ERICOPOLY

BAC price today is 25% lower than two years ago -- on Jan 14, 2011 it was $15.25. Better balance sheet and legal clarity today, worse net interest margin.

Depends on what you mean by "more precarious position". BAC can easily triple the BNY settlement if needed without raising capital. That would take roughly a dollar of value away (considering on an after-tax basis).

I read something a while back that was trying to describe Fannie/Freddie as an extension of a government body. In which case, it's treble damages for fraud. Anyway, so what. Even $3b doesn't matter. That's roughly 30 cents from a single year of earnings. On a 10x multiple and $2 earnings, stock should be $20. Less 30 cents for this lawsuit, 30 cents for that one, blah blah blah. It doesn't get us down to today's stock price. Maybe it gets us down to about $18 including the costs for running down LAS.

The stock is discounted $99 billion below book value. Kind of puts things in perspective.

Wow, all of the gains for the entire year wiped out in one day!

True. An intelligent person who doesn't want to be insulted (labeled a psychopath) isn't going to answer "no, I don't care if an animal is suffering".

BAC's "beta" has been doing a poor job of indicating how it will trade relative to the market. How long does it take for the "beta" to reflect new patterns -- in other words how many past days of trading go into that "beta" computation?

If I mistake in my own portfolio, I live with it and no one can fire me. Even if I institute a lock-up, if I screw up with a big position, when that lock-up comes due...those partners will leave regardless. So, while I may be able to take a slightly bigger position than I currently do now (our max is 25% right now in a single idea), it won't really make a huge difference because I'll be inclined to still not go to 50% or better with other people's money. The obligation, if you are honest and ethical, is to do them no wrong. So you do no wrong because you want to be able to live with the worst case decision. To put it as simply as I can...I would feel ten times worse losing someone else's money than my own! Alot of people don't feel that way. Cheers! You could always have a separate public fund that is more concentrated -- Berkowitz does something like that. You could claim it's your "single best idea" fund and that it would be concentrated in a single stock. This puts it up to your fund's investors to decide if they are comfortable putting a sizable amount into just one position. Takes all of the pressure off of you -- the ball is in their court to appropriately manage their exposure. I guess the time will come when I'll put some money into the funds of a few different managers and I'd actually prefer if they offered something like that. I feel like I'd rather get the best out of each manager, and spread the risk by putting money with more managers.

Nicely done.

Well now I can't sell any for a while. Feeling too good about the pace of things clearing up.

So that MSR sale brings the total down to 543,000. It therefore should take about a year to get it down to the normalized level if they are still reducing their case load at the rate of approximately 300,000 per year (the pace of 2010/2011/2012).

AIG is the one that I've been thinking about this weekend. BAC has recently run 30% since the Q3 earnings were released and during the same period AIG has actually declined a little bit. Going into the AIG warrants again would accomplish a bit of diversification and that 2021 expiry pushes market risks out much further than 2015 BAC LEAPS.

Somebody a while back posted that a reasonable set of dividend payments would bring the strike down to about $10 on the warrants and the share conversion to about 1.2x. Given those assumptions, the warrants as priced today are effectively a 2019 call option with $10 strike priced at $4.75. Now, compare that to a 2015 strike call (4 years earlier maturity) priced at $3.60. There is the added price of $1.15 per share premium in the warrants versus the $10 2015 call. That's about 29 cents per year. A good value (however keeping in mind that the volatility premium is high in the 2015 calls and that can change rapidly as BAC's implied volatility settles down).

I am thinking along the same lines: exiting a majority of my BAC-WSA position around tangible book and retaining my stake in the commons. Is this your thinking as well or do you think the warrants are still a good investment past TBV? I don't want to get rid of the warrants. Rather, I was thinking of ditching some LEAPS in my RothIRA. I hold so much BAC it isn't even funny. At $14 a share I'd still be about 2x notional long in BAC after all on a total net worth basis. The biggest positions are the warrants and the $7 strike 2015 calls. The calls turned out to be a dumb idea so far because they've performed in line with the warrants yet carry more maturity risk.

I wonder if he really thinks that or if his boss just wanted the company name to get into the headlines? With those guesstimates for near term (next 12 months), I personally feel much more secure at the lower band range, thinking that it's better to be roughly right than precisely wrong. There are still so many variables like MBIA or Countrywide that still could make them look a little cloudy near term. I'm happy the consensus is for merely a dollar this year and 1.35 or so for next year. Once you apply the NOLs it's giving us a lot of cash for the price paid. However an end to this pessimism would enable me to free up some cash for things I need to get accomplished -- buying a house and diversifying. TBV should be $14 by the time the Q1 results are reported -- that would be a good starting point.

No, I never use words like "information arbitrage" -- too big for me. I would be the guy just telling the interviewer that I merely cheated off of the smarter kids in the classroom.

I wonder if he really thinks that or if his boss just wanted the company name to get into the headlines?

Eric just gave away his age...as well as his taste in music! 8) Cheers! Oh, but wouldn't it be funny to add this line before sharing your results in the annual letter to shareholders... You are now about to witness the strength of street knowledge.

I'm working on cutting my first gangsta album, drawing inspiration from Naughty by Nature. Track 1: Price Down Value Up... That's The time to load the Truck Track 2: OPP (Other People's Panic) You down with OPP, yah you know me.

Exactly.

BAC is earning perhaps $2 currently (underneath all the noise) so it's worth $20 (before adjustments) on a 10x forward earnings basis. But if it's only going to generate $1.40 in 2013 then one should knock 60 cents off of the purchase price. So a $19.40 stock before other adjustments, assuming they generate (with help of NOLs) $2 per share in 2014 and beyond. Subtract another 50 cents for worst case putback settlement assumptions -- so it's $18.90. Market cap is currently discounted by about $77b in excess of that right now. That's a huge amount.

Notional position is comprised of: 12.5% common warrants and options the rest of it That's basically why my performance went from 120% to 200% relatively quickly towards the end of the year.

I figure if they earn a dollar this year as the analysts expect, then it really earns $1.40-$1.50 considering the usage of NOLs. Then if earning $1.40 next year, then really it's roughly $2 in earnings. Then for 2015 if the issues are cleaned up, it can still go on earning $2. So, the stock should probably be at least $14 already if valued at 10x forward, yet that leaves it too cheap because it needs to jump to $20 the very next year in order to remain at 10x forward. So perhaps it should somewhat above $14 today -- maybe $16+?

$12 is still very, very, cheap 8)

I made money in Fairfax options in 2006, 2007, 2008, and in 2009. However, by "the fairfax options trade" I presume you mean 2006 as that was the big year. Fidelity reports (excluding December 2012): My RothIRA: +40.93% 3 yr annualized return +69.30% 5 yr annualized return Wife's RothIRA: +50.59% 3 yr annualized return +58.22% 5 yr annualized return