Deva Panambur, CFA®, CFP® is the founder of Sarsi, LLC. Sarsi, LLC is an independent, fee only, Registered Investment Advisor, serving individuals and institutions. We primarily provide the following services: 1.Financial Planning: Overall financial situation of the client including cash flow, debt management, risk management/insurance, estate planning and tax planning. 2. Investment strategy 3. Asset allocation and risk management 4. Manager/Investment product selection 5. Investment monitoring and reporting.
Prior to founding Sarsi, LLC in 2010, Deva was a Senior Vice President/Partner at Executive Monetary Management (EMM), a wealth advisor with over $2Bn in assets that was a part of Neuberger Berman, before being spun off into an independent firm in 2009. At EMM, Deva led manager selection and due diligence and had joint responsibility for economic analysis, strategy analysis, portfolio management and risk management pertaining to investments of ultra high net worth clients and institutions.
Prior to joining EMM, he was a portfolio manager at the alternative strategies group of Merrill Lynch; a research analyst at Chesapeake Capital Corporation- a hedge fund; and a risk and business analyst at Deutsche Bank Asset Management where he supported various investment groups. He began his career at International Seaports Pte. Ltd. in international project finance in the Far East and the United States.
Deva earned a Bachelor of Technology from the Indian Institute of Technology, India, a Master in International Management from the Indian Institute of Foreign Trade, India, and an MBA from Thunderbird School of Global Management, Glendale, AZ. He has been awarded the Chartered Financial Analyst designation and is a CFP® professional.
He regularly provides expert advisory services to top consulting firms and asset management companies regarding the business and investment aspects of the investment industry. He is an Adjunct Professor of Personal Finance at Montclair State University in New Jersey and in his spare time trains candidates appearing for the CFA exam.
MBA, Finance, Thunderbird (Arizona State University)
BTech, Metallurgy, Indian Institute of Technology
Fee only. Asset based and/or fixed.
Sarsi LLC (“Sarsi”) is a Registered Investment Advisory Firm regulated by the State of New Jersey in accordance and compliance with applicable securities laws and regulations. Sarsi does not render or offer to render personalized investment advice through this newsletter. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part II) and execution of an investment advisory agreement between the client and Sarsi.
Sarsi, LLC Introduction
In order to short a stock you have to borrow it. Your brokerage firm loans you the shares. The stock you borrow comes from either the firm’s own inventory, the margin account of other brokerage firm clients, or another lender. The brokerage firm charges you stock loan fee. The more difficult it is to borrow the stock the higher the stock loan fee.
You would sell a stock short if you believe its price will fall. So that you can then buy to cover at a lower price and make a profit. Short sellers identify these short candidates through their fundamental or technical research.
If the price of the stock you have shorted goes up then you may have to cover at a higher price (Or make margin). How difficult it is to cover depends on the liquidity in the stock. Even if it is not difficult to cover, there may be a short squeeze (When heavily shorted stocks pop up in price when short sellers are rushing to cover all once) that may lead to big losses on the short position.
I don't remember the details in the movie, but when you buy credit default swaps on mortgage bonds you are required to pay a premium periodically (usually quarterly). This is very similar to the premiums you pay for any insurance such as a car or life insurance. The notional value is the value of bonds you are insuring. You don't need to own the bonds. (And hence the term 'financial engineering!)
If the price of the bonds falls, your counterparty (Banks who sold the credit default swaps) will make payments depending on how much the bonds fell from its initial value when the CDS was purchase.
For example, if you buy insurance on $100 worth of bonds and pay a premium of 1% you are required to make 25 cents every 3 months. If the value of the bonds falls to $75, you will get a payment of $25 (The amount by which the price of the bond fell). The $100 is called the notional value.
The $1.3Bn I believe is the notional value of the bonds on which Dr. Burry purchased insurance. Before the financial crisis the premiums were very low (Because most of the banks never thought the value of the bonds would fall- just as your car insurance will be low if the insurance company thinks you are unlikely to have an accident). So, he was paying a relatively low premium with very high expected pay off if, as he forecasted, the value of the bonds fell. It did fall and he reaped the benefit.
In 2017, If your combined taxable income including your long-term capital gains falls below $37,950 as a single filer or $75,900 if filing jointly with your spouse ($38,600 and $77,200 in 2018) then your long term capital gains will be taxed at 0%.
When looking at brackets, your ordinary taxable income is used first and then the long term capital gains- if your total taxable income falls in the lower brackets then long term capital gains is 0 but if your capital gains takes you to higher brackets then higher rates apply- 15% and then at the highest brackets 20%. So, for example if you had $0 ordinary income and had a very large long-term capital gain, say $1 million for the sake of this example- it does not mean you will be taxed at 0% rate. You will pay capital gains taxes between 0% and 20% for various portions of your capital gains.
It is great that you are saving for retirement and thinking through all these questions. A good financial plan should be balanced between living for the moment and planning for the future. Your plan should be efficient, effective and with limited downside risk (ie good risk management built in using tools like insurance etc). However, like an extreme weight loss program that is hard to maintain, if your savings and retirement plan is causing a lot of discomfort today, then your motivation to maintain the plan may dwindle over time. If you are worried and want clarity, you should make a formal plan considering expected inflation, expected rate of return on investments, expected age of retirement, expected expenses etc. Since you are relatively young this exercise will be imperfect as you have to forecast a long time into the future and you may also have several life changes between now and retirement-but it may help give you some guidance on how much to save. There are several calculators you can use such as https://www.schwab.com/public/schwab/investing/retirement_and_planning/retirement_planning_tools
Ask yourself how much more you need to spend to live comfortably- see how that impacts your plan in the calculator above. That could put things into perspective and could also motivate you to look for other sources of income to make up that difference.
All the best.
Knowledge is certainly important, and you should read and learn as much as possible and speak to people who could educate and guide you. However, if you keep your investing plan simple, the earlier you start and the more disciplined you are in creating and sticking to an investment plan the more likely you are to succeed in your objectives. Here is an article on the importance of starting early to allow the time value of money/compounding work in your favor. https://www.investopedia.com/advisor-network/articles/how-make-time-value-money-work-you/ Investopedia has several other articles that may help you as well.
You are way ahead of your peers in thinking about these things and asking questions like this- keep it up! All the best.