ERICOPOLY

I would own a large allocation in Fairfax if I couldn't own BAC. I do have 25% in AIG warrants at the moment -- that's the only non-BAC thing I own. So if BAC were taken away I'd probably put 50% in FFH and buy more AIG warrants (to a 50% allocation). Eric, I am trying to get up to speed on Fairfax. The fact that you say that means a lot. Could you let me know why feel so strongly about Fairfax? I have read the Fairfax board. Obviously the lack of uw profits doesn't bother b/c you like mgmt, ability to allocate capital, etc. I don't feel strongly that Fairfax is going to explode to the upside. I feel strongly that if I venture out on my own, my net worth is likely to explode to the downside. So choosing Fairfax is really a signal that I don't trust my ability very much. I view it as a hedge fund of sorts. They do a good job over time and unless something really easy to understand like BAC comes along, I'm pretty much better off to be with them (or another manager. This is why I bought the minimums in each Berkowitz fund. I know very little and will eventually need to park the money somewhere -- quite likely at a time when there is nothing simple enough for me to figure out.

Were the NYTimes to write a bullish article on BAC citing quotes from Berkowitz, Munger, and Buffett praising the wonderful franchise, it would likely outrage too many NYTimes readers.

I would own a large allocation in Fairfax if I couldn't own BAC. I do have 25% in AIG warrants at the moment -- that's the only non-BAC thing I own. So if BAC were taken away I'd probably put 50% in FFH and buy more AIG warrants (to a 50% allocation).

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble. And that was no small correction. BUD for example, went up a lot. Jae Jun at oldschoolvalue.com has done some work running backtests on various value strategies with stockscreen123. His results are here: http://www.oldschoolvalue.com/stock-screener.php It appears every strategy was severely punished in the 08' crash, with particularly devastating drawdowns on NCAV, netnet working cap portfolios, and net net working cap increasing models. In 2000, He shows drawdowns on most value strategies as well. I'm not sure about 99 though. Of course, this is noly true for a generic basket, not individual stock picks. Stockscreen123 recently moved to Compustat data (which accounts for survivorship bias), which was likely used in Jae's backtest as he recently revamped the screener, so the data is likely correct or close to correct. Greenblatt's reported magic formula results show up 12.8% in the 2000 bust which is very interesting, but was definitely hit fairly hard during the 08' crisis. I suspect the MF would be down if we face another "most assets are priced lower" periods (as opposed to the dot-com bust), but this is just a guess. Cheap, quality stocks seem to perform the best in most periods up or down given a 10 year time frame though, which we all know or wouldn't be members of this forum! While I don't claim any ability to predict the shorter term returns of the market, the Shiller PE does a pretty damn good job in the 5-10 year range. So, even though some stocks are bound to do well during an overall expensive market period, it seems playing the cheap quality game, in cheaper markets might be a decent idea. Particularly for more diversified investors who are less confident in single names... I wish I understood banks better:) As it is though, I am not finding tons of companies that are cheap, and can understand. The 08 crisis wasn't a stock market crash (in my words). It was a global financial crisis. Even money market funds were questioned. It was very different from the Dot Com collapse which was just a revaluation of equities. I remember some very cheap "old economy" stocks -- things at like 4x or 5x PEs even during the height of the stock bubble. So it was a bifurcated market -- that was dirt cheap stuff even in the face of the biggest market valuation bubble in history. That was why the small cap value managers did very well during that period. Anyways, I just wanted to remind that if you can find really cheap stuff it will take care of itself perhaps and waiting out a market crash might not be useful.

The way to have the least amount of media interest would be to just go ahead and tell the banks what they are allowed to return. Instead, they create this media circus where than can potentially publicly slap down a banks' request. It's unnecessary to have the banks ask.

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble. And that was no small correction. BUD for example, went up a lot.

I haven't seen such a filing for Warren Buffett's private holdings.

I may or may not be 4 triples away from being a billionaire. How will Forbes know? Will Fidelity or Interactive Brokers sell me out, or will I have to call the front desk at Forbes and ask to talk with the 400 list guy?

But what about the dividend? I think as of yesterday's close the put was selling for $80 and the call for $65, so a difference of $15. By 01/15, AAPL will have paid at least $20 worth of dividends, so wouldn't going long the common be a better investment? I guess if you have a margin account, using options would still be worth it because it can free up the amount of collateral you have to hold. Correct me if I'm wrong, as I'm just a beginner with options. Well, if the stock is at $800 at settlement then the extra leverage from my approach would be worth $100. Normally puts/calls are at parity -- even with dividend payers. Here, they are out of whack. You can also invest the cash while you wait for settlement, although CD yields and T-Bill yields are so low this is sort of a weak argument.

All true except it will only depress ROE over the period of time until their earnings power is up to snuff. Beyond that point they operate at 9% B3 after flushing out their excess capital cushion. So whether you get the capital as it comes in (quarterly starting right now), or whether you have to discount it for a year or two... either way it's all coming back to us. The difference in intrinsic value should only be the discounted value of that capital return whether it be today or in a year or two. There is no argument being made that any excess capital cushion will be permanent -- the management is only guiding that capital return will remain depressed until earnings are regular and recurring (in other words, when the expenses are run off). A bathtub has a water level, and the volume of water in the tub is the capital cushion. The water level will drop if the rate out exceeds the rate in. I figure that's why you would want a relatively higher water level. But when the rate in doubles from current levels, a lower water level would be needed.

There should be an asterisk next to his name in the Forbes list. * born on 3rd base

The stress test results, however, might help people see how easy it is for the bank to survive getting from point A (now) to point B (2015). I go back to the 2012 Q4 numbers and they made 12% ROTE after backing out the expense cuts that "will" be in place by 2015. That gives me a baseline $16 share price at 10x earnings multiple. You could assume that the $37 billion or so in pre-tax capital generation between now and then goes entirely to boosting legal reserves (almost double the figure that Mayo estimates), and you still have a $16 stock. So that's about 38% gain in the stock even under these relatively dire legal assumptions. And that's why I like the stock more than Apple. 12% ROTE is absolutely pathetic relative to their peers, so they have a lot of growth potential in that number.

Dividends are fine in my RothIRA. But in my taxable account (California), they are massive destruction of shareholder value. Please don't pay me any dividends! Buy shares back.

Well, I see parallels to AIG. Last year, people believed that that the share price was being held back by the government ownership stake. I heard that reason given more frequently than ROE. Today they only have ROE to talk about. The stock didn't go roaring off into the sunset when the last government share sale was announced. Instead, it went down. Today the stock is 15% higher but a lot of financials rallied during that period. So I believe with BAC the real problem with the stock isn't the capital return, it's the ROE. But I'm happy to be proven wrong. Having a high ROE not only provides the fuel for higher capital return, it makes the bank far less risky. Those are logical reasons for the stock to be discounted somewhat, but the capital return issue isn't really all that logical (except in the framework of psychology).

I understand the psychological arguments, I'm just being a bit like "spock" here in trying to quantify what exactly is so exciting about this timing from the perspective of an owner of a business.

That adds about 13 cents. Still not worthy of the major pop people are anticipating if there is a $7b return vs a $0b return.

So if it's a $7b capital return vs a $0 capital return... that's worth a pop in the share price of about 6 cents. That's if you apply a 10% discount rate and you assume that they'll get to return it next year if not this year. So why do investors seem so concerned over the timing?

Writing an at-the-money 2015 put and using the proceeds to purchase calls would give you 1.22x leverage. Or you could buy the common and get no leverage, same downside risk.

I bet you can find 10 of us! I bought BAC at $5.10-ish. Also sold lots at $9.5 and hold only a small position now so that would only be half the story. ;) Anyway, my only problem with AAPL is that it can lose it's cool (and thus it's fat margins and/or sales) very fast. Sometimes the market is right and I'm clueless whether it is now. Same goes for RIMM at this point imo, although in hindsight it was an obvious buy under $8-10. Parsad, how do you get comfortable with some many sectors? You rely heavily on sentiment but do you never fear being wrong on a fundamental basis? SD and AAPL are great examples because a lot is based on assumptions. You can more easily account for very bad scenario's with companies like BAC and still find that you have a MoS imo? I feel the same as you. My only two highly successful investments came with FFH and BAC. Both were from the same playbook -- boring businesses that will still be just as relevant in a decade, easy to value so long as management is still good, already turned around but for problems in runoff, runoff clearing quickly.

MBI made a deal with Merrill before BAC bought Merrill -- now MBI seems to want Merrill to commute it for free because BAC now owns Merrill MBI made deals with Countrywide that would have sunk them if not for BAC's purchase of Countrywide -- MBI's rhetoric today appears to paint BAC as if they deliberately ruining MBI's ability to continue with their business (which ignores the fact that MBI put themselves in that position before BAC was even on the scene) So MBI seems to be claiming that they should be getting something for free (the commutation) simply because BAC purchased Merrill and Countrywide. These people (MBI) might not even be a going concern today were it not for BAC. I can see where BAC management might not want to give away anything for free (the commutation). Why has MBI deserved such a gift? The language of the MBI CEO's letters might also be making an amicable deal difficult.

I'm guessing Moore (and many others) sold some of his BAC in January/February this year without attempting the constructive sale. I'm pretty sure he paid about $7 for it last summer. What if he wants to buy it back at $8 or $9 after a pullback this summer? He could have deferred some gains for his investors if he had done a constructive sale instead of just selling his shares. I guess that's the typical time that you'd want to employ this -- whenever you sell due to "frothy" market but might later want to get back in to that very stock after the market has blown off some steam.

I believe you got it right. You anticipated a pullback so you hedged. But you only have to pay tax on the $5 gain (the size of the pullback in the stock price) instead of paying tax on $15 of gain. So it's a nifty trick. Prior to this rule coming into effect (under Clinton's second term), there was no requirement to ever close out your hedge. So you could suspend your capital gain into perpetuity (or until you die to get the tax-free step up in basis deal).

Has my wife yet figured out that I buy her presents from the stores with the most flirtatious sales girls? Haha, does she know about this forum? This is where the good juju comes from, is what she understand about this forum. Now, it doesn't matter where you get your appetite as long as you come home to eat.

Has my wife yet figured out that I buy her presents from the stores with the most flirtatious sales girls?

It's funny how much a dividend this year vs next will move the stock. It really barely makes much difference (pennies) if you discount a dividend by an extra year to account for having to wait for it.