Rabbitisrich

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The first paragraph does not include the argument that buybacks increase compensation through shares. Is it really true that dividends reduce stock compensation? If so, relevant and interesting, but without that information the complaint doesn't hold. The last paragraph seems to view a bank as a retailer of its stock, opportunistically purchasing and selling a limited inventory. But stocks can be split and sold as needed. A bank that repurchases its shares is not literally investing in itself. If the stock is overvalued, then the bank can issue shares. It isn't in the same position as an investor.

Man, that article is error-ridden. So the author asserts that dividends are superior because it offers more choice? There may be pro-dividend arguments, but this one is nonsensical. Due to tax treatment, a dividend is like an increase in your percentage ownership, after a buyback, that is then sold on your behalf. You end up with a pile of cash (the dividend) and the same % ownership. For this automated process, the IRS treats your sold portion as if you had a $0 basis in that tax year. A buyback provides a higher % ownership, plus the option to sell your stock or to maintain your position, with an IRS loan that you can call at your CHOICE!

He has made some economic arguments of questionable merit. Liberty mentioned one. More significantly, Gross sold treasuries apparently using a model that treated demand for treasuries as something distinct from trade and dollar demand. Then, he recently tweeted that China could weaken its currency by selling treasuries. And yet his record is exceptional over a multi-decade span.

Also, the FCF provided by management nets CAPEX against cash received from asset sales, which might be meaningful in some ways, but not as a profitability benchmark. Cerebrus is paying up for whatever value they provide.

I used to get similarly frustrated when WFC touted gross buyback figures. But you would be in a similar position if the company paid out dividends and compensation in cash. In fact, if the market is fooled by gross buybacks against net dilutions, then a pure cash program would be even more fooling because the opportunity costs aren't explicitly stated in the balance sheet.

Let's hope that the FRB is employing a counter-intelligence scheme to weed out leakers. The dividend addicts may, or may not, increase market valuation of retained assets, but they do so (or not!) in exchange for issuing funds regardless of opportunity costs. That dividend investing is considered to be a subset of value investing shows how much misunderstanding, or flexible usage, pervades the marketing term.

Wow, congratulations FCharlie. What a great ride, even in a bull market.

isn't the advise for the know nothing person ? someone like buffett may not need any advise :) Arguably, Buffett's cautionary is more suited for the experienced investor, who may be lost in models and big picture narratives that impress at dinner parties and client meetings. But the new investor might literally try to ignore macro issues, without understanding that every company specific expectation exists in permissive macroeconomic conditions.

If the government wants to tax big banks, then they should just do it without this foo foo systematic risk nonsense. People focus too much upon idiosyncratic risks, and use metrics like banking asset concentration as if the legal container is important. What's funny is that we saw TARP announced in late 2008, only to be followed by drops in industrial production, inflation expectations, and GDP. Yet, "bank bailout" is still a term. It should be called the nominal expectations bailout!

+1 The way he phrases it can lead new investors into believing that macro views are distinct from company fundamentals. But if you listen to Buffett talk about his companies, and how he acted during the demand fall off post-Lehman, he clearly understands that every company-specific expectation implies macro environments that permit those expectations.

http://www.ifre.com/banks-target-dtas-to-boost-capital/21132984.article

5. sounds good, but what would it look like? The Federal Reserve is going to push Lehman Brothers into conservatorship in March 2008, zeroing out the influential figures and institutions who own the stock? And then subsequently use monetary actions to forestall an expectations collapse as a result of a major financial institution collapsing? If the Fed is going to "manage" institutions prior to systematic instability, then the Fed is going to have to push against the market. Otherwise, the market would take care of such institutions by doing things that look a lot like systematic instability. You have to sympathize with the Fed. Stabilize the system and then face the music when you impair a powerful institution, or impair the institution and then face the music when you try to stabilize the system?

Not disagree with your major points, but you also have to consider the implicit rent that the householder is paying to the landlorder. Plus there are significant non-pecuniary benefits to owning your home, and customizing it just so, and finding a niche in a community.

I can't speak to Banco Santander, but it might be analogous to U.S. banks reclassifying loans as performing/accrual to non-performing/nonaccrual, and then back. The gist of a non-performing asset is that your economic interest is permanently, "other than temporarily", impaired. 90+ and 120+ days are tests of impairment. But you could also look at undercollateralization, falling behind on payments, and being a secondary interest to a loan in default. In all of those situations, the borrower may be paying in excess of their principal, to the full amount of the scheduled interest owed, but you still have cause to lower your expected return on the loan. Yet, you wouldn't recognize interest on a non-performing loan until you actually receive the cash, vs. a 60+ late mortgage where you would record accrued interest, or a 250% overcollateralized 1st home mortgage. For example, if you go back to 2010, there were lazy claims that big banks were throwing huge amounts of impaired loans into the troubled debt restructuring (TDR) in order to avoid charge-offs. But a TDR can be performing or non-performing! Many of these borrowers turned out to be good credits under temporary stress, and they kept paying, or worked out a reasonable loan adjustment, and maintaing, or returned to, accrual status. If you rework the lending conditions so that your new loan is of lesser economic value than your original loan, you charge off the uncollectible amounts to get to your collectible value, and the new loan may be performing. Also,

If anyone goes to the AGM, please ask how the Fairfax team has updated their macro views given performances in Australia, Canada, and now Japan. As much as Watsa and co. deserve respect, it's important to distinguish between being right on portfolio positioning vs. being right on the economics. Too tempting to confuse useful rules of thumb with sound logic. Was a "Lehman Moment" inevitable? Did it really have to be a great recession vs. a less volatile period of reset? The world has not provided us with enough information to come to a definite conclusion.

We may all be talking past each other by using terms differently. I think of intrinsic value as a property of the company, and, generally, distinct from the composition of its shareholder base. So when a company buys back stock, value creation/destruction of intrinsic value does not occur. The investor takes the blame/credit for increasing, maintaining, or shrinking percentage ownership in the company. If you ignore taxes, you can see how a dividend issuance, at undervaluation, is about the same thing as a buyback. In both cases, the action of improving your % ownership is yours. Intrinsic value wouldn't change unless the dividend AND the buyback surprised you. In that case, you would have to adjust your expectations of how management judges opportunity cost. But that is not directly related to the mechanism of buybacks, the value of which mostly results from its tax advantaged status.

I see, sorry for the misinterpretation. Buffett's references to buybacks at "high" and "low" valuations makes sense from his perspective as someone who has to think about reputational and signaling effects. But people need to realize that if you don't want management to buyback a stock at a high valuation, then you REALLY don't want management to issue dividends at that same valuation, because you get the same negatives, plus an absurd tax rate.

I'm not sure that Ericopoly is presenting a bias. You could say that you have a position in BAC hedged by puts, and that you have written SHLD puts for income. Or you could say that you have secured BAC upside and SHLD risk. They are different ways of phrasing the same thing from a portfolio perspective. It doesn't seem like a bias because it describes the actual economic position of your portfolio. Compare that to someone who owns BAC after it drops from $20 to $10, but says, "It's ok. I bought it at $5." There you have a person who is misinterpreting economic reality due to some emotion driven impulse.

That is not quite true either. From an investor's point of view, the buyback simply moves the role of cash management around, so that it has no effect on a DCF valuation. So the selling shareholders end up with a chunk of cash and a bundle of stocks. The persisting shareholders end up with a bigger bundle of stocks as if the selling shareholders used their cash to repurchase stocks. Economic value is about opportunity costs, so the two scenarios are the same before including liquidity, transaction, and other frictional costs.

I don’t think this is truly relevant. When I speak of “business acumen”, I mean both on the operations and in finance / investing. They both are important and complement themselves in the process of building wealth. I myself, just like Mr. Biglari, though on a much smaller scale, focus everyday both on improving the quality of operations and on effective capital allocation decisions. When Mr. Biglari bought SNS for a pittance, it certainly wasn’t the cash machine it is today. In fact, as he pointed out in line number 1 of the 2013AL, it was a “money losing restaurant chain”. What truly matters is the cost he paid to take control over SNS operations, and his ability to turn that business from an unprofitable one into a cash cow. Anyone can have his/her opinions on Mr. Biglari’s character features and ethics, but no serious entrepreneur should underestimate or fail to recognize the business achievements he has accomplished from late 2008 until today. :) Gio Im no expert on Biglari Holdings so I apologise if im not making much sense. I looked into it a few years back and decided it wasn't my cup of tea. You mention the business achievements from 2008 (The depths of the financial crisis) until today (all time market highs). I did a quick check on Yahoo of BH vs Competitors. 2009 2014 BH (Biglari Holdings) $101 $480 = 480% increase DIN (DineEquity) $8.7 $83 = 950% Increase DENN (Dennys) $1.68 $6.93 = 412% Increase RRGB (Red Robin) $12.65 $67 = 529% Increase RT (Ruby Tuesdays) $1.2 $5.92 = 493% increase Stockprice of BH seems to have underperformed most of its competitors over the last 5 years. So how much of the improvement of the business is due to improvement in the industry ? DIN was in a pickle after the purchase of Applebee's in 2007.

Maybe the lesson is that calling a manager smart or stupid isn't helpful. Instead of searching for some romantic notion of skill, like a residual that keeps popping up, just allow for people to demonstrate outperformance in some tasks, and lesser performance in others. What one person views as complaining from the sidelines, another person might see as part of the process of differentiating personal investment styles from respected figures.

In addition to StubbleJumper's comments, it would be great to hear how the Fairfax team have updated their views on monetary policy given outcomes in Canada, Australia, and, particularly, Japan.

That phrasing sort of makes it look like the Fed rate policy is why BAC earnings aren't rising. That seems to be an interpretation Moynihan and co. encourage, as opposed to blaming the giant hole where Countrywide's back office was supposed to be, and management's struggle to fill it.

http://blogs.reuters.com/alison-frankel/2013/12/17/new-ruling-puts-fannie-freddie-in-line-for-windfall-mbs-recovery/ Ruling on Blue Sky laws in Virginia and Washington D.C.