ERICOPOLY

It is an illusion. See my last post which crossed paths. There is no alchemy. Buffett talks of taxing the rich but avoids taxation. Just pay a dividend if you want to tax the rich. Of course, not all of his shareholders are rich and he has to be the fiduciary for everyone.

Yes, fewer dividends paid when there are fewer shares after a buyback. The same would happen if dividend were cut after paying a dividend. 1. Let's say a special dividend were paid out amounting to 10% of the stock price. 2. Further, let's say dividend were cut by the offsetting appropriate amount. 3. Shareholders can buy more shares with their dividends and can receive the same total aggregate amount of dividends in the future. They own more shares, and each share receives a smaller dividend. In sum, it's the same. Buybacks are more elegant, but there is no alchemy other than tax avoidance.

Ummmmm........ How many years does it take at $10 annual dividend to add up to price paid for the shares in the first place? Like.... ummm.... we'll most likely all be dead by then!

It's the same. I ran the math. There's no difference. You either have fewer shares outstanding so each share is worth more, or you have shareholders buying more shares for themselves with the cash. Aside from tax avoidance, there's no alchemy. I don't have a masters or phd or anything, and my math bachelors was diluted by the computer science courses (Math/Applied Science). So I'm not an authority on math, so check my work for yourself. But I'm saying they're the same. It drives me crazy to hear about all the wonders of buybacks. It's same as dividends (at least in a tax-free account). And buybacks at high prices don't really matter either because shareholders can sell if they object. Really, you have to wonder why they still own the shares if the price is that high????

I have no reason to be upset with Prem. I think it's all the name dropping that bothers me. The talk of going to Berkhire meetings and absorbing knowledge, the talk of Singleton and Templeton. I just hate that shit. It's like some form of sales. Just speak for Prem.

Yes, I made that comment. Glad someone appreciated it. His letter from maybe 7-10 years ago or so talk about how he's been going to Berkshire meetings for 3 decades and how he's learned all kinds of things but then he busts out some "new knowledge" recently last year about new lessons learned about perils of shorting. Jesus Christ! It's like Buffett can't teach him a thing.

Buybacks only save us the taxes on the would-be dividends. That's all that happens. The magic is only in avoidance of taxes. None other exists. Period. Berkshire or Fairfax could just dividend out the cash and the shareholders could purchase shares and the value is no different (except the taxes). So if I hear Buffett talk again about the "fair share of taxes" I'll just puke.

In the deal to sell almost 10% of Odyssey, is there an agreement not to buy them back cheap again?

You are also a real estate investor and Fairfax will benefit from higher rates. The low interest rates hold them back. That's if higher rates happen. But it's nice to have things that will benefit if you have a heavy RE allocation.

Bought more ATCO today.

I don't know how these contracts are put together. Is there an accumulation period where as the bank buys shares the downside is accepted by FFH and all rolled into one averaged price by the time the accumulation period ends with a pre-negotiated total dollar amount of shares?

That's a lot of shares to turn around and buy without moving the price. I dunno.

Imagine if the buyback price were $1,000. Then they close out the TRS and completely screw the counter-party. Makes me think they won't close out the TRS.

It is self-dealing isn't it?

I'm surprised that one is allowed to do the following: enter a TRS and then cash out shareholders with a buyback at a price significantly above market and closing out the TRS to recoup the premium paid for the shares. It just seems like a way for the company and shareholders to screw over the counter-party to the TRS.

Although, see the comment on 'cashless' exercise: https://casetext.com/analysis/when-does-my-capital-gains-holding-period-start-for-warrant-shares If you exercise your warrant in a cashless exercise, there is uncertainty as to the right answer. Some taxpayers argue that the cashless exercise of a warrant is a recapitalization event itself entitling the taxpayer to tack their holding period back to the date of the acquisition of the warrant. See the attached letter, in which the New York State Bar Association states: “If a cashless exercise constitutes a recapitalization, the warrant holder’s holding period for the stock received upon exercise would generally include the holding period for the warrants.”

October 2022.

They have never ruled on it. So I don't push my luck -- 20% or more for me.

In my Roth IRA the best I've done is paying a 90 cent premium for the 2024 $10 strike call. That works out to roughly 8.5% annualized cost after accounting for the annual 50 cent dividend. So the May 30 cent put is competitive with that, but will be far cheaper if the shares rise considerably before May.

Yes, I'm adding an extra $2.50 of risk in return for a cheaper put. Yes, the risk profile is basically the same as buying a $10 strike call.

So back to the house analogy where the mortgage is 2.8% annualized... The put will virtually cost me nothing once ATCO is trading in excess of $20 per share. Far out of the money puts are practically given away. So the non-recourse loan will only be expensive while the share trades close to the $10 strike. In later years, this leverage is all gravy (unless interest rates rise a lot).

I bought the May put because it is only 30 cents. It expires on May 20, 2022 and suppose the stock trades at $18 on expiration day. Will it still cost 30 cents for another 5 months of put protection? Hell no! It might be only 5 cents or 10 cents. Why? Skewness. The further away from the strike price you go, the cheaper the put will be. But if the stock is at $10 next May, well, I'll pay a lot more than 30 cents for the next 5 months. So that's the tradeoff. Instead of locking in the put at a certain price until January 2024, I am betting that the stock will rise and I'll be able to lock in the longer dated put for a much lower premium in the future.

So, for example, I paid 30 cents for my ATCO $10 strike puts. Annualized, that will cost 72 cents or 7.2% of the $10 that I am borrowing on margin. Now, if my margin interest rate is 1% then my annualized borrowing cost is about 8.2%. Keep in mind that is non-recourse leverage. Sure, I borrowed non-recourse at 2.8% against my home... but my home won't compound in value like ATCO will. So I think the logic speaks for itself.

Care needs to be taken to assure that investors maintain at least a 15% band, even if that requires an out-of-pocket expenditure. https://www.nysscpa.org/news/publications/the-trusted-professional/article/tools-techniques-to-shield-and-defer-taxes-on-unrealized-stock-gains FB right now trades at $348. So I figure if you buy a put far below this level... like under $270 strike... then that should be well clear of this "15% band" that is recommended in the article above. The IRS apparently doesn't want you to be able to use a put to lock in all of your gains without leaving some of your skin in the game, so they'll rule it a constructive sale if you hedge with at-the-money puts. So I believe you can use a put strike somewhere considerably higher than $180 without running afoul of what is recommended in that article.

Also, eventually I'm going to wind up on margin with the puts after exercising the calls. So why not just start out that way to begin with?