcoin has more than 21 bn Sats
[15:02] Is there somebody who wants to volunteer to fix js.
[15:02] hahaha
[15:03] I honestly would hate for the coins to go to a dev fund. It doesn't seem like Ravencoin to me.
[15:03] Yep, but we're 21 billion x 100,000,000 -- Fits fine in a 64-bit integer, but problematic for some languages.
[15:03] <@wolfsokta> Thanks UJP
[15:04] <@wolfsokta> We're past time but I would like to continue if you folks are up for it.
[15:04] Yeah no coins can go anywhere centrality contorted like a dev fund cause that would mean someone has to run it and the code can’t decide that so it’s destined to break
[15:05] currently and long term with out the financial backing of development then improvements and features will be difficult. we are certainly thankful for our current development model. but if a skunkworks project hits a particular baseline of profitability any reasonable company would terminate it
[15:05] Yes let’s contibue for sure
[15:05] the alternative to a dev fund in my mind would be timelocking those funds back to the issuers change address
[15:06] But we can’t have dev built in to the code — it has to be open source like Bitcoin and monero and Litecoin - it’s got drawbacks but way more advantages- it’s the best model
[15:06] Dev funding
[15:06] i highly reccommend not reducing the utility of raven by removing permanently the supply
[15:07] == BW_ [[email protected]/web/freenode/ip.138.68.243.202] has joined #ravencoin-dev
[15:07] timelocking those funds accompllishes the same sacrifice
[15:07] @under timelocking is interesting too
[15:07] How exactly does timelocking work?
[15:07] <@wolfsokta> ^
[15:07] I mean you could change the price of assets with the Block reward halfing.
[15:07] == Roshiix [[email protected]/web/freenode/ip.105.67.2.212] has joined #ravencoin-dev
[15:08] funds cant be spent from an address until a certain time passes
[15:08] but in a what magical fairy land do people continue to work for free forever. funding development is a real issue... as much as some might philosphically disagree. its a reality
[15:08] You’d still need a centralized party to decide how to distribute the funds
[15:08] even unofficially blockstream supports bitcoin devs
[15:08] on chain is more transparent imho
[15:09] == Tron_ [[email protected]/web/freenode/ip.173.241.144.77] has joined #ravencoin-dev
[15:09] @UJP yes there are unlimited strategies. one factor that I think is v important is giving application developers a way to easily budget for projects which leads to flat fees
[15:09] If the project is a success like many of believe it will be, I believe plenty of people will gladly done to a dev fund. I don't think the 500 should be burned.
[15:09] *donate
[15:09] centralized conservatorship, directed by community voting process
[15:10] == Tron [[email protected]/web/freenode/ip.173.241.144.77] has quit [Ping timeout: 252 seconds]
[15:10] <@wolfsokta> Thanks Under, that's an interesting idea that we should continue to discuss in the community. You also mentioned the existing website.
[15:10] It would need to be something where everyone with a QT has a vote
[15:10] think his computer went to sleep again :-/
[15:10] I agree UJP
[15:10] with the website
[15:10] No that’s ico jargon — any development fund tied to code would have to be centralized and would therefor fail
[15:11] ^
[15:11] ^
[15:11] ^
[15:11] dashes model for funding seems to be pretty decentralized
[15:11] community voting etc
[15:11] Once you have a dev fund tied to code then who gets to run it? Who mediates disputes?
[15:11] oh well another discussion
[15:11] Dash has a CEO
[15:12] <@wolfsokta> Yeah, let's keep discussing in the community spaces.
[15:12] Dash does have a good model. It's in my top ten.
[15:12] having the burn go to a dev fund is absolute garbage
[15:12] These dev chats should be more target than broad general discussions — changing the entire nature of the coin and it’s economics is best discussed in the RIPs or other means
[15:13] <@wolfsokta> Yup, let's move on.
[15:13] just becuase existing implementation are garbage doesnt mean that all possible future governance options are garbage
[15:13] <@wolfsokta> To discussing the website scenario mentioned by under.
[15:13] the website needs work. would be best if it could be migrated to github as well.
[15:13] What about this: Anyone can issue a vote once the voting feature has been added, for a cost. The vote would be what the coins could be used for.
[15:14] features for the site that need work are more user friendly links to binaries
[15:14] <@wolfsokta> We investigated how bitcoin has their website in Github to make it easy for contributors to jump in.
[15:14] that means active maintenance of the site instead of its current static nature
[15:15] <@wolfsokta> I really like how it's static html, which makes it super simple to host/make changes.
[15:15] the static nature isn’t due to interface it’s due to no contributors
[15:15] no contribution mechanism has been offered
[15:15] github hosted would allow that
[15:16] We used to run the Bitcoin website from the foundation & the GitHub integration seemed to cause some issues
[15:16] its doesnt necessarily have to be hosted by github but the page source should be on github and contributions could easily be managed and tracked
[15:17] for example when a new release is dropped, the ability for the downlaods section to have platform specific easy links to the general installers is far better for general adoption than pointing users to github releases
[15:18] <@wolfsokta> How do people currently contribute to the existing website?
[15:18] they dont?
[15:18] We did that and it was a complete pain to host and keep working — if someone wants to volunteer to do that work hey can surely make the website better and continually updated — but they could do that in Wordpress also
[15:19] I’d say keep an eye out for volunteers and maybe we can get a group together who can improve the site
[15:19] == digitalvap0r-xmr [[email protected]/web/cgi-irc/kiwiirc.com/ip.67.255.25.134] has joined #ravencoin-dev
[15:19] And they can decide best method
[15:20] I host the source for the explorer on github and anyone can spin it up instantly on a basic aws node. changes can be made to interface etc, and allow for multilingual translations which have been offered by some community members
[15:20] there are models that work. just saying it should be looked at
[15:20] i gotta run thank you all for your contributions
[15:20] <@wolfsokta> I feel we should explore the source for the website being hosted in GitHub and discuss in our next dev meeting.
[15:21] <@Chatturga> Thanks Under!
[15:21] == under [[email protected]/web/freenode/ip.72.200.168.56] has quit [Quit: Page closed]
[15:21] <@wolfsokta> Thanks, we also need to drop soon.
[15:21] There is no official site so why care. Someone will do better than the next if RVN is worth it anyway. That's already the case.
[15:21] <@wolfsokta> Let's do 10 mins of open Q&A
[15:22] <@wolfsokta> Go...
[15:23] <@Chatturga> Beuller?
[15:24] No questions ... just a comment that the devs and community are great and I'm happy to be a part of it
[15:24] I think everyone moved to discord. I'll throw this out there. How confident is the dev team that things will be ready for oct 31st?
[15:24] <@wolfsokta> Alright! Thanks everybody for joining us today. Let's plan to get back together as a dev group in a couple of weeks.
[15:25] thanks block!
[15:25] <@wolfsokta> Urgo, very confident
[15:25] Please exclude trolls from discord who havent read the whitepaper
[15:25] great :)
[15:25] "things" will be ready..
[15:25] Next time on discord right?
[15:25] woah why discord?
[15:25] some of the suggestions here are horrid
[15:25] this is better less point
[15:25] == blondfrogs [[email protected]/web/freenode/ip.185.245.87.219] has quit [Quit: Page closed]
[15:25] Assets are working well on testnet. Plan is to get as much as we can safely test by Sept 30 -- this includes dev contributions. Oct will be heavy testing and making sure it is safe.
[15:26] people
[15:26] <@wolfsokta> Planning on same time, same IRC channel.
[15:26] == BW_ [[email protected]/web/freenode/ip.138.68.243.202] has quit [Quit: Page closed]
[15:26] @xmr any in particular?
[15:27] (or is "here" discord?)
[15:27] Cheers - Tron
[15:27] "Cheers - Tron" - Tron
submitted by Chatturga to Ravencoin [link] [comments]

Perpetual Option: Och-Ziff Capital Management Group (OZM)

In his book, You Can Be a Stock Market Genius, Greenblatt talks about using LEAPs to make leveraged bets. The book included his trade in Wells Fargo (WFC, another topic for a future post, I suppose).
But sometimes, stocks get down so cheap that they become priced like options. In the Genius book, the WFC LEAPs were priced at $14 while the stock was at around $77.
Here, we have a hedge fund manager trading less than $3.00/share, which is a typical price for regular options, not even LEAPs. Of course, all stocks are options on the residual value of businesses. But sometimes things are priced for either a large gain or zero, just like an option.
I call this a perpetual option, but that reminds me of those lifetime warranties. Like, who's lifetime? The manufacturer's? The store's? Yours? Nothing is forever, so I guess there really is no such thing as a perpetual option. But anyway...
Och-Ziff IPO'ed in 2007 at $32/share and traded in the mid $20's right before the crisis, then down to below $5.00 during the crisis and back up to the mid-teens. I've been watching this since the IPO and looked at it again when it was trading around $10/share. It's down quite a bit since then. I didn't own it back then but I did take a small bite down at $5.00/share.
I have mentioned other private equity and hedge fund managers here in the past but haven't owned most of them because of the amount of money that seemed to be going into alternatives. I was just worried that the AUM's of all of these alternative managers were going up so quickly that I couldn't imagine them earning the high returns that made everyone rush to them in the first place. Look at the presentation of any of these alternative managers and their AUM growth is just staggering.
Extremely Contrarian We investors walk around and think about all sorts of things; look at store traffic, taste new foods/restaurant concepts, count how many Apple watches people are wearing (I recently biked around the city with my kid (Brooklyn to Central Park, around the park (around the big loop) and all the way downtown back to Brooklyn (30+ miles) and I think I counted two Apple watches that I saw compared to countless iPhones. And this was in the summer so no coats or long sleeves to hide wrists).
And a couple of the things that we tend to think about are, What does everybody absolutely love, and what are they 100% sure of (other than that Hillary will win the election and that the market will crash if Trump wins), and What do people absolutely, 100% hate and don't even want to talk about? In the investing world right now, it seems like the one thing that everybody seems to agree with is that active investing is dead (OK, not completely true because we active investors never really lose faith in it). The data points to it (active managers underperforming for many years, legendary stock pickers too not performing all too well, star hedge funds not doing well etc...). The money flows point to it (cash flowing out of active managers and into passive funds, boom in index funds / ETFs; this reminds me of the 1990's when there were more mutual funds than listed companies. There are probably more ETFs now than listed companies). Sentiment points to it (stars and heroes now are ETF managers, quants etc.).
By the Way Oh, and by the way, in case people say that it is no longer possible due to this or that reason for humans to outperform indices or robots, I would just say that we have seen this before. Things in finance are cyclical and we've seen this movie before.
From the 1985 Berkshire Hathaway Letter, Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value -- and even thought, itself -- were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest -- whether it be bridge, chess or stock selection than to have opponents who have been taught that thinking is a waste of energy?)
What Do People Hate? So, back to what people absolutely hate. People hate active managers. It's not even stocks that they are not interested in. They hate active managers. Nobody outperforms and their fees are not worth it. What else do they hate? They hate hedge funds. I don't need to write a list here, but you just keep reading one institution after another reducing their exposure to hedge funds. There is a massive shakeout going on now with money leaving hedge funds. Others like Blackstone argues that this is not true; assets are just moving out of mediocre hedge funds and moving into theirs.
This is a theme I will be going back to in later posts, but for now I am just going to look at OZM.
OZM OZM is a well-known hedge fund firm so I won't go into much detail here. To me, it's sort of a conventional equity-oriented hedge fund that runs strategies very typical of pre-Volcker rule Wall Street investment banks; equity long/short, merger arb, convertible arb etc. They have been expanding into credit and real estate with decent results. But a lot of their AUM is still in the conventional equity strategies.
What makes OZM interesting now is that chart from the Pzena Investment report (see here). These charts make it obvious why active managers have had such a hard time. The value spread has just continued to widen since 2004/2005 through now. Cheap stocks get cheaper and expensive stocks get more so. You can see how this sort of environment could be the worst for long/short strategies (and value-oriented long strategies, and even naked short strategies for that matter). Things have just been going the wrong way with no mean reversion.
But if you look at where those charts are now, you can see that it is probably exactly the wrong time to give up on value strategies or value-based long/short strategies; in fact it looks like the best time ever to be looking at these strategies.
Seeing that, does it surprise me that many pension funds are running the other way? Not at all. Many large institutions chase performance and not future potential.
Conceptually speaking, they would rather buy a stock at 80x P/E that has gone up 30%/year in the past five years that is about to tank rather than buy an 8x P/E stock that has gone nowhere in the past five years but is about to take off; they are driven by historic (or recent historic) performance.
OZM Performance Anyway, let's look at the long term performance of OZM. This excludes their credit and real estate funds which are doing much better and are growing AUM.
This is their performance since 1994 through the end of 2015:
OZM fund S&P500 1994 28.50% 5.30% 1995 23.50% 27.40% 1996 27.40% 23.00% 1997 26.70% 33.40% 1998 11.10% 28.60% 1999 18.80% 21.00% 2000 20.60% -9.10% 2001 6.30% -11.90% 2002 -1.60% -22.10% 2003 24.00% 28.70% 2004 11.10% 10.90% 2005 8.80% 4.90% 2006 14.80% 15.80% 2007 11.50% 5.50% 2008 -15.90% -37.00% 2009 23.10% 26.50% 2010 8.50% 15.10% 2011 -0.50% 2.10% 2012 11.60% 16.00% 2013 13.90% 32.40% 2014 5.50% 13.70% 2015 -0.40% 1.40% 5 year avg 5.85% 12.57% 10 year avg 6.69% 7.32% Since 1994 12.05% 8.87% Since 2000 7.59% 5.01% Since 2007 5.14% 6.53%
So they have not been doing too well, but it's really only the last couple of years that don't look too good. Their ten-year return through 2013 was +8.2%/year versus +7.4%/year for the S&P 500 index. It's pretty obvious that their alpha has been declining over time.
For those who want more up-to-date figures, I redid the above table to include figures through September-end 2016. And instead of 5 year and 10 year returns, I use 4.75-year and 9.75-year returns; I thought that would be more comparable than saying 5.75-year and 10.75-year, and I didn't want to dig into quarterly figures to get actual 5 and 10s.
OZM fund S&P500 1994 28.50% 5.30% 1995 23.50% 27.40% 1996 27.40% 23.00% 1997 26.70% 33.40% 1998 11.10% 28.60% 1999 18.80% 21.00% 2000 20.60% -9.10% 2001 6.30% -11.90% 2002 -1.60% -22.10% 2003 24.00% 28.70% 2004 11.10% 10.90% 2005 8.80% 4.90% 2006 14.80% 15.80% 2007 11.50% 5.50% 2008 -15.90% -37.00% 2009 23.10% 26.50% 2010 8.50% 15.10% 2011 -0.50% 2.10% 2012 11.60% 16.00% 2013 13.90% 32.40% 2014 5.50% 13.70% 2015 -0.40% 1.40% 2016* 1.10% 7.80% 4.75 year 6.53% 14.58% 9.75 year 5.48% 6.72% Since 1994 11.68% 8.92% Since 2000 7.29% 5.27% Since 2007 4.82% 6.86%
So over time, they have good outperformance, but much of that is from the early years. As they get bigger, it's not hard to see why their spread would shrink.
They are seriously underperforming in the 4.75 year, but that's because the S&P 500 index was coming off of a big bear market low and OZM didn't lose that much money, so I think that is irrelevant, especially for a long/short fund.
More relevant would be figures from recent market peaks which sort of shows a through-the-cycle performance. Since the market peak in 2000, OZM has outperformed with a gain of +7.3%/year versus +5.3%/year for the S&P, but they have underperformed since the 2007 peak. A lot of this probably has to do with the previous charts about how value spreads have widened throughout this period.
I would actually want to be increasing exposure to this area that hasn't worked well since 2007. Some of this, of course, is due to lower interest rates. Merger arb, for example, is highly dependent on interest rates as are other arbitrage type trades. (The less risk there is, the closer to the short term interest rate the return is going to be.)
One thing that makes me scratch my head, though, in the 3Q 2016 10-Q is the following: OZ Master Fund’s merger arbitrage, convertible and derivative arbitrage, corporate credit and structured credit strategies have each generated strong year-to-date gains through September 30, 2016. In merger arbitrage, certain transactions in which OZ Master Fund participated closed during the third quarter, contributing to the strategy’s year-to-date gross return of +1.3%. Convertible and derivative arbitrage generated a gross return of +0.5% during the third quarter, driven by gains in convertible arbitrage positions, commodity-related volatility, commodity spreads and index volatility spread trades. Year-to-date, convertible and derivative arbitrage has generated a gross return of +1.3%. In OZ Master Fund’s credit-related strategies, widening credit spreads and certain event-driven situations added +0.4% to the gross return within corporate credit during the third quarter, while in structured credit, a +0.9% gross return during the quarter was attributable to the realization of recoveries in certain of our idiosyncratic situations. Year-to-date, the corporate credit and structured credit strategies are each up +1.2% on a gross basis. Gross returns of less than 2% are described as "strong". Hmm... I may be missing something here. Maybe it is 'strong' versus comparable strategies. I don't know. Anyway, moving on...
Greenblatt Genius Strategies Oh yeah, and by the way, OZM is one of the funds that are heavily into the yellow book strategies. Here's a description of their equity long/short strategy: Long/short equity special situations, which consists of fundamental long/short and event-driven investing. Fundamental long/short investing involves analyzing companies and assets to profit where we believe mispricing or undervaluation exists. Event-driven investing attempts to realize gain from corporate events such as spin-offs, recapitalizations and other corporate restructurings, whether company specific or due to industry or economic conditions.
This is still a large part of their book, which is a good thing if you believe that the valuation spreads will mean revert and that Greenblatt's yellow book strategies are still valid.
One thing that may temper returns over time, though, is the AUM level. What you can do with $1 billion in AUM is not the same as when you have $10 billion or $30 billion. I don't think Greenblatt would have had such high returns if he let AUM grow too much.
This seems to be an issue with a lot of hedge funds. Many of the old stars who were able to make insane returns with AUM under $1 billion seem to have much lower returns above that level.
Here is OZM's AUM trend in the past ten years. Some of the lower return may correlate to the higher AUM, not to mention higher AUM at other hedge funds too reducing spreads (and potential profits).
Just to refresh my memory, I grabbed the AUM chart from the OZM prospectus in 2007. Their AUM was under $6 billion until the end of 2003 and then really grew to over $30 billion by 2007.
Their 10-year return through 2003 was 18%/year vs. 10.6%/year for the S&P 500 index.
From the end of 2003 through the end of 2015, OZM's funds returned +7.2%/year versus +7.4%/year for the S&P 500 index. So their alpha basically went from 7.4%/year outperformance to flat.
This is actually not so bad as these types of funds often offered 'equity-like' returns with lower volatility and drawdowns. The long/short nature of OZM funds means that investors achieved the same returns as the S&P 500 index without the full downside exposure. This is exactly what many institutions want, actually.
But still, did their growth in AUM dampen returns? I think there is no doubt about that. These charts showing tremendous AUM growth is the reason why I never owned much of these alternative managers in the past few years I've been watching them.
The question is how much of the lower returns are due to the higher AUM. Of course, some of this AUM growth is in other strategies so not all new AUM is squeezed into the same strategies.
Will OZM ever go back to the returns of the 1990's? I doubt that. First of all, that was a tremendous bull market. Plus, OZM's AUM was much smaller so they had more opportunities to take advantage of yellow book ideas and other strategies.
Boom/Bubble Doesn't Mean It's a Bad Idea By the way, another sort of tangent. Just because there is a big boom or bubble in something doesn't necessarily make that 'something' a bad idea. We had a stock market bubble in the late 1920's that ended badly, but owning parts of businesses never suddenly became a bad idea or anything. It's just that you didn't want to overpay, or buy stocks for the wrong reasons.
We had a boom in the late 1990's in stocks that focused on picking stocks and owning them for the long term as exemplified by the Beardstown Ladies. Of course, the Beardstown Ladies didn't end well (basically a fraud), but owning good stocks for the long haul, I don't think, ever became a bad idea necessarily.
We had a tremendous housing bubble and various real estate bubbles in recent years. But again, owning good, solid assets at reasonable prices for the long haul never became a bad idea despite the occasional bubbles and collapses.
Similarly, hedge funds and alternative assets go through cycles too. I know many value investors are not with me here and will always hate hedge funds (like Buffett), but that's OK.
We've had alternative cycles in the past. Usually the pattern is that there is a bull market in stocks and people rush into stocks. The bull market inevitably ends and people lose money. Institutions not wanting to lose money rush into 'alternative' assets. Eventually, the market turns and they rush back into equities.
I think something similar is happening now, but the cycle seems a bit elongated and, and the low interest rates is having an effect as alternatives are now attracting capital formerly allocated to fixed income. In the past, alternatives seemed more like an equity substitution, risk asset.
Valuation OK, so what is OZM worth?
Well, a simple way of looking at it is that OZM has paid an average of $1.10/year in dividends in the last five years. During the past five years, the funds returned around 6%/year, so it's not an upside outlier in terms of fund performance.
Put a 10x multiple on it and the stock is worth $11/share.
Another way to look at it is that the market is telling you that it is unlikely that OZM will enjoy the success even of the past five years over the next few years. Assuming a scenario of failure (stock price = 0) or back to sort of past five years performance ($11), a $3.00 stock price reflects the odds of failure at 73% and only a 27% chance that OZM gets back to it's past five year average-like performance. Of course, OZM can just sort of keep doing what it's doing and stay at $3.00 for a long time too.
There is a problem with this, though, as the dividends don't reflect equity-based compensation expense; OZM gives out a bunch of RSU's every year.
To adjust for this, let's look at the economic earnings of the past five years including the costs of equity-based compensation.
Equity-based compensation expense not included in economic income is listed below ($000):
2008 102,025 2009 122,461 2010 128,737 2011 128,916 2012 86,006 2013 120,125 2014 104,344 2015 106,565
It's odd that this doesn't seem to correlate to revenues, income or AUM; it's just basically flat all the way through.
If we include this, economic income at OZM averaged around $520 million/year. With fully diluted 520 million shares outstanding, that's around $1.00/share in economic earnings per share that OZM earned on average over the past five years. So that's not too far off from the $1.10/share dividends we used above.
One of the interesting things about investing is when you find alternative ways to value something instead of just the usual price-to-book values, P/E ratios etc.
So how would you value this?
What about adjusting the implied odds from the above. What if we said there's a 50/50 chance of recovery or failure. Let's say recovery is getting back to what it has done over the past five years on average, and failure is a zero on the stock.
50% x $0.00 + 50% x $10.00 = $5.00/share
In that case, OZM is worth $5.00/share, or 70% higher than the current price. You are looking at a 60 cent dollar in that case.
Let's say there is a 70% chance of recovery.
70% x $10.00 + 30% x $0.00 = $7.00/share.
That's 130% higher, or a 40 cent dollar.
By the way, the AUM averaged around $37 billion over the past five years, and remember, their return was around 5.9%/year so these figures aren't based on huge, abnormal returns or anything.
As of the end of September 2016, AUM was $39.3 billion, and this went down to $37 billion as of November 1, 2016. OZM expects continued redemptions towards year-end both due to their Justice Department/SEC settlement and overall industry redemption trends.
The above ignored balance sheet items, but you can deduct $0.60/share, maybe, of negative equity, or more if you think they need more cash on the balance sheet to run their business.
Preferred Shares As for the $400 million settlement amount and preferred shares, the settlement amount is already on the balance sheet as a liability (which was paid out after the September quarter-end). The preferred shares were sold after the quarter ended. They have zero interest for three years so I don't think it impacts the above analysis. You would just add cash on the balance sheet and the preferreds on the liability side.
If you want to deduct the full amount of the settlement of $400 million, you can knock off $0.77/share off the above valuation instead of the $0.60/share.
Earnings Model The problem with these companies is that it's impossible, really, to predict what their AUM is going to be in the future or their performance. Of course, we can guess that if they do well, AUM will increase and vice-versa.
But still, as a sanity check, we should see how things look with various assumptions in terms of valuation.
First of all, let's look at 2015. In the full year to 2015, a year that the OZM funds were down (master fund), they paid a dividend of $0.87. Adjusted economic income was $240 million (economic income reported by OZM less equity-based comp expense) and using the current fully diluted shares outstanding of 520 million, that comes to $0.46/share. OK, it's funny to use current shares outstanding against last year's economic income, but I am trying to use last years' earnings as sort of a 'normalized' figure.
Using these figures from a bad year, OZM is current trading at a 29% dividend yield (using $3.00/share price) and 6.5x adjusted economic income. This would be 8.3x if you added the $0.77/share from the settlement above.
OK, so average AUM was $44 billion in 2015, so even in a bad year, they made tons in management fees. Fine. We'll get to that in a second. AUM is $37 billion as of November 2016, and is probably headed down towards year-end.
2016 Year-to-Date So let's look at how they are doing this year so far. Fund performance-wise, it hasn't been too good, but they do remain profitable. These fund businesses are designed so that their fixed expenses are covered by their management fees. Big bonuses are paid out only when the funds make money.
Anyway, let's look at 2016 so far in terms of economic income.
In the 3Q of 2016, economic income was $57.4 million. Equity-based compensation expense was $18.3 million so adjusted economic income was $39.1 million. Annualize that and you get $156 million. Using 520 million fully diluted shares (share amount used to calculate distributable earnings in the earnings press release), that comes to $0.30/share adjusted economic income. So at $3.00/share, OZM is trading at 10x arguably depressed earnings. (This excludes the FCPA settlement amount). If you include $400 million of the FCPA preferreds (total to be offered eventually), then the P/E would actually be closer to 12.6x.
For the year to date, economic income was $195 million, and equity-based comp expense was $56 million so adjusted economic income was $139 million. Again using 520 million shares, that comes to $0.25/share in adjusted economic earnings per share. Annualize that and you get $0.33/share. So at $3.00/share, OZM is trading at 9x depressed earnings, or 11x including the FCPA preferred.
OK, so maybe this is not really 'depressed'. With still a lot of AUM, it is possible that AUM keeps going down.
AUM was $37 billion in November, but let's say it goes down to $30 billion. That's actually a big dip. But let's say AUM goes down there. And then let's assume 1% management fees, 20% incentive fees, and economic income margin of 50% (averaged 56% in past five years) and the OZM master fund return of 5%.
In this case, economic income would be $300 million. Equity-based comp costs seems steady at around $100 million, so we deduct that to get adjusted economic income. This comes to $200 million.
That comes to around $0.40/share. At $3.00/share, that's 7.5x adjusted economic earnings, or a 13% yield, or 9.4x and 10.6% yield including the FCPA preferreds.
So that's not bad. We are assuming AUM dips to $30 billion and OZM funds only earn 5%/year, and with that assumption the stock is trading at this cheap level.
Things, of course, can get much worse. If performance doesn't improve, AUM will keep going down. You can't really stress test these things as you can just say their returns will never recover and that's that.
On the other hand, any improvement can get you considerable upside.
If assets return to $40 billion and returns average 6% over time, economic income margin goes to 56% (average of past five years), adjust economic income per share is $0.76/share and the stock could be worth $7.60/share for more than a double.
Here's a matrix of possibilities. Skeptics will say, where are the returns below 5% and AUM below $30 billion?!
Well, OK. If returns persist at lower than 5%, it's safe to assume that AUM will go down and this may well end up a zero. That is certainly a possibility. It wouldn't shock many for another hedge fund to shut down.
On the other hand, if things do stabilize, normalize and OZM recovers and does well, there is a lot of upside here. What is interesting to me is that the market is discounting a lot of bad and not pricing in much good. This is when opportunities occur, right?
5% 6% 7% 8% 9% 10% 30,000 $0.45 $0.52 $0.58 $0.65 $0.71 $0.78 35,000 $0.56 $0.64 $0.71 $0.79 $0.86 $0.94 40,000 $0.67 $0.76 $0.84 $0.93 $1.01 $1.10 45,000 $0.78 $0.87 $0.97 $1.07 $1.16 $1.26 50,000 $0.88 $0.99 $1.10 $1.21 $1.32 $1.42 55,000 $0.99 $1.11 $1.23 $1.35 $1.47 $1.58 60,000 $1.10 $1.23 $1.36 $1.49 $1.62 $1.75
The row above is the assumed return of the OZM funds. The left column is the AUM. Assumptions are 1% management fee, 20% incentive fee, 56% economic income margin (excluding equity-based comp expense) and $100 million/year in equity-based comp expense.
It shows you that it doesn't take much for adjusted economic income per share to get back up to closer to $1.00, and can maintain $0.45/share even in a $30 billion AUM and 5% return scenario making the current stock price cheap even under that scenario.
Conclusion Having said all that, there is still a lot of risk here. Low returns and low bonuses can easily make it hard for OZM to keep their best people. But if their best people perform, I assume they do get paid directly for their performance so that shouldn't be too much of an issue.
A lot of the lower returns in recent years is no doubt due to their higher AUM. But it is also probably due to crowding of the hedge fund world and low interest rates leading to an overall lower return environment for all.
If you think these things are highly cyclical, then you can expect interest rates to normalize at some point. Money flowing out of hedge funds should also be good for future returns in these strategies. The part of lower returns at OZM due to higher AUM may not reverse itself, though, if OZM succeeds in maintaining and increasing AUM over time.
But even without the blowout, high returns of the 1990's, OZM can make decent returns over time as seen in the above table.
In any case, unlike a few years ago, the stock prices of many alternative managers are cheap (and I demonstrated how cheap OZM might be here) and institutional money seems to be flowing out of these strategies.
So: OZM is cheap and is in a seemingly universally hated industry Money is flowing out of these strategies, particularly performance chasing institutions (that you would often want to fade) there is a bear market in active managers and bubble in indexing (which may actually increase opportunities for active managers) value spreads are wide and has been widening for years making mean reversion overdue etc. These things make OZM a compelling play on these various themes.
I would treat this more like an option, though. Buy it like you would buy an option, not like you would invest in, say, a Berkshire Hathaway.
There are a lot of paths here to make good money, but there are also plenty of ways to lose. If you look at this like a binary option, it can be pretty interesting!
Posted by kk at 8:11 PM No comments: Links to this post Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest
Labels: OZM
Saturday, October 29, 2016 Gotham's New Fund Joel Greenblatt was in Barron's recently. He is one of my favorite investors so maybe it's a good time for another post.
Anyway, this new fund is kind of interesting as I am sort of a tinkerer; this is like the product of some financial tinkering. I don't know if it's the right product for many, but we'll take a look.
But first, let's see what he has to say about the stock market in general.
The Market Greenblatt says that the market is "expensive". The market is in the 21st percentile of expensive in the past 25 years. Either a typo or he misspoke, he is quoted as saying that the market has been more expensive 79% of the time in the past 25 years. Of course, he means the market has been cheaper 79% of the time.
The year forward expected return from this price level is between 2% to 7%, so he figures it averages out to 4% to 6% per year. In the past 25 years, the market has returned 9% to 10%/year so he figures the market is 12% to 13% more expensive than it used to be.
He says: Well, one scenario could be that it drops 12% to 13% tomorrow and future returns would go back to 9% to 10%. Or you could underearn for three years at 4% to 6%. We're still expecting positive returns, just more muted. The intelligent strategy is to buy the cheapest things you can find and short the most expensive.
But... Immediately, bears will say that this 25 year history is based during a period when interest rates went down. The 10 year bond rate was around 8% back in 1991, and is now 1.8%. In terms of valuation, this would have pushed up asset values by 6.2%/year ($1.00 discounted at 8%/year then and $1.00 discounted by 1.8% now).
Declining rates were certainly a factor in stock returns over the past 25 years. Of course, the stock market didn't keep going up as rates kept going down. The P/E ratio of the S&P 500 index at the end of 1990 was around 15x, and now it's 25x according to Shiller's database (raw P/E, not CAPE). So the valuation gain over the 25 years accounted for around 2%/year of the 9-10% return Greenblatt states.
Here are the EPS estimates for the S&P 500 index according to Goldman Sachs:
 EPS P/E 
2016 $105 20.4x 2017 $116 18.5x 2018 $122 17.6x
Earnings estimates are not all that reliable (estimates have been coming down consistently in the past year or so). But since most of 2016 is done, I suppose the $105 figure should be OK to use.
I don't know if it's apples to apples (reported versus operating etc.), but if we assume the 'current' P/E of the market is 20x, then the valuation tailwind accounted for 1.2%/year of the 9-10%. But then of course, even if this was a fair comparison, there is still the aspect of lower interest rates boosting the economy by borrowing future demand (and therefore overstating historical earnings).
In any case, one of the main bearish arguments is that this interest rate tailwind in the past will become a headwind going forward. Just about everyone agrees with that.
But as I have mentioned before, calling turns in interest rates is very hard, Japan being a great example. If you look at interest rates over the past 100 years or more, you see that major turns in trend don't happen all that often; it's been a single trend of declining rates since the 1980/81 peak, basically. What are the chances that you are going to call the next big turn correctly? I would bet against anyone trying. OK, that didn't come out right. I wouldn't necessarily be long the bond market either.
Gotham Index Plus So, back to the topic of Gotham's new fund. It is a fascinating idea. The fund will go long the S&P 500 index, 100% long, and then overlay a 90%/90% long/short portfolio of the S&P 500 stocks based on their valuations.
The built-in leverage alone makes this sort of interesting. Many institutions may have an allocation to the S&P 500 index, and then some allocation to long/short equity hedge funds. The return of the Gotham Index plus would be much higher (when things go well).
I think this sort of thing was popular at some point in the pension world; index plus alpha etc. Except I think a lot of those were institutions replacing their S&P 500 index portfolios with futures positions, and then using the cash raised to buy mortgage securities. Of course, when things turned bad, oops; they took big hits in S&P 500 futures, tried to post cash for the margin call and realized that their mortgage funds weren't liquid (and was worth a lot less than they thought).
Or something like that.
There is risk here too, of course. You are overlaying two risk positions on top of each other. When things turn bad, things can certainly get ugly.
I think Greenblatt's calculation is that when things turn bad, the long/short usually does well. I haven't seen any backtests or anything, so I don't know what the odds of a blowup are.
Expensive stocks tend to be high-beta stocks and cheaper stocks may be lower beta, so in a market correction, the high-beta, expensive names may go down a lot harder.
To some extent, lower valuations may reflect more cyclicality, lower credit risk / lower balance sheet quality too so you have to be a little careful. In a financial crisis-like situation, lower valuation (lower credit quality) can tank and some higher valuation names may hold up (like the FANG-like stocks).
But Greenblatt's screen is not just raw P/E or P/B, but is tied to return on capital, so maybe this is not as much of an issue compared to a pure P/B model.
The argument for this structure is that people can't stay with a strategy if it can't keep up with the market. Here, the market return is built in from the beginning and you just hope for the "Plus" part to kick in. In a long/short portfolio, the beta is netted out to a large extent so can lower potential returns. This fixes that. But there is a cost to that.
In any case, I do think it's a really interesting product, but keep in mind that it is a little riskier than Gotham's other offerings.
Oh, and go read the article on why this new fund is a good idea. Greenblatt is always a great read.
Chipotle (CMG) Well, Chipotle earnings came out and it was predictably horrible. The stock is not cheap so it hasn't been recommendable in a while, but I really like the company. There was a really long article on them recently which was a great read. It didn't really change my view of them all that much. I think they will get a lot of business back, eventually.
The earnings call was OK, but what was depressing about it was that they decided to ditch Shophouse. I don't think any analysts asked about it so it was a given, I guess. I had it a couple of times in DC and liked it and was looking forward to it in NY, but I guess that's not going to happen. As an investor, that was not baked into the cake, I don't think, even though there was probably some hope that the CMG brand can be extended into other categories.
This puts a lot of doubt into that idea. Someone said that brand extensions in restaurants/retail never work, and that has proven to be the case here. I wouldn't get too excited about pizza and burgers either. Burgers are really crowded now and will only get more so.
If CMG has to look to Europe for growth, that is not so great either as the record of U.S. companies expanding into Europe is not good. I would not count on Europe growth.
Anyway, this doesn't mean it's all over for CMG. I think they will come back, but there are some serious headwinds now other than their food poisoning problem; more competition etc. They were the only game in town for a while, but now everyone seemingly wants to become the next Chipotle, so there are a lot of options out there now.
As for Ackman's interest in CMG, I have no idea what his plan is. There is no real estate here as CMG rents all their restaurants, and their restaurants had high 20's operating margins at their peak. I don't know if they will ever get back up there, but it's not like these guys don't know how to run an efficient operation. Maybe Ackman sees SGA opportunities, but pre-crisis, SGA was less than 7%, so there wouldn't be that much of a boost from cutting SGA. Or maybe he thinks it's time for CMG to do what everyone else is doing and go for the franchise model. Who knows? I look forward to seeing what his thoughts are; hopefully some 500 page presentation pops up somewhere...
McDonalds I don't want to turn this into a food blog, but I can't resist mentioning this. I have been a lifelong MCD customer; I have no problem with it. OK, it may not be my first choice of a meal in most cases, but it's fine. And when you have a kid, you tend to go more often that you'd like. But still, it's OK. It is what it is, right?
I like the remodelling that they are doing, and the fact that they have free wifi is great too. But here's a big clustermuck they had with their recent custom burger and kiosk idea. I walked into a MCD without knowing anything about any of this recently. A lady said I can order at the kiosk and I said, no, I'll just go to the counter, thank you.
And I waited 10 minutes or so in line, looking up at the tasty looking special hamburgers on the HD, LCD menu board. It was finally my turn at the cash register and I said I want that tasty looking hamburger up there on the screen. And the lady said, oh, you can only order that at the kiosk. I was like, huh? That was really annoying. So I wait all this time and I can't get what I want; I have to walk all the way back and get in another line again? Come on! At that point, I didn't want any other burger so I just ordered a salad (and the usual for my kid).
OK, so it's my fault, probably. User error. But as a service company, as far as I'm concerned, that was a massive fail on the part of MCD.
OK, Now That I started... And by the way, since I got myself started, let me get these two out too. Yes, I spend too much time at fast food joints. Guilty. But still, here are my two peeves related to two of my favorite fast casual places:
Shake Shack: Being dragged there all the time, I have learned to love the Shack-cago hot dog. Chicken Shack is awesome too, in case you don't want to eat hamburgers all the time. But I can't tell you how often they get take-out and stay wrong. I had a long run where they didn't get it right at all and had to ask for things to be packed to go. It is really annoying and wastes everyone's time.
Chipotle: This hasn't happened to me the last couple of times, but this is the usual conversation that happens to me just about every time I go to Chipotle.
CMG: "Hi, what can we get you today?" (or some such) Me: "Um, I'll have a burrito..." CMG: putting the tortilla in the tortilla warmecooker, "and would you like white rice or brown rice? Me: "White rice is fine" CMG: with tortilla still in the cooker, "and black beans or pinto beans?" Me: "black beans". CMG: laying a sheet of aluminum foil on the counter and placing the tortilla on it, moving over to the rice area, "Was that white rice or brown rice?" Me: "white rice" CMG: sliding over to the beans, "and black beans or pinto beans?". Me: "black".
I can't tell you how many times this exact thing happened to me. If you can't remember what I say, don't ask beforehand! Just ask when we get to whatever you are going to ask me about! This is not rocket science, lol... Incredibly annoying.
Anyway, I still love CMG and will keep eating there.
Oh, and to make things interesting, I decided to post a contact email address in the "about" section of the blog. I will try to respond to every email, but keep in mind I may not look in that email box all the time.
I will try to post more, though.
http://brooklyninvestor.blogspot.com/2016/11/perpetual-option-och-ziff-capital.html (read original with tables)
submitted by BobFine to stocks [link] [comments]

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