BAC-WT - Bank of America Warrants

[ERICOPOLY]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?

 

Early 2009 comes to mind.

[ERICOPOLY]

 

 

We re entered here a few months ago...in a very big way...I am pretty sure that we disclosed here...and at $20 I expected an invitation to go surfing with Ericopoly!

 

Time to go to sleep here I believe...we are about to be reevaluated on our business rather than our past and overhang of lawsuits and capital questions. We have retained all the capital that all the other major banks have paid out in dividends and buy backs...to pay off our massive legal bills. We have endured the pain now we will see the gain!

Merrill Lynch will become the greatest investment that B of A has made when history is written and they are printing money right now. The huge deposit base make B of A's brand, stability and earnings potential on par with the top brands globally.

 

Warren Buffett will make an absolute killing here.

 

 

Good luck to all!

 

Dazel

 

That is going to be fun.  Looking forward to it.

[giofranchi]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?

 

Early 2009 comes to mind.

 

Hi guys,

Everyone seems to agree BAC stock price is shooting much higher very soon!

I also think it will, but you know I don’t even make the effort to understand something like BAC truly well… therefore, though I have a small investment, I must resist the temptation to invest really big money (at least for me! ;)).

 

I have a question: I think the penalty BAC has just agreed to pay amounts to 3 years of earnings… And I was wondering if anyone of you expected it to be that high, or lower, or even higher.

 

Just curious! :)

 

Gio

 

[ERICOPOLY]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?

 

Early 2009 comes to mind.

 

Hi guys,

Everyone seems to agree BAC stock price is shooting much higher very soon!

I also think it will, but you know I don’t even make the effort to understand something like BAC truly well… therefore, though I have a small investment, I must resist the temptation to invest really big money (at least for me! ;)).

 

I have a question: I think the penalty BAC has just agreed to pay amounts to 3 years of earnings… And I was wondering if anyone of you expected it to be that high, or lower, or even higher.

 

Just curious! :)

 

Gio

 

That depends... which three years of earnings?  Expressed differently, it will probably amount to an infinite amount of this quarter's earnings.

[txlaw]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?

 

I also think this will rank up there with one of the greatest investments ever for WEB, particularly given the amount he put at work.

 

People are underestimating Berkshire's ability to compound wealth going forward because it is so big, but I think WEB and co will easily beat the S&P 500 over the long run.  When friends ask me about investing, I usually just tell them to index, but sometimes I'm tempted to say, "Just put it all in Berkshire and work on increasing your own earnings power."  I don't say that, though.

[giofranchi]

That depends... which three years of earnings? 

 

Ok, sorry! I just meant to ask if you guys were expecting a $16 billion settlement... somewhat lower... or maybe even higher...

 

Thanks,

 

Gio

[txlaw]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?

 

Early 2009 comes to mind.

 

Hi guys,

Everyone seems to agree BAC stock price is shooting much higher very soon!

I also think it will, but you know I don’t even make the effort to understand something like BAC truly well… therefore, though I have a small investment, I must resist the temptation to invest really big money (at least for me! ;)).

 

I have a question: I think the penalty BAC has just agreed to pay amounts to 3 years of earnings… And I was wondering if anyone of you expected it to be that high, or lower, or even higher.

 

Just curious! :)

 

Gio

 

I never put a specific number to it, but after JPM paid that huge amount, how could anyone think that BAC would not pay substantially more than JPM did?

 

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

[rkbabang]

That depends... which three years of earnings? 

 

Ok, sorry! I just meant to ask if you guys were expecting a $16 billion settlement... somewhat lower... or maybe even higher...

 

Thanks,

 

Gio

 

I was expecting (or maybe "hoping for" is a better description) a settlement earlier and lower.  As recently as this spring I was thinking it would be announced in June or early July and be $10B-$14B.  I'm disappointed, but glad it is finally done with.

 

[txlaw]

Btw, BAC would still be a damn good investment for someone like FFH at these prices. 

 

I wonder if they bar themselves from investing in BAC because of the advisory relationship.

[giofranchi]

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

 

I am just curious to know how much people rely on their business judgment and knowledge, and how much on their margin of safety.

 

I tend to rely more on my business judgment and knowledge, because only with good judgment and deep knowledge I find I can understand what my margin of safety truly is.

 

Obviously, with BAC at $6 the margin of safety was so huge… that you could afford not knowing it very well! I agree. And I think also Buffett said he didn’t think BAC was as predictable as WFC, yet all BAC needed to do was to still be around 50 years from now…

 

Very fine!

 

But what about BAC at $16.5? I think the margin of safety has shrunk now, hasn’t it?

 

Just curious… I know I am probably the least knowledgeable person about BAC on the board! ;)

 

Gio

 

[ERICOPOLY]

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

 

I am just curious to know how much people rely on their business judgment and knowledge, and how much on their margin of safety.

 

I tend to rely more on my business judgment and knowledge, because only with good judgment and deep knowledge I find I can understand what my margin of safety truly is.

 

Obviously, with BAC at $6 the margin of safety was so huge… that you could afford not knowing it very well! I agree. And I think also Buffett said he didn’t think BAC was as predictable as WFC, yet all BAC needed to do was to still be around 50 years from now…

 

Very fine!

 

But what about BAC at $16.5? I think the margin of safety has shrunk now, hasn’t it?

 

Just curious… I know I am probably the least knowledgeable person about BAC on the board! ;)

 

Gio

 

You should go back over your arguments for not buying it at $8, $10, $12, etc....

 

It's still a black box.  Black as it was then.  You still can't understand the balance sheet or the derivatives.  The management team still isn't what you like to think of as partners.  The only thing you understand better today is how much the settlements cost.

[ni-co]

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

 

I am just curious to know how much people rely on their business judgment and knowledge, and how much on their margin of safety.

 

I tend to rely more on my business judgment and knowledge, because only with good judgment and deep knowledge I find I can understand what my margin of safety truly is.

 

Obviously, with BAC at $6 the margin of safety was so huge… that you could afford not knowing it very well! I agree. And I think also Buffett said he didn’t think BAC was as predictable as WFC, yet all BAC needed to do was to still be around 50 years from now…

 

Very fine!

 

But what about BAC at $16.5? I think the margin of safety has shrunk now, hasn’t it?

 

Just curious… I know I am probably the least knowledgeable person about BAC on the board! ;)

 

Gio

 

Depends on what you want your margin of safety to be. We're still only marginally above tangible book value (~$15). And I think today's tangible book is much more conservative than in the years before 2007. If you're looking at 2$ earnings power (who wouldn't trust in Cramer's verdict?!), your earnings yield is ~12% – enough MOS for me. If you want less exposure to banking, buy LEAPS/warrants and lower the amount you invest.

 

At today's prices, this looks a lot like AAPL a year ago. When everybody says that it's cheap that doesn't mean that it isn't actually cheap. Not every haystack has a needle, as I read somewhere in this forum.

[hyten1]

for me what i like about BAC is, the thesis is simple, getting back to normal.  now that doesn't sound like such a stretch, the question is when.

 

for me due to massive deposit base, bac's earnings power (considering what has happen in the last few years, BAC is still doing ok doesn't that tell you something?) and of course buffett, with all these, getting bac back to normal doesn't sound very difficult. it actually sounds very easy, its just a matter of time. i like thesis that is as simple as this (you can argue i am missing a lot of stuff etc).

 

yes i understand bac is a black box etc etc.

 

 

getting of topic below:

 

i have always wondering about one thing, how come we human don't do simple and obvious things. I mean the logical course of action back in 2008 or was it 2009 was to PUT ALL OUR MONEY into WFC, and possibly leverage it. One of the greatest investors of all time said he would put all his money into WFC at the time. Why didn't we all do it! Why didn't you or anyone do it?

 

would a completely LOGICAL being do exactly that, put everything into WFC?

 

I mean what is the logical thing to do, using pure logic:

 

1. I don't know enough about the biz/idea so i am not going to invest (example WFC back in 2009 and 2008)

2. One of the greatest investor of all time said it straight out (which is rare) he would put all his money  into WFC.

 

 

sorry going off topic.

 

 

 

hy

 

 

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

 

I am just curious to know how much people rely on their business judgment and knowledge, and how much on their margin of safety.

 

I tend to rely more on my business judgment and knowledge, because only with good judgment and deep knowledge I find I can understand what my margin of safety truly is.

 

Obviously, with BAC at $6 the margin of safety was so huge… that you could afford not knowing it very well! I agree. And I think also Buffett said he didn’t think BAC was as predictable as WFC, yet all BAC needed to do was to still be around 50 years from now…

 

Very fine!

 

But what about BAC at $16.5? I think the margin of safety has shrunk now, hasn’t it?

 

Just curious… I know I am probably the least knowledgeable person about BAC on the board! ;)

 

Gio

[giofranchi]

You should go back over your arguments for not buying it at $8, $10, $12, etc....

 

It's still a black box.  Black as it was then.  You still can't understand the balance sheet or the derivatives.  The management team still isn't what you like to think of as partners.  The only thing you understand better today is how much the settlements cost.

 

Well, I know… But this kind of reasoning is still is very difficult for me…

 

In retrospect I was an idiot not to buy a lot of things… Apple… Amazon… Google… even Tesla…

 

The only difference is that Buffett, like you, and like others, thought 50 years from now BAC would probably still be around... while Apple, Amazon, Google, and Tesla... well, who really knows??

 

Gio

 

[txlaw]

Now, are you asking whether people expected such large settlement numbers when they initially invested at, say, $6?

 

I am just curious to know how much people rely on their business judgment and knowledge, and how much on their margin of safety.

 

I tend to rely more on my business judgment and knowledge, because only with good judgment and deep knowledge I find I can understand what my margin of safety truly is.

 

Obviously, with BAC at $6 the margin of safety was so huge… that you could afford not knowing it very well! I agree. And I think also Buffett said he didn’t think BAC was as predictable as WFC, yet all BAC needed to do was to still be around 50 years from now…

 

Very fine!

 

But what about BAC at $16.5? I think the margin of safety has shrunk now, hasn’t it?

 

Just curious… I know I am probably the least knowledgeable person about BAC on the board! ;)

 

Gio

 

IMO, you need to rely on both.

 

I would say the MOS has shrunk because the discrepancy between IV and price has shrunk substantially.  But the MOS is still very high, especially compared to most opportunities out there.  Risk has actually gone down as well because of the changes that have been made at BAC and in the financial sector, the capital build up at BAC, and the state of the US economy.  Finally, uncertainty has also gone down, and judging BAC's prospects going forward is now much easier (hence Mr. Market's current pricing of BAC). 

 

If I were you, I wouldn't confuse "business judgment and knowledge" with "deep knowledge."  As an OPMI, there are generally limits to what you know about the investee company.  You don't really have deep knowledge of FFH, for example.  Instead, you rely on management to know what they're doing.  But at a big company like FFH (or even bigger: BAC and BRK) even management doesn't know what's going on all over the company.  You have to assess whether there is organizational resilience to make sure that bad stuff that goes down is immaterial over the long run. 

[txlaw]

You should go back over your arguments for not buying it at $8, $10, $12, etc....

 

It's still a black box.  Black as it was then.  You still can't understand the balance sheet or the derivatives.  The management team still isn't what you like to think of as partners.  The only thing you understand better today is how much the settlements cost.

 

Well, I know… But this kind of reasoning is still is very difficult for me…

 

In retrospect I was an idiot not to buy a lot of things… Apple… Amazon… Google… even Tesla…

 

The only difference is that Buffett, like you, and like others, thought 50 years from now BAC would probably still be around... while Apple, Amazon, Google, and Tesla... well, who really knows??

 

Gio

 

Any insurance company is a black box. 

 

Yet you've invested in FFH and LRE, no?

[txlaw]

I mean the logical course of action back in 2008 or was it 2009 was to PUT ALL OUR MONEY into WFC, and possibly leverage it. One of the greatest investors of all time said he would put all his money into WFC at the time. Why didn't we all do it! Why didn't you or anyone do it?

 

The premise of your question is incorrect.

 

You only have to look the concept of circle of competence to understand why most people ought not to have put all of their money into WFC.  WEB, remember, has unique insight into WFC and the financial sector, generally.

 

Additionally, you don't really want to put all your eggs into one finance company during a financial crisis.  That would be terrible risk management.  WEB's just using a bit of hyperbole to indicate how cheap WFC really was at that time, and how great a company it was (and continues to be).  We shouldn't be taking everything he says literally, especially because there are contradictions galore when you look at all his statements on investing/business.

[giofranchi]

getting of topic below:

 

i have always wondering about one thing, how come we human don't do simple and obvious things. I mean the logical course of action back in 2008 or was it 2009 was to PUT ALL OUR MONEY into WFC, and possibly leverage it. One of the greatest investors of all time said he would put all his money into WFC at the time. Why didn't we all do it! Why didn't you or anyone do it?

 

would a completely LOGICAL being do exactly that, put everything into WFC?

 

Well, but I don’t know anything about WFC either… I simply have a set of rules for investing in businesses… They have served me very well until now… And I stick to them… In retrospect they made me miss fantastic trades like WFC in 2009 and BAC in 2011… But who knows instead how many times they might have actually saved me?!

 

Gio

 

[ni-co]

The question find the most interesting is: Why is BAC still at 16?

 

Is it the fear of additional litigation?

[hyten1]

txlaw,

 

i understand what you are saying and  about circle of competence. I guess what i am trying to get at (not very eloquently, or maybe i am smoking crack) is:

 

if you had a logical being, completely logical, taking into the fact at hand, knowingly that he/she is not an expert in WFC or know what is going to happen WFC, also knowingly the fact WEB (his track record, knowledge in finance etc.) said to put all your money into WFC. so i guess from a logic whats the more logical choice, not in your circle of competence trumps WEB said so (a rare event)?

 

put another way if the above was a programming code if and else statement i guess the "not in your circle of competence" trumps "WEB said so considering how rare and how emphatic he was"?

 

put another way if web spoke to you "face to face" said txlaw you should put ALL your money into WFC, i would and am (assuming he could) you would say "no i don't feel comfortable about WFC so WEB sorry"? I agree with the circle of competence thing. I guess I don't see it as a "law" written in stone without ANY exceptions.

 

EDIT: with regards to can't take WEB's saying literally, i can see that, i agree to some extent. i guess I feel WEB if he was a lot poor with only a few million or even 100's of million he would prob put a very large amount into WFC if not all, i mean he has done this in the past (amex as an example) also even now WFC is a very large position. I mean you can look at what charlie has done. obviously we will never know.

 

EDIT: sorry for going off topic some what, i guess my point is are there exception to "circle of competence" (with regards to gio) i guess for some the answer is "no". this is not just in regards to some industry you are not familiar with. The idea of "Black box" fall into circle of competence too, in my opinion.

 

hy

 

 

I mean the logical course of action back in 2008 or was it 2009 was to PUT ALL OUR MONEY into WFC, and possibly leverage it. One of the greatest investors of all time said he would put all his money into WFC at the time. Why didn't we all do it! Why didn't you or anyone do it?

 

The premise of your question is incorrect.

 

You only have to look the concept of circle of competence to understand why most people ought not to have put all of their money into WFC.  WEB, remember, has unique insight into WFC and the financial sector, generally.

 

Additionally, you don't really want to put all your eggs into one finance company during a financial crisis.  That would be terrible risk management.  WEB's just using a bit of hyperbole to indicate how cheap WFC really was at that time, and how great a company it was (and continues to be).  We shouldn't be taking everything he says literally, especially because there are contradictions galore when you look at all his statements on investing/business.

[giofranchi]

Any insurance company is a black box. 

 

Yet you've invested in FFH and LRE, no?

 

Well, I don’t really understand what many of you mean with “black box”…

 

I repeat: I have what I think are very strict criteria for investing in a business. Whenever those criteria are met (and that’s what I mean by “deep knowledge”… or let me correct myself: deep ENOUGH knowledge), I invest. Whenever those criteria aren’t met, I don't invest. Period.

And nobody, not even a suggestion from Buffett, usually can change my mind.

 

Gio

 

[CorpRaider]

The question find the most interesting is: Why is BAC still at 16?

 

Is it the fear of additional litigation?

 

An inverted yield curve over the coming year or two seems plausible, of course that's not a BAC specific risk.

[ERICOPOLY]

txlaw,

 

i understand what you are saying and  about circle of competence. I guess what i am trying to get at (not very eloquently, or maybe i am smoking crack) is:

 

if you had a logical being, completely logical, taking into the fact at hand, knowingly that he/she is not an expert in WFC or know what is going to happen WFC, also knowingly the fact WEB (his track record, knowledge in finance etc.) said to put all your money into WFC. so i guess from a logic whats the more logical choice, not in your circle of competence trumps WEB said so (a rare event)?

 

put another way if the above was a programming code if and else statement i guess the "not in your circle of competence" trumps "WEB said so considering how rare and how emphatic he was"?

 

put another way if web spoke to you "face to face" said txlaw you should put ALL your money into WFC, i would and am (assuming he could) you would say "no i don't feel comfortable about WFC so WEB sorry"? I agree with the circle of competence thing. I guess I don't see it as a "law" written in stone without ANY exceptions.

 

EDIT: with regards to can't take WEB's saying literally, i can see that, i agree to some extent. i guess I feel WEB if he was a lot poor with only a few million or even 100's of million he would prob put a very large amount into WFC if not all, i mean he has done this in the past (amex as an example) also even now WFC is a very large position. I mean you can look at what charlie has done. obviously we will never know.

 

EDIT: sorry for going off topic some what, i guess my point is are there exception to "circle of competence" (with regards to gio) i guess for some the answer is "no". this is not just in regards to some industry you are not familiar with. The idea of "Black box" fall into circle of competence too, in my opinion.

 

hy

 

 

I mean the logical course of action back in 2008 or was it 2009 was to PUT ALL OUR MONEY into WFC, and possibly leverage it. One of the greatest investors of all time said he would put all his money into WFC at the time. Why didn't we all do it! Why didn't you or anyone do it?

 

The premise of your question is incorrect.

 

You only have to look the concept of circle of competence to understand why most people ought not to have put all of their money into WFC.  WEB, remember, has unique insight into WFC and the financial sector, generally.

 

Additionally, you don't really want to put all your eggs into one finance company during a financial crisis.  That would be terrible risk management.  WEB's just using a bit of hyperbole to indicate how cheap WFC really was at that time, and how great a company it was (and continues to be).  We shouldn't be taking everything he says literally, especially because there are contradictions galore when you look at all his statements on investing/business.

 

It's in my circle of competence to put all of my money into WEB's hands to invest on my behalf as he chooses.

 

Now if he instead says "how about I wave the fee and just tell you what to buy?".  Nope, then it's outside my circle of competence.

[ni-co]

I repeat: I have what I think are very strict criteria for investing in a business. Whenever those criteria are met (and that’s what I mean by “deep knowledge”… or let me correct myself: deep ENOUGH knowledge), I invest. Whenever those criteria aren’t met, I don't invest. Period.

And nobody, not even a suggestion from Buffett, usually can change my mind.

 

Gio

 

Is this true regardless of the odds or the size of the payoff? You have the same criteria for investments that have let's say 1.5x potential as for those with 10x potential?

 

Buffett always mentions the "circle of competence" in this context. But I think that it's not a good image. It implies you're either inside or outside your circle, whereas I believe that this is more of a gradual thing. This is a matter of personal preference, I guess, but I like to look at it more probabilistically: What do I expect to lose if I'm wrong vs. what do I expect to gain if I'm right? What are the odds? I'm aware of the fact that the quality of my guesses depends on my knowledge of the subject. Yet, thinking of it this way enables you to scale your position in dependence on knowledge and your best guess of the odds.

[morningstar]

The question find the most interesting is: Why is BAC still at 16?

 

Is it the fear of additional litigation?

 

On a P/E basis it's pretty much on top of the peer group ... about 11x 2015 consensus compared to roughly 12x for WFC, 10x for JPM, and 9.6x for Citi. So the question seems better phrased as why do the big banks trade so cheaply on a P/E basis compared to the S&P. But I think there are plenty of changes post-crisis that explain why multiples for the large banks have contracted compared to the overall equity markets.