ERICOPOLY

I originally wrote the following (what I "actually said"): Otherwise, it's all too easy to sell and go to cash. Just as easy in fact as having cash and buying the shares at the same price. No comment was made by me as to quantities. You jumped to the 100% extreme, and you don't like 100%, so you didn't like my comment. However you could have instead jumped to the 1% extreme -- in which case if you like 1% position sizes then there would be nothing to disagree with. Thing is, by not mentioning position sizing it was simply not even part of my message at all. Thus my message was changed when it was debated using an extreme position size (that was the straw man being knocked down). Essentially debating things that were off-topic. Had I been talking about position sizing, I wouldn't have minded your comment. As you say, taking things to their logical extremes can be helpful in thinking about things. As long as you aren't changing the topic! However, message boards can be like Rorschach tests (the ink blot tests) -- given that I'm "the 100% guy" on the board, I figure that when I make a comment people may innocently read 100% into it, even when it isn't there. I would probably do the same thing if our positions were switched and I was petec and you were ericopoly.

The only way I would disagree is just to point out that if you think of them as a non-recourse financing tool, then you "lose" money similar to how a guy with a loan "loses" money to interest payments. You don't really need experience in borrowing money to anticipate the interest expenses associated with a loan. This helps in other ways, such as asking yourself "just because it's easy to borrow huge amounts non-recourse, is it a good idea given the heavy financing costs". It's just that people normally expect to lose money to interest payments, except that with options they normally make comments that "it's too risky, you could lose 100% of your investment". Of course, as with any loan you lose 100% of the interest payments but people don't go lecturing each other about it.

That isn't true. The first clue is that I didn't make such a statement (nor would I). I figure that whenever you have to stretch somebody else's statement, you've probably changed the meaning of what they are saying and therefore shouldn't do so. Your statement is no different from claiming that when prices are cheap enough (the price at which you buy at) you only take 100% positions. Now, is that what you actually do? Do you only take 100% positions when things are cheap enough where petec is convinced to buy a new position? You are making a straw man argument. We aren't discussing positions sizing at all. Instead, I am saying (for example) that if a 10% position is worth holding at $50 per share on the way back up (from the lower price where you bought it at), then it is also worth buying it at that price for the first time if you don't already hold it. The rest is psychology (and possibly taxes).

Keep in mind that Tesla is being sued for not delivering the cars (being sued by Chinese that are tired of waiting for the car). They are suing for faster delivery. I suspect this is a BS reason that Tesla is giving here. They are supply constrained right now -- can't make the cars fast enough. They do not have service centers -- what happens if the car breaks down for a customer? That's more of the story rather than a lack of charging infrastructure. You can charge a Tesla if you can charge a BYD car.

It is no more difficult than that to charge a Model S. You just plug it in. Unless the BYD has a robotic arm doing it for you, then they are they same.

You think charging is the reason why only 15 cars were delivered? Has BYD also only sold 15? It just doesn't seem like the reason to me. This article suggests that the market is not being held down at just 15 vehicles due to lack of charging, as BYD has sold 6,000 of one of it's models in 2014: http://www.evworld.com/news.cfm?rssid=32657

I just figure it was a bit of one-upmanship between Warren and Charlie. Warren probably knew Charlie was buying, so he called up Moynihan and got a better deal. Sort of like a gentleman's competition. So he was probably grinning a bit at getting a better deal.

They've been going the other direction -- first buying up the rest of NB and ORH, and then buying up more and more whole insurance companies with their cash. Including taking on debt to do so.

Why isn't the US Treasury issuing more 30 yr bonds?

I think if they lend it out, they need to retain more earnings in order to keep regulatory capital ratio happy. How much would that be? I think it needs to be knocked off the share price given that it no longer becomes "distributable" to shareholders while it's being used to support higher lending. Otherwise it's sort of double-counting.

Wow, look at that photo. I loved him when he was with Digital Underground.

This is a quote from the conference call transcript: I also want to remind you that our Tier 1 capital and supplemental leverage ratios will benefit by approximately $2.9 billion in the second quarter of '14 if we receive shareholder approval to amend our Series T, preferred stock.

Give it three months and he'll have a sell rating on C.

$12 I think. Let's not forget that 3 years ago he said that BAC had earnings power of greater than $2 per share. Then 4 months later, put a $7 price target on it. But the best, most classic thing he ever did was complain that Investor Relations had shut him out from the conference call because he asked "tough questions". Later, after he publicly complained, they let him know that he was dialing the wrong number! Ha ha ;D ;D http://beforeitsnews.com/financial-markets/2011/10/fox-business-network-analyst-mike-mayo-dialed-wrong-number-for-bank-of-america-conference-call-1261549.html Mayo had issued a controversial note claiming to be shut out of the conference call, but people at Bank of America are saying Mayo “dialed the wrong telephone number, one that was reserved for the public to listen in but not to ask questions.”

This is funny if you've taken the time to listen to Mike Mayo before: http://www.fool.com/investing/general/2014/05/04/analyst-calls-second-largest-bank-too-big-to-manag.aspx Here are some other headlines I considered for this article: Analyst Says $2.1 Trillion Bank is Too Big To Manage, Needs to Downsize to $1.8 Trillion Analyst Says Sell BAC Based on Miscalculation of 0.05%, Recommends More Careful Bank That's Failed Stress Tests 2 of 3 years Analyst says B of A is Too Big To Manage, Instead Buy JPMorgan (Even Though JPMorgan is Much Bigger) Analyst Calls B of A Too Big To Manage. Unless You're Jamie Dimon -- In Which Case It's Fine! Analyst Recommends Selling B of A, But Leaves Press Conference Early to Go Have Lunch with Jamie Dimon

On the other hand... suppose both A & B: A) you know very little (tiny circle of competence) B) you truly understand how little you know Therefore you have a terrific advantage. Once you finally come across an investment you feel that you clearly understand and at a screaming buy price, you can load up. That will be a punchcard fat pitch stock. You see, due to both A & B above, you've ruled out all the "too hard" pile :D So you have a huge advantage over the professional investors who keep wading into the too hard pile and get bogged down. You'll stay clear of those stocks as long as you truly stock with A & B.

The qualities of my Forrest Gump as CEO character are such that he always buys shares when the capital allocation decision "to return cash" has already been made. I'm speaking only to the "should I declare cash dividend or instead retire more shares" decision. So I'm saying that I would rather have Gump doing that than Singleton, because Gump is working for my best interest here. Singleton might be tempted to sometimes pay a cash dividend, which works against me due to the fact that my tax rates are the same for both a dividend and a capital gain. I always want a share buyback. No exceptions.

It doesn't really matter if you have Harry Singleton or Forrest Gump at the helm when it comes to how they return cash to shareholders. Returning cash is returning cash. The double-taxation issue happens with buybacks as well. However, for a taxpayer like you and me it's usually worse to get taxed as a dividend (except for Buffett it is usually worse to be taxed as a capital gain). I'll now explain that: The key difference is the tax rate and how much is actually taxed (100% of the dividend is taxed at the dividend rate, but the cost basis on the shares is exempted from the capital gains tax rate). Let's say we're talking about Berkshire Hathaway. They will pay a 35% tax rate on a capital gain. However they may pay only a 10.5% or 5% tax rate on a dividend (the rate goes lower when they own larger stakes in companies) So let's say a favorite holding like Coca Cola stops paying dividends and instead only buys back shares. In order to get to that same amount of cash, Buffett then needs to sell down an offsetting amount of Coca Cola stock. Let's say the shares have appreciated 5x since he bought them. He is thus paying tax on 80% of 35%. He doesn't pay 100% of 35% because of his cost basis exempts 20% from capital gains taxation. You of course only pay tax on the gain. So that's it my friend. You have 35% of 80%, or you have 10.5% of 100%. Now you can see why it's almost always better for Buffett to get dividends instead of buybacks. Most of his holdings are held within Berkshire, since Berkshire is where he holds 99% of his net worth. But let's instead look at the average Joe that doesn't have most of his money in a holding company. The typical Joe gets his dividend taxed at the same rate as his capital gains. So he'll pay more tax because he can't exempt a portion of the distribution from taxation when he gets a dividend. But when there is a buyback, he'll never pay tax on his cost basis. Better for me to always get a buyback. Better for Buffett to almost always get a dividend -- except when the shares are so cheap that he would be wanting to buy more, in which case he doesn't want to be double-taxed even at his low corporate dividend tax rate. PS: I believe it may be a 14.5% tax rate for most of his equities' dividends -- this is because of the rate that insurance companies pay on dividends. I'm not sure he qualifies for the lower 10.5% or 5% rates when held within an insurance sub. Yet, 14.5% is still better than 35% cap gains rate when we're talking about shares that have appreciated substantially. When Forrest Gump is at the helm and buys shares back only, at both high and low prices and never pays dividends, everybody wins except for those people (like Buffett) who have most of their money tied up in a situation where dividend tax rates are substantially lower than capital gains tax rates. You just sell off a portion of your holdings to create your own tax-advantaged "dividend" when you prefer cash instead of more shares. When prices are cheap, you don't sell anything (reinvesting your "dividend"). First: The warrants don't work that way. He (Berkshire) will be paying dividend taxes the moment a dividend is paid that triggers an adjustment to his warrant. That's how it works with the class "A" warrant. I believe his warrants are no different. The cost basis on the warrant is then adjusted to ensure you don't later get taxed a second time as a capital gain (after already having paid the dividend tax). Second: He tries to buy "forever" holdings. Coke is a good example of that. The bulk of his portfolio, in the long run, will benefit from getting the dividend at the drastically lower tax rate. I mean, the rate is less than 1/2 that of capital gains. So a holding already benefits once the shares have less than doubled.

It doesn't really matter if you have Harry Singleton or Forrest Gump at the helm when it comes to how they return cash to shareholders. Returning cash is returning cash. The double-taxation issue happens with buybacks as well. However, for a taxpayer like you and me it's usually worse to get taxed as a dividend (except for Buffett it is usually worse to be taxed as a capital gain). I'll now explain that: The key difference is the tax rate and how much is actually taxed (100% of the dividend is taxed at the dividend rate, but the cost basis on the shares is exempted from the capital gains tax rate). Let's say we're talking about Berkshire Hathaway. They will pay a 35% tax rate on a capital gain. However they may pay only a 10.5% or 5% tax rate on a dividend (the rate goes lower when they own larger stakes in companies) So let's say a favorite holding like Coca Cola stops paying dividends and instead only buys back shares. In order to get to that same amount of cash, Buffett then needs to sell down an offsetting amount of Coca Cola stock. Let's say the shares have appreciated 5x since he bought them. He is thus paying tax on 80% of 35%. He doesn't pay 100% of 35% because of his cost basis exempts 20% from capital gains taxation. You of course only pay tax on the gain. So that's it my friend. You have 35% of 80%, or you have 10.5% of 100%. Now you can see why it's almost always better for Buffett to get dividends instead of buybacks. Most of his holdings are held within Berkshire, since Berkshire is where he holds 99% of his net worth. But let's instead look at the average Joe that doesn't have most of his money in a holding company. The typical Joe gets his dividend taxed at the same rate as his capital gains. So he'll pay more tax because he can't exempt a portion of the distribution from taxation when he gets a dividend. But when there is a buyback, he'll never pay tax on his cost basis. Better for me to always get a buyback. Better for Buffett to almost always get a dividend -- except when the shares are so cheap that he would be wanting to buy more, in which case he doesn't want to be double-taxed even at his low corporate dividend tax rate. PS: I believe it may be a 14.5% tax rate for most of his equities' dividends -- this is because of the rate that insurance companies pay on dividends. I'm not sure he qualifies for the lower 10.5% or 5% rates when held within an insurance sub. Yet, 14.5% is still better than 35% cap gains rate when we're talking about shares that have appreciated substantially. When Forrest Gump is at the helm and buys shares back only, at both high and low prices and never pays dividends, everybody wins except for those people (like Buffett) who have most of their money tied up in a situation where dividend tax rates are substantially lower than capital gains tax rates. You just sell off a portion of your holdings to create your own tax-advantaged "dividend" when you prefer cash instead of more shares. When prices are cheap, you don't sell anything (reinvesting your "dividend").

They (the shareholders you are asking) like the price if they choose to hold (unless they do so only for tax savings). Otherwise, it's all too easy to sell and go to cash. Just as easy in fact as having cash and buying the shares at the same price. So how is that any differnt? Buying vs holding? Other than taxes and psychology, they are the same bullish sentiment. Having cash and buying is basically the same vote of confidence as holding and not selling to raise cash (other than taxes and psychology).

Of course, and yet that's not what I meant. Time and again I bitch about dividends because they are taxable, and plead and implore the world to agree in all circumstances that buybacks are always better. At any price. Because a buyback is merely a tax-advantaged dividend. So that's no contest. I'm talking of course of the "value investor" crowd that waves the magic "intrinsic value wand" that shuts off their thinking and sends them into the land of "free money" and pixie dust. All of which is fantasy. A dividend is a dividend. The rest of the difference is just taxes and absolutely nothing else to it. So long as you are willing to sell down your (increased) position if you don't like the price. The company bought shares, you think it's too expensive, you sell an offsetting amount. No more complicated than that. EDIT: Oh, and because this is Berkshire weekend and all, I should amend the "in all circumstances" comment. For Buffett, the dividend is always better (almost!) because 99% of his net worth is in Berkshire and his corporate dividend rate is much lower than his corporate capital gains tax rate. So for him, usually it's better to get the taxable dividend than to get a capital gain through a stock buyback. I mean, I think the dividend rate goes down to something like 5% for corporations if they own a large percentage of the shares, and it goes to zero if they own more than 80% (I think that's the number). To that, I should add, his spoken preference is for dividends most of the time. Go figure! Nothing like incentives to drive behavior.

Out of context, I can't be sure what he meant to say. But the out of context quote looks like he is double counting. If you have a 4.5% yielding asset, and you invest those proceeds in other 4.5% yielding assets, you wouldn't say that you returned 9%. The bank is using the retained 2/3 of earnings to repurchase a 4.5% payout on the shareholder's behalf. So the payout is actually 100%, or 13.5%. You have to distinguish between the return potential of an asset, and the return potential of yourself depending on what you do with your proceeds. I agree with you -- if you were to merely sell an offsetting amount of shares as what they are buying back, then it will be that 13.5% yield. I think a lot of people see buybacks as something magical -- when it's really just a reinvested dividend. That magical feeling causes them to make the easy mistake and look for things that aren't there. It's funny, because it's pretty darned straightforward when it's billed as "returning cash to shareholders". Cash is cash. It isn't morphed into being worth more than it's face value when the company buys shares instead of paying a dividend.

I mean, it reduces their regulatory capital by $4b. So they can't increase their lending either now that they are retaining it. By retaining it, it doesn't increase their lending power at all as far as I understand things. They have a $1.4 trillion of risk-weighted assets, and they have to maintain a certain ratio fully-phased in Tier 1 B3 of capital relative to that. What this did is reduce the amount of their capital by $4b under the B3 rules. So not only can they not return it to shareholders, but they can't lend against it either. So what did you have in mind that they can do with it? I'm obviously not a competent bank analyst and I just argue things the way I understand them. But if I somehow don't understand what they can do with this $4b now that it won't be paid out, I'm open to learning something new.

It's true that the money is still there. The problem is that it will permanently remain that way. It went from status of "acceptable to return to shareholders" to "absolutely never will be returned". And so it's like you have this money but it will never come back to us unless the company is liquidated. And it will never be liquidated. So it's value is zero (discount it out to infinity). I dont necessarily see it the same way. That money will be utilized some way or other. Being a TBTF bank has/is going to have its advantages in borrowing costs, and other advantages that will come to light as time goes on. However, it probably has no relationship to our time frame. If there aren't advantages to being a TBTF then they will liquidate over time. BAC into 6 banks worth $50/ share in total, or more. I didn't mean that kind of liquidation. I meant the kind where they stop making loans and just return all assets to shareholders as cash when it is completely run down. The way things are now, $4b of extra buybacks would have retired 2% of the shares at $17 per share. That would have been a boost to EPS, the market puts a multiple on EPS, and that's how we would have seen the value. Anyways... I just see this as hurting the share price by roughly 2% permanently due to having a higher outstanding share count. It's just as bad as dilution because it keeps the share count at today's level, versus where it would have been trending as that $4b was spent on share retirement. So perhaps if we agree that it was a non-cash event that didn't affect the TBV, we can think of it as affecting per-share earnings via a form of dilution versus the path we were otherwise heading down.

It's true that the money is still there. The problem is that it will permanently remain that way. It went from status of "acceptable to return to shareholders" to "absolutely never will be returned". And so it's like you have this money but it will never come back to us unless the company is liquidated. And it will never be liquidated. So it's value is zero (discount it out to infinity).