ERICOPOLY

I have a question regarding that: In a wholly-acquired line of business, should management be allowed to record a special boost to earnings by writing up the value of the goodwill? For example, after several years of strong organic growth?

I started reading the VRX thread from the beginning. After the first 14 pages or so, I'm getting tired of this useless idea of expensing intangible writedowns to reduce earnings. Do you guys get similarly excited when Microsoft doesn't write down the invisible intangibles that clearly exist in the product lines that it created in-house? You are trying to create expenses against current and future income merely because there are businesses that were acquired at a premium above book. Here is a suggestion to normalize the books versus a purely organic grower: Just value the company based on it's future distributable eanings. Microsoft spent R&D developing Windows, and the intangible asset value today is way beyond that which was once expensed. So should one argue that goodwill is R&D? Not hardly. And should Microsoft start recording charges against today's income if management believes that the intangible value of Windows is in decline? That wouldn't be helpful. Why expense acquisitions as R&D when the acquired asset could be spun off? Another poor idea. Just focus on estimating the value of the future earnings and don't worry about these strange ideas.

Is this a tweet of yours? If not are you on twitter? Thank you, Gio No and no. Marc Cahodes is an infamous short seller. He appears to be friendly with Roddy Boyd and Left. He is not involved directly in VRX but there was some chatter before the bear raid. I like to keep tabs on the shorts. Unlike Left, Marc seems smart. I had forgotten about Marc Cahodes. Ah yes, memories: http://archive.fortune.com/2008/10/10/news/economy/river_boyd.fortune/index.htm Eric, this is FFH all over again, and around the price where you come in and buy a shit ton of call options to take you from $10 million to $50 million. But unlike back then with the FFH options so cheap (because the naked short selling was impacting the call option premiums synthetically making them extremely inexpensive), these f*$% calls are expensive. At least buy a token few for old times sake! I know you are thinking about it... The FFH calls expiring 18 months out were really cheap and the hurricane season would come to an end after the first 4 months or so, at which time the options would likely have risen in value even if a costly hurricane season had come to pass. That's because, as you say, it was the pressure from the synthetic shorts that was driving down the call premiums... so after some post-hurricane covering it would have boosted the value of the calls even if the stock price hadn't budged. It was quite unbelievable how much upside there was given the downside risk. Today there isn't that tailwind in the VRX calls from possible short covering. Instead, it's a headwind that will eat into prospective returns.

Is this a tweet of yours? If not are you on twitter? Thank you, Gio No and no. Marc Cahodes is an infamous short seller. He appears to be friendly with Roddy Boyd and Left. He is not involved directly in VRX but there was some chatter before the bear raid. I like to keep tabs on the shorts. Unlike Left, Marc seems smart. I had forgotten about Marc Cahodes. Ah yes, memories: http://archive.fortune.com/2008/10/10/news/economy/river_boyd.fortune/index.htm

Dont think its fair to compare hedge funds with mutual funds. The more I think about mutual funds, the more I hate them as an investment vehicle. Almost impossible to generate outsized returns. Agreed. But Avenue Capital and Oaktree do offer mutual funds. The fact that some of these guys manage mutual funds probably saved their ass in 2008/2009. I presume they wanted to get more focused and concentrated in their "best ideas" but the mutual fund restrictions saved them from themselves.

Khloe Kardashian appears to have closed her short on her marriage with Lamar Odom. She's going for the whole bag is my guess -- he might not recover from that night in a Nevada brothel. She's going for absolute returns.

You should compare it against what a short position in the S&P500 would have done in the same period. Why? Last I checked, Einhorn reported his results based on absolute returns...an 8% return is an 8% return. Cheers! Probably not worth over-analyzing (after all, I don't want to take anyone's attention away from the VRX thread), but I think this sort of high single digit positive return like this on a short position is better than just the equivalent in a long position in some ways, because he was essentially paid that rate to borrow the money. It's pretty easy to get "paid" to borrow money in a long position... You just write a put. You now effectively have a long position by shorting a synthetic hedged short position.

Yes, that would be interesting. Might fit the large "value cycles" Rich Pzenea – a value investor who, by the way, has out-performed most of the value indexes for the past 5 years – has talked about for years. I will always associate Richard Pzena with his comment in November 2007: http://seekingalpha.com/article/55846-vic-rich-pzena-freddie-macs-the-cheapest-stock-ive-ever-seen "Freddie Mac is the cheapest stock I've ever seen" -- or something like that. This is a great insight: Fears in the market don’t necessarily impact FRE’s business but are impacting its stock

Before the crisis he was way ahead of the S&P500. Over the prior decade he had made something like 12% annualized vs 7% for the S&P500. Perhaps he did very well by buying up the discounted shares of various companies every time some little worry came along (the reason for their discounts to NAV were those worries). Each time the crisis never came, and he made a lot of money as the shares recovered. That works great until the "worries" du jour escalate into a full-blown crisis. Perhaps a study could be done of how value investors as a group do over periods of time where no true crisis ever fully develops (the group outperforms) versus periods when a true crisis comes along (they get crushed by buying a concentrated mix of the "cheap" stuff before the party really gets going!).

His comment: If we are wrong about China, it wouldn’t be economic problems, but more due to social problems. Then there are his positions in Radian and MBIA in January 2008. He was buying up real estate and associated financials back then. He also wanted to invest in Bear Stearns as it was dropping but one of his peers at Third Avenue stopped him. I think "safe and cheap" sells fund shares, but it's harder for him to do in practice. There are a number of investors who stayed away from those financials in 2008, seeing risks that were invisible to Marty. He was focused on price to book ratios but that's not where the others were looking. He really got into it with Bill Ackman over MBIA -- did he apologize? Man was he wrong and extremely rude to Bill. I think he called him a "promoter" and said he knew nothing about insurance. It turned out that everything Bill said was correct and Marty didn't listen to any of it. Here's his list of bargain stocks in October 2007: http://archive.fortune.com/2007/10/16/news/newsmakers/bargain_stocks.fortune/index.htm

Unable to provide his wife with Alpha: "I was about to put some money into muni bonds for my wife, and instead put it into Third Avenue Value," he says. http://www.wsj.com/articles/SB120736223927391963 Perhaps he should try the pharma sector.

A 23% decrease in shares is roughly a 30% increase in ownership. Not a 23% increase. Similarly (an easier example) a 50% decrease in shares is a 100% increase in ownership.

Just rent a U-Haul truck, park in a remote location, and cook hamburgers over charcoal in a Weber in the back with the rear door closed. Search on Google for indoor BBQ carbon monoxide poisoning -- it's surprising how many people accidentally kill themselves and others this way. So it's very effective.

Both internationally and between the states there is no positive correlation between suicide rates and either gun ownership nor gun laws. Look at the suicide rates in Japan for an extreme example. Yes in the US people choose to use a firearm when they kill themselves, whereas in Japan they use other methods, but suicide isn't a gun problem, it is a person who wants to end his own life problem. Sorry, but this is demonstrably untrue, and there are MANY studies illustrating this. The easy availability of guns tends to result in higher suicide rates. See here for example. I could cite countless other studies. http://www.economist.com/blogs/graphicdetail/2015/02/daily-chart Which is so strange. It seems a lot more appealing to put a garden hose in the tailpipe of a car (or just run the car with the garage door closed if you have a garage). Why do people use guns?

Shouldn't you be also looking at margin risk from naked options trades? It seems incomplete to be looking just at loans. Further, shouldn't you be looking at the netted risk? I have a large margin loan with IBKR... but so what, they can't lose money on it because I've got put options that ensure my equity can't be wiped out. So there is zero risk to IBKR from my margin loans. They make money from my account without any risk.

What was it like when cars started having cruise control? Did it spike the accident rates because people used it wrong? Personally, I've almost smashed into traffic ahead of me when I had cruise control on. I just pay less attention when part of what I do is automated. Of course, what more reliable source of research could I provide than to point you to a website called "Injury Trial Lawyer" -- ha ha http://www.injurytriallawyer.com/blog/cruise-control-car-accidents-young-drivers.cfm Cruise Control Could Contribute to Car Accidents, Especially for Young ... to tune out and causes them to lose focus on regular driving tasks.

Just imagine how easy it would be for Tesla to only allow it on highways. GPS! Check. MAP! Check. If... Gps Coordinate Not on Mapped Highway Then... Disable Autopilot End if So I conclude that they aren't trying very hard to keep it "highway only".

Don't forget to include the earnings between now and then. So at your P/E 11x, by end of 2018 it would be maybe $1.50+$1.60+$1.70 in earnings over that period. So $20+$4.80= $24.80. Eric , what you say makes sense ! But I am simply thinking this: this is now year 2018.... EPS is $1.7.... so the market valuation is 11x ( 12.5 x for WFC) so it should trade at 11x 1.7 in 2018... At $24.80 / 11 implies EPS of $2.25 by 2018 , no ? No. The dividends have been reducing your warrant strike price and conversion ratio. The buybacks have been boosting the EPS by 2018 by reducing the share count. It doesn't really matter whether it's buybacks or dividends -- same value occurs (except the dividends destroy value due to taxation). Hopefully any remaining earnings not returned to shareholders are assigned fair value by the stock price.

Don't forget to include the earnings between now and then. So at your P/E 11x, by end of 2018 it would be maybe $1.50+$1.60+$1.70 in earnings over that period. So $20+$4.80= $24.80.

Suppose you have an autonomous driving update today, rather than in 3 years. You are drunk at a bar and want to get home. But you don't want to risk getting a DUI. So you tell the car to drive you home and you climb into the back seat. Traffic officer pulls you over and sees that you are drunk. Technically, can he give you a DUI? You are just a passenger in a vehicle that has no driver, right? Sure, he can cite you for not being behind the wheel as required by law today with regards to software assisted steering technologies (probably a much lighter offense), but you can't get nailed for DUI right? What are all those DUI lawyers going to do? Another job eliminated by tech.

I'm not troubled by any hint of fraud. Look at the deeply respected people involved with the board. These are lightweights who don't turn over stones with tough questions such as yours? They would stake their reputations on this without better information than you've been given? “With three former cabinet secretaries, two former senators, and retired military brass, it’s a board like no other.” "We have former Secretary of State Henry Kissinger, former Secretary of Defense Bill Perry, former Secretary of State George Shultz, former Senators Sam Nunn and Bill Frist (who, it should be noted, is a surgeon), former Navy Admiral Gary Roughead, former Marine Corps General James Mattis, and former CEOs Dick Kovacevich of Wells Fargo and Riley Bechtel of Bechtel. There is also one former epidemiologist—William Foege, and, in addition to Holmes, one current executive, Sunny Balwani, who is Theranos’ president and CEO." http://fortune.com/2015/10/15/theranos-board-leadership/

And in 3 years... Musk said he believes Tesla is three years away from having a fully autonomous car — not counting the inevitable regulatory battle to get the tech to the public.

It doesn't count towards capital, so it can be returned when monitized without hurting the capital ratios. So it is a completely useless asset until monetized.

DTA goes away when monetized and returned to shareholders.

I would think the top of the credit cycle would be the top of the economic cycle. There appear to be a lot of indications that current times are not boom times. One can imagine things getting worse, but one could also imagine things getting a lot better. Sort of middle ground.