YES Strategies: Know to say no
(May 2019)
In recent years, low yields in the bond market and low volatility in the equity markets have combined to give brokerage firms the excuse to develop and sell "Yield Enhancement Strategies (YES)" to retail investors. These strategies almost always consist of selling options on the S&P 500. The sale of an option garners a premium but places the seller (the retail investor) in a short option position. Being short on a call or put option is a risky place to be. In the best-case scenario, the...
Puerto Rico Municipal Bond Returns and Sunspots
(Apr 2017)
Introduction
Economists use a statistical procedure called regression analysis to determine whether there is a relationship between economic variables. For example, a labor economist might use regression analysis to determine whether there is a relationship between salaries and education after controlling for differences in job tenure and geographic region. An antitrust economist might use regression analysis to determine whether an attempted collusion in the airline industry effected prices...
UBS Puerto Rico Still Can't Shoot Straight
(Oct 2015)
We've written extensively about the investment carnage caused by UBS Puerto Rico's management and sales of closed end municipal bonds funds. A summary of our findings can be found here: UBS Puerto Rico's Bond Fund Debacle: What We Know So Far .
Others will have to decide whether UBS was just incompetent or also wolfishly indifferent to Puerto Rico investors but recent evidence demonstrates that UBS Asset Managers of Puerto Rico continues to be, at least, incompetent.
The fourteen closed end...
Monte Carlo Simulation, Explained
(Nov 2013)
Valuing products with exotic derivatives can be difficult since these products typically have complex payoff formulas. One of the most flexible methods for valuing such products is called Monte Carlo simulation. At SLCG, we use Monte Carlo simulation in a lot of our work, so we thought it would be helpful to explain a bit about it and show how it can be used to estimate the future returns of an asset.
The basic idea behind Monte Carlo simulation is to determine the statistical properties...
The Consequences and Implications of TIC Investments
(Nov 2013)
The research we have outlined all this week strongly suggests that TIC interests are exceptionally poor investments. We have focused our posts on what a thorough due diligence on the TICs should have revealed at the time of issuance. But you may be wondering, what happened to these TICs? What sort of returns did investors receive?
To our knowledge, there is no retrospective study of TIC returns. But in our experience, the vast majority of TIC properties suffered significant impairments during...
Conflicts of Interest in TIC Investments
(Oct 2013)
We have been discussing the value of TICs from a financial standpoint, but like most private placement investments, there are many other factors to consider than just the numbers. TICs have a wide array of problematic features that retail investors might not think to look for.
For example, most TICs require unanimous consent of all investors for major decisions regarding refinancing or selling the property. A TIC can be sold to up to 35 investors, making unanimous consent extremely difficult....
A Look Into the TIC Industry
(Oct 2013)
So far, we've discussed some of the concerns we have with TIC investments and shown how to use discounted cash flow analysis to value a TIC interest with our handy spreadsheet. But you might be asking, just how prevalent are these concerns across all TICs?
To answer that, we examined 194 sets of offering documents for TICs sold from 2004-2009. This totaled $2.2 billion in equity, which amounts to approximately 19% of all equity issued by TICs in that period, and included properties from 32...
Welcome to Tenancies-in-Common (TIC) Week on the SLCG Blog
(Oct 2013)
Today, SLCG posted a new research paper, Large Sample Valuations of Tenancies in Common . In it, we value 194 TICs, totaling $2.2 billion in equity and representing approximately 17% of the TIC industry from 2004 to 2009. Our paper complements our earlier research on TICs ("What is a TIC Worth?" and "Private Placement Real Estate Valuation"), and is the most extensive empirical study of TICs to date. This week we will be summarizing the results of our research in a series of blog posts. But...
What is Black-Scholes, Anyway?
(Sep 2013)
In the past, we have reviewed the basics of options as well as included some discussion of more exotic options, such as binary options and barrier options, but we haven't talked in detail about option pricing. There are a lot of great models for valuing options, but they can be a bit intimidating for the uninitiated, even though the underlying ideas are simple.
Any option's value is dependent upon the probability and timing of payouts. For example, how much would you be willing to pay for an...
