ERICOPOLY

It depends -- the rules of whether or not it is treated as a sale depend on a few factors, such as when the put is closed out, when you purchase additional puts or hedges on that stock after closing out the prior hedges, the strike price of the put (whether it protects any gain), etc... For individuals the date at which you close out your puts will at the very least become your new date of acquisition for long/short term capital gains considerations. For example, if you hold the stock for 20 years and then buy puts on it today, but close the puts out next week and then sell the stock the next day -- that makes the holding period short-term and you owe tax as a short-term capital gain. The tax people aren't stupid -- they understand that by purchasing a KO put to protect your KO gains you are avoiding just selling the stock. So they treat you as if you are doing just that. Indirect hedging will avoid the constructive sale rules. Prior to 1997 (when these rules went into place) you could just short the stock in perpetuity to lock in the gain on the offsetting long position without EVER paying tax! Combine that with naked short selling (no borrowing costs) and you are in tax nirvana.

Having $50k in the 401k and contributing another $10k I suppose is 20% growth in the balance. Doesn't say much.

Buying puts on Coke would have triggered a "constructive sale". That's why I suggested hedging against the index as Fairfax does.

He is right: You are making an active decision if you do not sell any shares while a company is buying back stock. Doing nothing is doing something— increasing your proportionate stake in the company by effectively reinvesting.

Whatever happened to dengyu the nugget? I seem to recall enjoying reading his posts before I joined the board as a member. He is one of the two people I pointed towards this board (the other being Santayana) -- but neither has posted in quite some time. Nothing is wrong with his health.

I know, an unfortunate ticker. Whether they continue to return cash to shareholders via dividends or buybacks, I will be happier with the more efficient of the two. I will leave the emotional/religious preferences to other people like you.

I own a bit more than 1% of the outstanding shares of CRVP -- learned about it when Harry posted it. He then deleted the post, somebody asked why, but no response. Given how hard it has become to accumulate, I think I know why. It's a pity that I can't get a lot more without significantly increasing the bid.

Glad to see he likes Banco Santander -- I bought some recently.

Hey Eric, I'm definitely not arguing with you about the bubble. I think we are on the same page. Right now, I'm focused on what instrument I should use for this idea. The banks might be better capitalized than I originally thought, so they might not be best thing to short. CDS are interesting, but I think buying them would be a pain. From what I understand buying one requires a lot of capital and if I do decide to this is the best option, then I'll have to pool my capital with a few partners. Also, even though I believe the CDS will widen during a crisis - I'd rather have better fundamental analysis so I know when to sell the CDS. Also, CDS depend on a "credit event" - which, I'm not even sure what that means. So, there is lots of me to figure out and analyze before I even come close to making a decision. I'd think Munger would suggest me to put this in the too complicated pile and move forward, but I find this idea extremely interesting. You've been chatting with Yu about this -- I know, I've been talking with him as well about the CDS. I don't believe the SEC allows us to purchase options on foreign exchanges, so the CDS is pretty much my only option. And like you said, what a pain trying to get CDS.

I'll agree that it is "more" likely, however, when a rental home is down 50% in value the only thing stopping people from walking away is debtor's prison. 12% of households in Australia report rental income on their tax filings, and 70% of them are negative cash flow. Those are the people with the incentive to walk away. People don't walk away after a 5% drop... but I don't think Australia is headed for a 5% drop. Annual rents in Australia (before expenses like repairs and mortgage interest) average 3.5% of the home price. In 1989 it was 8%. The other argument you'll hear in Australia is that the fundamentals (demand and scarcity) are driving housing prices... well, it's interesting that it has not the same impact on rent, eh???

Furthermore, this article states that Florida is among the three states with the highest defaulters: http://www.realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-federal-national-mortgage-association-fannie-mae-freddie-mac-terence-edwards-bank-foreclosures-strategic-mortgage-defaults-delinquent-home-loans-2800.php Here is the list of non-recourse states: http://wiki.answers.com/Q/Which_states_are_non-recourse_states_for_mortgage_debt

It will look like Florida then perhaps. First mortgages in Florida are full recourse. I'm in Australia right now so I get a front row view of the spectacle of denial. And yes, that's one of the arguments here. Additionally, HELOC loans in the US in all states are full recourse. This of course means that people are prudent with them right?

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job. The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes. This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle). In short, it's a partial club foot. That was the first time I realized there was something wrong with my foot. So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone. Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon. Then he is going to stitch up the torn tendon and tighten some other tendon in that area. Six procedures. I should have had this done right away nearly three years ago but I didn't ??? Finally I won't be limping around anymore as I've been doing. Oddly enough I'm looking forward to getting this done and behind me. Eric, Consider prolotherapy before surgery. Check out caringmedical.com :) I enjoyed reading about prolotherapy tonight, thank you. Ironically I view this surgery as preventive medicine -- if the bones don't get corrected the prospects for re-injury aren't favorable.

I have my pen and paper ready now. Go ahead...

I guess it's been six years now since I found the board. Thanks Sanjeev!

They might be doing it because it's easier to just hedge against the index than to try to wiggle out of all of their positions. Besides, what if they market doesn't go down after they sell, and then for some reason they decide to go back in? Well, if they had sold then they would need to pay a capital gains tax. Hedging is a means of getting out of the market without the tax bill. Only if the market drops and they book a gain on the hedges do they pay tax... but they only pay tax on the amount that the market pulls back. Selling your existing holdings might be a much bigger tax bill than the one on the hedge gains. So I bet you there are two reasons why they play this way: 1) easier to hedge against an index than to get into and out of big positions 2) potentially a big tax savings Defenders of Buffett would say that he didn't sell into the hugely expensive market of 2000 partly because of taxes, but that's a lame excuse given that he could have gone the route of hedging against the index.

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job. The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes. This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle). In short, it's a partial club foot. That was the first time I realized there was something wrong with my foot. So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone. Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon. Then he is going to stitch up the torn tendon and tighten some other tendon in that area. Six procedures. I should have had this done right away nearly three years ago but I didn't ??? Finally I won't be limping around anymore as I've been doing. Oddly enough I'm looking forward to getting this done and behind me.

Mohnish knows more than I do, but my RothIRA is now up 26,523% over the eight years since inception in January 2003. This proves what somebody said earlier about the importance of luck. I figure there are more than a few people who don't quite trust everything people say on the internet, but one of these days I'll make it out to the Fairfax dinner in Toronto and can prove it on my IPhone (my Fidelity account provides the audit trail through their "Personal Rate of Return" feature). Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

I have an 18% gain YTD. A lot of the portfolio is in large banks and SSW. I see those holdings doing well in the next 18 months with the coming substantial dividend increases. They are all historically cheap. Then I have a basket of Harry & Packer's picks -- also cheap.

In a sense, they are already implicitly bailed out by the Feds -- the special tax treatment of munis. How much of their borrowing costs must the Feds pay? Perhaps they wouldn't borrow as much in the first place without the tax subsidy.

I've been wondering what Berkshire will do here. I figure Buffett partially tied his hands when he insured all those munis? Can he load up as aggressively as he otherwise would have?

I think we differ in how inflation should me measured. To me the way BLS measures inflation seems reasonable. We aren't differing in how it's measured. I don't think they should measure it in a different way, because it would be nearly impossible to track in the way that I've describe it. We are differing in how we think of inflation. I think that if I hold cash, for example, it should buy more and more goods every year because of the productivity advances. But it doesn't. It buys less. And we should be able to buy more in a 0% CPI environment (with productivity gains), but we can't due to inflation.

Say you buy a car in 2000 for $20K without ABS. Now, if you can buy the same make, model car with ABS for $20k. Then you would say there was 0% inflation. But in reality, you had deflation, price did fall, if you had considered the quality improvement. This had been the case in many goods and services. Thus BLS uses hedonic adjustments to account for quality improvements when calculating inflation. When we calculate inflation, we need to take the quality improvements into account. We are increasing our standard of living every year. If you accurately calculate the inflation (without quality improvements) and only increase your expenses by that inflation measure, you would find that you would be falling behind the rest of the country in standard of living. Vinod The car perhaps should have been $17k though including the ABS (due to technology and efficiency improvements) but it is being sold for $20k (due to inflation). It should be clear that if commodities go up and wages went up (rubber, steel, aluminum, leather) then the price of the car is actually higher than it ought to be. However, it is officially counted as "no inflation" or "deflation" (for the reason you cited). Technology improvements should make things even cheaper than they've become. But it's not counted as inflation because the absolute price did not go up, and in many cases it fell. To use an extreme analogy, if a road costs a certain amount to construct via pick and shovel, and then several decades later it costs the same amount to construct using heavy machinery, then something is wrong! It's inflation, but it's not counted that way in the official numbers. Back to cars though... they once had chrome bumpers. I don't think a hedonic adjustment was made when they stripped out the chrome for cheaper materials. On that note, we could replace diamonds on wedding rings with cubic zirconia -- would that hold the CPI steady?

The way I think inflation is hidden is that some prices have not gone down like they should have (due to lower labor costs in China (vs US), advancements in manufacturing, and shipping for example). I think the term for that is "productivity" gains -- why don't prices fall every year if there are truly productivity gains? So, if a manufactured good doesn't fall in price despite it being produced for less costs, that's a form of inflation (when it is happening all over the place). But in other things (like commodities), it's not as easy to hide the inflation from view. But no, I don't think there is 10% cost increases right now for the typical household. More like today's basket of goods that people purchase is different from how the CPI was weighted in 1979.

Margin of safety limited to tangible book value -- he probably means that historically they trade below tangible book for only short periods of time. In other words, as going concerns they will most likely trade well above tangible book in the future. Translation: there is little risk of P/B compression because the crash already came and capital was already raised (in his mind anyway).