Poll: conservative BAC price at warrant expiry

[racemize]

Since we are debating various mechanisms on BAC leverage, I thought it might be worth polling for member's conservative estimate at warrant expiry (oct 2018-Jan 2019 range).  I'll do another one for actual guesses.

[blainehodder]

This board seems hypnotized by Eric's returns.  Is BAC statistically cheap?  Yes,  absolutely.  Does it look like a favorable bet?  Probably.... it is cheap on a historical basis.

 

Is it a virtual guarantee that is will double or triple in 3 years?  Of course not.  I think there are way too many people on this board who have no understanding of BAC's balance sheet or earnings power, and just automatically assume BAC must trade at book value or more in 2018, and that BAC has a god given right to compound book value.  People are levering to the max with some wild assumption that BAC has to go up by a magnificent amount.

 

This isn't conservatism.  It is daydreaming about beach houses.

[compoundinglife]

This board seems hypnotized by Eric's returns.  Is BAC statistically cheap?  Yes,  absolutely.  Does it look like a favorable bet?  Probably.... it is cheap on a historical basis.

 

Is it a virtual guarantee that is will double or triple in 3 years?  Of course not.  I think there are way too many people on this board who have no understanding of BAC's balance sheet or earnings power, and just automatically assume BAC must trade at book value or more in 2018, and that BAC has a god given right to compound book value.  People are levering to the max with some wild assumption that BAC has to go up by a magnificent amount.

 

This isn't conservatism.  It is daydreaming about beach houses.

 

I would agree that there is a big uptick in discussions of options and leverage in general. Which I do find worrisome, mostly because I would hate to see people make mistakes and get burned which is bound to happen when dealing with leverage. Very very few people can employ it liberally and maintain a good batting average.

 

What exactly does "people are levering to the max" mean? I would be surprised if the majority of people on this board were highly leveraged.

 

Have you read the entire BAC warrant thread and analysis in it? How did you come to the conclusion that people are ignorant to the current state of BAC, its balance sheet or earnings power?

 

The tarp warrants (all not just bac a/b) are very unique in many regards as they are the first warrants I have seen that go out of their way to protect the warrant holder and of course they are not widely followed and as liquid as the common. So in that regard they are great territory for value investors because not as many people will go out of their way to understand them.

 

 

 

 

 

[blainehodder]

I agree that the warrants are unique, and that generally, illiquid, obscure securities are a great place to look for value.  I have read the BAC thread...and the BAC leverage thread.  I am just worried with the number of seemingly beginner investors assuming a guarantee.  Just take a look at some of the polling results above.  Is it conservative to assume BAC at 30 bucks or more by 2018?

 

As for my assumption that people are levered to the max...maybe I went a little too far there with the "to the max" comment.  However, some people appear to be employing leverage and options with little understanding of the potential downsides.  This was also the reason I was hoping to nudge people into reading the Hull book on the books thread (Solid intro book on options by the way for anyone looking for one).

 

Anyhow, I agree with your post compoundinglife.  I am just worried about what appears to be a little berkshireandfairfax mini bubble thing going on here.

[Parsad]

This board seems hypnotized by Eric's returns.  Is BAC statistically cheap?  Yes,  absolutely.  Does it look like a favorable bet?  Probably.... it is cheap on a historical basis.

 

Is it a virtual guarantee that is will double or triple in 3 years?  Of course not.  I think there are way too many people on this board who have no understanding of BAC's balance sheet or earnings power, and just automatically assume BAC must trade at book value or more in 2018, and that BAC has a god given right to compound book value.  People are levering to the max with some wild assumption that BAC has to go up by a magnificent amount.

 

This isn't conservatism.  It is daydreaming about beach houses.

 

No one, including Eric, is sanctioning investors use LEAPs, options or any other sort of leverage.  But Eric's numbers are extraordinary and there are naturally going to be questions about how he did it, how did he get comfortable with it, and the reasoning behind it.  I wouldn't expect any greater significance put to options or LEAPs because of Eric's results, as anyone levering up Berkshire in their portfolio like Allan Meecham did at Arlington Value. 

 

It's an investment strategy, based on underlying fundamentals, but can carry a significant amount of risk because of the leverage and time arbitrage involved.  I think that is what the interest is from the people asking questions...how did Eric, if you can do it, minimize that risk.  And that's all it is...people are inquisitive, otherwise you wouldn't be on here either.  ;D  Cheers!

[ERICOPOLY]

This board seems hypnotized by Eric's returns.  Is BAC statistically cheap?  Yes,  absolutely.  Does it look like a favorable bet?  Probably.... it is cheap on a historical basis.

 

Is it a virtual guarantee that is will double or triple in 3 years?  Of course not.  I think there are way too many people on this board who have no understanding of BAC's balance sheet or earnings power, and just automatically assume BAC must trade at book value or more in 2018, and that BAC has a god given right to compound book value.  People are levering to the max with some wild assumption that BAC has to go up by a magnificent amount.

 

This isn't conservatism.  It is daydreaming about beach houses.

 

No one, including Eric, is sanctioning investors use LEAPs, options or any other sort of leverage.  But Eric's numbers are extraordinary and there are naturally going to be questions about how he did it, how did he get comfortable with it, and the reasoning behind it.  I wouldn't expect any greater significance put to options or LEAPs because of Eric's results, as anyone levering up Berkshire in their portfolio like Allan Meecham did at Arlington Value. 

 

It's an investment strategy, based on underlying fundamentals, but can carry a significant amount of risk because of the leverage and time arbitrage involved.  I think that is what the interest is from the people asking questions...how did Eric, if you can do it, minimize that risk.  And that's all it is...people are inquisitive, otherwise you wouldn't be on here either.  ;D  Cheers!

 

Warren has been telling his shareholders about the 500,000+% over time that he's made for the company, but the key takeaway is just that this is fascinating he did it.  He's not trying to tell you all to go and start insurance companies and leverage yourselves writing insurance policies.  He's not advocating that you invest the premiums in equities, and he's not promising those returns if you purchase Berkshire.

 

He's merely just observing a historical fact.  Those are his returns.  Fairfax does the same thing.

[hyten1]

i personally find the discussion about options/leverage interesting, informative, and many time head scratching

 

i enjoy seeing how eric thinks, its not text book, but its using basic facts and reason it through, which is the best in my opinion (not saying text books are no good)

 

i am still learning, hopefully i'll continue to learn from peopls posts on this board

 

hy

[fareastwarriors]

This board seems hypnotized by Eric's returns.  Is BAC statistically cheap?  Yes,  absolutely.  Does it look like a favorable bet?  Probably.... it is cheap on a historical basis.

 

Is it a virtual guarantee that is will double or triple in 3 years?  Of course not.  I think there are way too many people on this board who have no understanding of BAC's balance sheet or earnings power, and just automatically assume BAC must trade at book value or more in 2018, and that BAC has a god given right to compound book value.  People are levering to the max with some wild assumption that BAC has to go up by a magnificent amount.

 

This isn't conservatism.  It is daydreaming about beach houses.

 

 

about 30% in BAC, all commons.

 

not every one is that brave/confident/(greedy?)

[fareastwarriors]

i personally find the discussion about options/leverage interesting, informative, and many time head scratching

 

i enjoy seeing how eric thinks, its not text book, but its using basic facts and reason it through, which is the best in my opinion (not saying text books are no good)

 

i am still learning, hopefully i'll continue to learn from peopls posts on this board

 

hy

 

I learned a great deal from reading about it as well but it is Not something I am comfortable doing still.

 

[rkbabang]

  I am just worried about what appears to be a little berkshireandfairfax mini bubble thing going on here.

 

Yes many on this board have done fairly well for themselves and a lot of influential people read it, but to say that this board has the resources and/or influence to single-handedly create a bubble in the stock of a $135B company is a little bit of a stretch I think.

[blainehodder]

Didn't mean a bubble in the security.  I was just trying to imply herd mentality.

[ericd1]

If I could pick a herd to run with with it would be this herd!

 

Thanks Pasard for creating the opportunity.

[Shane]

In all fairness Blainehodder has a point, some people probably do buy securities on this board without having the background / analysis to understand the company.  I hope nobody is investing an irresponsible amount.  Having said that, you have to dip your toes in the water at some point to learn.  I thought I understood the first few equities I purchased, later I learned I had no idea what I was talking about.  I needed that experience to progress.

[racemize]

I just remembered this poll existed.  It isn't expiry, but it is getting closer. 

 

Please don't add votes now though, as it will ruin the historic value of the poll.

[Pelagic]

I just remembered this poll existed.  It isn't expiry, but it is getting closer. 

 

Please don't add votes now though, as it will ruin the historic value of the poll.

 

Is there a way to see poll results without adding a vote?

 

Nevermind, found the "view results" button.