Parsad

Ever since Eric posted his cumulative results, and there has been a massive flood of questions for him, I've found that there has been complaints and compliments regarding this. The complainants are concerned that novice, or even well-tenured, investors will start to leave a practical, rational investment framework to emulate Eric's strategies on LEAPs and options. The compliments come from various investors who have experienced tremendous success, by learning from others on the board and from sharing investment ideas, including strategies similar to Eric. First, this forum works because there is limited interference from me, and the vast majority of posters are incredibly respectful. We have no spam, no jackasses, and really the worst experience for most users are my jokes! Second, since this forum started 11 years ago, there has been an enormous congregation of wealth on here. One that cannot be simply attributed to the distribution that would occur in the general public, or even on other investment sites. I can name off the top of my head, some 20 investors on here (excluding Eric), who have become financially independent over the last decade, and have handily beaten 99.99% of investment managers in the world. That's just off the top of my head and doesn't include those that I do not know about. While we have about 1,400+ members, almost all of these 20 investors started in the first few years of the board, so really the base of membership you should compare when examining them is about 500...so 4%. This 4% of investors have not simply beaten the market, but killed the market. Most are only a double away from 8 digit portfolios (or already there) and started with significantly less than a few hundred thousand dollars. In other words, they have grown their portfolios by 5-20 times the original base...in ten years or less! And that occurred during some of the most tumultuous times in financial history. So I understand the concern, that board members may be showing attributes similar to Mr. Market's manic-depressive state on certain topics, but the general base of investors on here is no different than the general public...that will happen. Learning from one another...be it from the bulls or the bears, leveraged or unleveraged, novice or experienced...is what you have access to here. I do not want to interfere with that process by over-moderating this forum, as the financial health of many future financially independent investors is at stake! Use common sense, understand your own temperament, do not seek get-rich quick strategies without understanding the risks involved, and focus on the fundamentals Ben Graham taught...always seek a margin of safety! Cheers and good luck!

We only put 1% of the fund in it...so it was nice, but not life-changing. We don't have kehones (sic) like you Eric! Cheers!

No one, including Eric, is sanctioning investors use LEAPs, options or any other sort of leverage. But Eric's numbers are extraordinary and there are naturally going to be questions about how he did it, how did he get comfortable with it, and the reasoning behind it. I wouldn't expect any greater significance put to options or LEAPs because of Eric's results, as anyone levering up Berkshire in their portfolio like Allan Meecham did at Arlington Value. It's an investment strategy, based on underlying fundamentals, but can carry a significant amount of risk because of the leverage and time arbitrage involved. I think that is what the interest is from the people asking questions...how did Eric, if you can do it, minimize that risk. And that's all it is...people are inquisitive, otherwise you wouldn't be on here either. ;D Cheers!

Very good and fair article from Seekingalpha on SD. Cheers! http://seekingalpha.com/article/1276211-sandridge-energy-activists-win-why-is-the-stock-down?source=yahoo

Short, funny article on Berkshire's director fees and how Buffett repays Berkshire for any personal use expenses. And over at Sandridge you had a CEO running his personal accounting through the company for free. Cheers! http://blogs.wsj.com/deals/2013/03/15/warren-buffett-pays-bill-gates-1800/?mod=yahoo_hs

LOL! Kind of a joke. Cheers!

No, the warrants do not adjust for the buybacks today. Neither do the LEAPS. Both benefit from more intrinsic value per underlying common share, but that's as far as it goes. I invested my approximate 60 cent "default dividend" in the stock at $12 though :D The 3% I'm saving in interest costs over two years with the LEAPS is where I come up with my "dividend". One might say the warrant holder speculated on greater than 60 cents of dividends cumulatively for this year and next -- they purchased them upfront hoping to get more? Backfired so far. Oh, I see what you are saying. I didn't understand the 13% and 10% costs for the warrants and LEAPs. I thought you were using the cost of capital over the six years respectively for each, but your actual cost to buy on margin is 13% and 10% respectively. Or am I even more confused here now? Cheers! Scenario we all find a reasonable possibility: Over the first two years, warrants and at-the-money LEAPS are pricing in their leverage like this: 1) warrants 13% cost 2) LEAPS 10% cost In two years' time (the second two years of warrant life) stock is above $20. 1) We use margin to exercise the LEAPS 2) we hedge the margin loan with $12 puts You and I both know that $12 puts cost a lot when the stock is trading at $12 (like today) but will become very cheap when the stock is trading at $20. So, under the scenario that we are all gunning for, the cost of hedging the $12 embedded leverage will plummet for the last 4 year lifetime of the warrant. So why the f**king he** do people want to lockup the cost at 13% for all six years when we are all bloody well expecting that cost to plunge over the remaining 2/3 of the warrants' life???? That's what gets me :) And that's where I see the opportunity to do way better than the warrant by my strategy. And I'm taking less risk along the way. Ok, I get what you are saying now. Yes, that is a better strategy and far cheaper. You and I should both go to sleep, because I have to get up right at 7am to sell some of those April 5th $12 calls, and you've spent your entire day teaching the board about options! ;D Have a good night Eric! Cheers!

No, the warrants do not adjust for the buybacks today. Neither do the LEAPS. Both benefit from more intrinsic value per underlying common share, but that's as far as it goes. I invested my approximate 60 cent "default dividend" in the stock at $12 though :D The 3% I'm saving in interest costs over two years with the LEAPS is where I come up with my "dividend". One might say the warrant holder speculated on greater than 60 cents of dividends cumulatively for this year and next -- they purchased them upfront hoping to get more? Backfired so far. Oh, I see what you are saying. I didn't understand the 13% and 10% costs for the warrants and LEAPs. I thought you were using the cost of capital over the six years respectively for each, but your actual cost to buy on margin is 13% and 10% respectively. Or am I even more confused here now? Cheers!

Hi Eric, I understand what you are are saying...I think. But BAC effectively paid a 3.8% dividend today. $5B in buybacks divided by $131B market cap. Obviously the purchases haven't been executed yet, but the warrants exercise price will be adjusted to the buybacks, whereas the LEAP exercise prices do not change. Correct? Cheers!

I think that's mentioned in one of the posts earlier, but assumes that all of the proven reserves are developed and cash flows discounted back to the present. It may or may not be accurate, as it has not happened, and historically these things are a crapshoot because anything could happen in between, and you still have to fund all of the capex to develop the land. Cheers!

Hopefully now I'm understood. At all times I have far less money on the table (except in year 5 and 6), and less money on the table means less risk guys! Yes, same upside! As long as you said, that the stock appreciates. If it doesn't than as you also said, both the warrants and LEAPs are worthless. But the common would still retain it's valuation based on market price...more certainty, less risk, less reward. Whereas the LEAPs provide you the same return as the warrants with less capital upfront. You forgot one aspect though. The warrants are adjusted for dividends and buybacks. If BAC starts to return large amounts of capital over the next 3-4 years, and $10.5B is a pretty good start with all of the remaining legacy issues, then would the warrants not be the better investment...albeit all of the capital upfront? Cheers!

I stayed at the Bellagio last year. It's a very nice hotel, but I don't like the rooms. Actually, I like the MGM Grand Signature suites. It's off the strip a block, has private pools, full kitchens and massive marble bathrooms. And cheaper than Bellagio! Cardboard, we'll use your Amex card at Spearmint Rhino! ;D Cheers!

That summarizes my position nicely. I want the stock to go up fast, or I wouldn't have bought Leaps. I like to see a company succeed but I have bought all the stock I will ever buy and now I want that share price up. Raising the dividend to 0.50 instead of the buybacks would have pushed the stock above $15.00 quickly, possibly even up to $20.00. Now we wait another year which means another cycle of leaps, and the frictional costs involved. That's the risk with LEAPs...there is always a time arbitrage involved and hell of a lot shorter than the warrants. Do you still hold any common or warrants? Or did you switch it all to LEAPs? Cheers! Sanjeev, Do you concur with Eric's assessment that tarp warrants in longer run (yr 3 to 6) are losers game? And, what are your view on bac warrants going forward ? Thanks. No, I don't think they are a loser's game. Also, I don't think that's what Eric meant. I think he's saying that the normal degradation of the warrants when you get to years 4 and on, mean that they won't provide any sort of advantage over LEAPs. At the moment, I think LEAPs are the loser's game, since you are relying on a 2-year time arbitrage. Why do you think Al and Eric wanted dividends! ;D We bought the April 5th $12 Calls on March 4th for 17.5 cents each. They will be anywhere from 75-90 cents tomorrow! You aren't going to get that type of return with the warrants, but the warrants at present are proxies for equity...at least the A warrants. I think the B warrants may be tough to make alot of money on. Cheers!

He posts on here as much as me, so a good amount of time is spent farting around with you guys! ;D Cheers!

Cardboard, get me one of those cards too. I want to be a baller in Vegas! ;D Is that the right terminology?! Cheers!

I think that would be fair. On a dollar for dollar basis relative to earnings and book value, the stock is cheaper right now than last year, so I can't see any reason why they would not buy back as many shares as last year...if not more! Cheers!

That's pretty cool! Hopefully it doesn't do that when you are face-timing people in a phone call. Can you imagine it getting it stuck everytime you looked away during a call? ;D Cheers!

That summarizes my position nicely. I want the stock to go up fast, or I wouldn't have bought Leaps. I like to see a company succeed but I have bought all the stock I will ever buy and now I want that share price up. Raising the dividend to 0.50 instead of the buybacks would have pushed the stock above $15.00 quickly, possibly even up to $20.00. Now we wait another year which means another cycle of leaps, and the frictional costs involved. That's the risk with LEAPs...there is always a time arbitrage involved and hell of a lot shorter than the warrants. Do you still hold any common or warrants? Or did you switch it all to LEAPs? Cheers!

Where is our old rational Cardboard? Who is this guy talking about Mr. Market and trading! ;D Don't worry it is going over tangible book soon...dividend or not! Cheers!

Doesn't matter. The growth in your Roth IRA alone is spectacular! Cheers!

The buybacks are going to be far more effective than the dividends as far as increasing shareholder value. They actually did the right thing here...buy back shares under book, even tangible book maybe...and retire high interest preferreds. If they just wanted to keep the stock afloat, dividends may have been better. But if they want to permanently increase the value of the shares, then this was the way to go. Also, dividends tie you down to the large institutional shareholders...doesn't matter if loan losses are up, capital levels down...you pay the damn dividend and it's double taxation. You buy back shares and it's permanent...done...more tax efficient and accretive to book and earnings when done right. The Fed cannot cancel your share buyback after it's complete, but they can stop you from paying a dividend. Cheers! Yes, "when done right" is the key here. The only buyback I have seen done right in the last number of years is Seaspan. The list of badly done buy backs far outweighs those done well. SHLD, JPM, Potash corp, are three that immediately come to mind. And Moynihan said there would be more money toward dividends. In one of the interviews, he said that capital would be returned to shareholders...of earnings above required capital...1/3rd to dividends, 1/3rd to buybacks...but he said that would be dependent on the share price and if it made more sense to do buybacks. At this price, I think he believes that buybacks make more sense, as well as retiring the preferreds. Cheers!

Not so fast my good sir. The bet was $7 bil returned to the COMMON. I was very clear about it and asked that you confirm. I can't find it right now but go back to where we bet. I am still winning here. I will happily pay when it's $7 bil to the common. There is still 9.5 months to go. I went back and checked...you sneaky bugger! Yes, you stipulated in brackets "(common only), no other security". I'm going to have to get Txlaw to read any agreement between you and me on a bet going forward! ;D Remind me to give you your "100 Grand Bar" in Toronto. Now I've got to cross the border to get one. Can any of you Americans coming to Toronto, pick one up! Cheers! Perhaps you can have Kraven buy it for you on credit and he can hold the collateral until you pay up. Good idea! Kraven, do you mind just buying a "100 Grand Bar", and I'll give you the dollar (CDN) in Toronto. Although it will be a loonie coin and your bank won't accept it in the U.S. Cheers!

They increased their dividend by a nickel every quarter as well. Cheers!

The buybacks are going to be far more effective than the dividends as far as increasing shareholder value. They actually did the right thing here...buy back shares under book, even tangible book maybe...and retire high interest preferreds. If they just wanted to keep the stock afloat, dividends may have been better. But if they want to permanently increase the value of the shares, then this was the way to go. Also, dividends tie you down to the large institutional shareholders...doesn't matter if loan losses are up, capital levels down...you pay the damn dividend and it's double taxation. You buy back shares and it's permanent...done...more tax efficient and accretive to book and earnings when done right. The Fed cannot cancel your share buyback after it's complete, but they can stop you from paying a dividend. Cheers!

Not so fast my good sir. The bet was $7 bil returned to the COMMON. I was very clear about it and asked that you confirm. I can't find it right now but go back to where we bet. I am still winning here. I will happily pay when it's $7 bil to the common. There is still 9.5 months to go. I went back and checked...you sneaky bugger! Yes, you stipulated in brackets "(common only), no other security". I'm going to have to get Txlaw to read any agreement between you and me on a bet going forward! ;D Remind me to give you your "100 Grand Bar" in Toronto. Now I've got to cross the border to get one. Can any of you Americans coming to Toronto, pick one up! Cheers!