ERICOPOLY

Back in Aug 2009 I wrote deep-in-the-money FFH calls (to hedge that position while raising cash) and used the proceeds to purchase ORH deep-in-the-money calls on speculation of the buyout. I did it this way to avoid paying capital gains tax on my FFH position. Once the buyout happened, I sold the ORH calls and bought back the FFH calls I'd sold. I paid tax on the ORH sale, but did not also have to pay tax on my FFH position. The "constructive sale" rules changed the holding period of my FFH position for US tax reasons -- it reset the short-term capital gains clock on my FFH position to the date of the hedge activity and restricted me from selling or hedging FFH for the next month (the penalty being a taxable event if I did). Given that value investors often seek to trade into positions of better opportunity (and possibly trade back later on), this is a valuable trick to know about. Important though to read all of the rules on this -- you need to close out that hedge at the latest by the end of the first month of the new year. So really it's utility is limited to short-term purposes.

I like Moore but he needs to admit that Ericopoly was right about the price of gas in California as evidence of hyperinflation (his take) vs. a short-term supply issue (my take). I can't suffer the survivorship bias of gloating with only the predictions that are working out :D

I joined in 2005. It has been life changing. Thanks Sanjeev!

I guess that hurts the people who are cashed out (the fund sellers), but the rest of the fund shareholders don't get hurt by this provided they don't also sell. However, I can see why it was annoying for Bruce. Take BAC and C for example. He starts out with 5% in each and he sells out of C 100%. He keeps his BAC which is now at 10% position. BAC was discounted more than C at the bottom. So by ditching C and keeping BAC, the fund benefitted. Implicitly it was the same as if he'd sold C and bought more BAC with the proceeds. So on the surface it looks and feels like he was only selling at the bottom, but implicitly he was doubling down on what he didn't sell 8) So it's a bit of an optical illusion.

How so? The fund went into 100% allocation when the market was bottoming. Isn't that the same thing he planned on, although from a different path? Pros: Increased his allocation to his smaller ideas like MBI that otherwise (due to size) don't move the needle much. Allowed the fund to increase BAC stake well beyond the 5% limit. Cons: ??? Bruce's golf game was cancelled because managing the redemptions was a headache. EDIT: I figure it was an administrative headache for Bruce, but his fund shareholders should have been pleased they could boost their BAC stake near the bottom. Otherwise not allowed to do that.

I'm sorry, that is painful.

I went into a local medical clinic for an ultrasound scan yesterday to have something checked out. It cost about $217 (I paid cash upfront) but they said it would have cost $295 if it was billed to insurance. That's how efficient our private insurance system is I guess. So if you are going about arbitraging things, why can't this wide gap between cash price and insured price be brought down?

Just out of curiousity, if you live withing a social network of theists, how many of them condemn the killings in Tokyo, Dresden, London, Nagasaki, and Hiroshima as terrorism? Terrorism being defined as the targeting of civilians for political or military gain. In other words, is there even "objective morality" within the true believer networks? My question being, why is this a topic of "theism" vs atheism if the "theists" don't discuss it as such? Which national religious leader is going to condemn the US engagements of civilian populations in WWII and demand apologies from the US government? I'm willing to say none of them, but perhaps I'm exagerrating.

I agree with you. I simplistically stated it the way I did, but I should have qualified that whoever buys the index here is only going to get those implied returns if they sell at a similar market valuation. And that's really what you guys are talking about -- there won't be many similar opportunities to sell at such levels, so most people buying today will likely earn less than the implied return (they'll sell at a lower overall market valuation). There will be slippage that will erode returns. I just figure I'm in the opposite situation. I'm holding mostly BAC and wondering if there will be another opportunity in the coming decade to get in this cheap. I doubt it. However I've been gradually shifting some into the AIG warrants (now at 15% of net worth).

I'm not sure if some of (or most of) the dilution is real dilution -- buying other companies with your stock. Sure, diluted share count but the total entity owns more earning assets. Or are you saying executive compensation style dilution matches share repurchases? I meant comp dilution. Anyways, I suppose it's not worth discussing because it all comes out in the wash (whether dilution or not, it's measurment gets appropriately measured within the dividend per share growth rate). So to keep it simple, it's just dividend yield and the rate at which it grows. Really everything else is noise.

Residential real estate never fell in value in the 1970s or 1980s. Not even one year. That didn't happen until the 2006 onwards period -- when interest rates were crushed.

I'm not sure if some of (or most of) the dilution is real dilution -- buying other companies with your stock. Sure, diluted share count but the total entity owns more earning assets. Or are you saying executive compensation style dilution matches share repurchases?

$8k monthly. It goes up to $8.4k at the end of April -- I have a lease extension until July 2014.

So purchasing the market here one could expect to earn 7.5% to 8.5%. 2.5% as income from the dividend and another 5% to 6% as capital gain from the growth in the dividend.

I don't follow the computation because I see something missing. Take WFC for example... only a portion of the cash returned to shareholders comes via the dividends, but you are only capturing the dividends. I'm not sure if my objection matters though -- taken as a whole, how much higher would the dividend yield be if buybacks were totally outlawed and banned? And don't forget the stash that companies keep piling up overseas. They seem unwilling to pay it out as a dividend because they don't want to pay the US tax on that income. Again though, I'm not sure how much that moves the needle on dividend yield if you add that in.

A P/E of 25 will get you 4% real returns if inflation rate is 0%. (well I suppose that's oversimplified given that I'm not including earnings gains from GDP growth and productivity gains). Back in the real world, there is inflation so P/E should be lower than 25. How much lower should depend on the rate of inflation. Because over the long haul (so I've been told) the market has returned 4% real.

We're not going to Australia -- we wound up in Montecito instead. The issue is that I discovered that Australia recognizes our IRA accounts as some kind of Foreign Investment Fund. So I have a 7 figure Roth IRA (start of last year) that gained slightly more than 300% in 2012. They would have taxed it at the 45% income rate -- they don't care what happens within the account, they just tax the annual gain of the account as if it were all realized income.. So it would have cost me more than a million in tax but here in the US my tax on it is zippo, zilch, nada. My wife's RothIRA is also up to 7 figures now. It's just way too expensive for us to consider moving. They do recognize "employer sponsored" plans -- so if I'd never rolled my 401k into the IRA I wouldn't be stuck in that mess. And a US citizen could move there for five years and have no issues with their taxes. The difference is that because I'm already an Australian citizen they're just salivating at the first chance to label me as a taxable resident.

Probably matters to investors what the "real" earnings yield is. 1982 inflation (actual and expected) was very different from 2009 inflation & expectations. Investors should naturally ask for a higher earnings yield in order to earn a return in excess of the rate of inflation. No? How about comparing the real earnings yield of the market in 2009 vs 1982?

Home ownership in the US feels more like a long term lease. It's not really your property if you have it taken away when you refuse to pay the annual "lease". I'm heavily anchored to my (very nearly) migration to Sydney where you don't pay any property tax whatsoever -- no matter how expensive your home is. They have a land tax on assessments in excess of 400k, but that's only for your second home or investment properties. Primary home has an exemption. They do have something called "rates" but it doesn't scale with the value of your home -- it's a regressive tax that helps pay for your fair share of basic services. That's pretty significant. Property taxes are something that you pay even when you stop working. It takes away much of your security. At least in California the real property tax payment has gone down over the years -- because they cap the rate of growth for your assessed value at something like 2% annually. My father for example purchased his Los Altos Hills home for roughly $50k in 1970 and today he pays less than a few hundred a month in property tax. The home is worth about $2m. You almost want inflation in California -- bring it on. Drives down the real cost of your tax bill. Of course, you don't get the home mortgage interest deduction on a primary residence in Australia. That's only useful if you have a mortgage. Also, it's only on the first 1m of loan. So if you have a home the size of what is being discussed here in this thread (5-10 million), it's not really all that material.

Home ownership in the US feels more like a long term lease. It's not really your property if you have it taken away when you refuse to pay the annual "lease". I'm heavily anchored to my (very nearly) migration to Sydney where you don't pay any property tax whatsoever -- no matter how expensive your home is. They have a land tax on assessments in excess of 400k, but that's only for your second home or investment properties. Primary home has an exemption. They do have something called "rates" but it doesn't scale with the value of your home -- it's a regressive tax that helps pay for your fair share of basic services. That's pretty significant. Property taxes are something that you pay even when you stop working. It takes away much of your security. At least in California the real property tax payment has gone down over the years -- because they cap the rate of growth for your assessed value at something like 2% annually. My father for example purchased his Los Altos Hills home for roughly $50k in 1970 and today he pays less than a few hundred a month in property tax. The home is worth about $2m. You almost want inflation in California -- bring it on. Drives down the real cost of your tax bill.

By all means live comfortably but don't make the mistake I made in buying a big trophy home, they are way overrated! Yes, there was some satisfaction in announcing to the community that "I have arrived!" and having guests ohh and ahh at the the size of the kitchen and property, but that wears off fast. What you are left with is more space that you need and lots of money gone every year to maintain the place. 10% of the cost of the home is a good rule of thumb. Taxes and utilities are high enough, but the repairs were the worst! Whenever any plumber, electrician, HVAC, landscaper or painter gave an estimate, I could can see the joy in their eyes as they pull out their "special rate" sheet just for me. :o Big home are like boats. The happiest day of your life is when you buy it, the second happiest day is the day you sell! I don't follow at all. First off I have never in my life heard of carrying expenses for a luxury property being anywhere near 10% a year. On a 5-10 million dollar property you are looking at $100-150k all in at the worst case reflecting 1-2% which you will easily make back with appreciation over time and which would have to be spend anyways as you have to live somewhere. Moreover I don't think people should be buying multi million dollar homes that are still worrying about utility bills or repairs... When reaching a certain point in life where there is significant liquidity I find luxury real estate to provide a good balance of inflation protection as well as have a grounding effect believe it or not. It reminds you every day in my case of what only a small portion of my net worth looks like in tangible form. This is important as often when moving around the kind of numbers we deal with we tend to forget that. The only argument against owning a large luxury property for someone with significant multi million liquidity would be in a rising interest rate environment and if they are under 40 and still focused on building their wealth. Recently I have had some debates abotu this with my friends and we have all agreed that the day of a fellow with $50 million net worth living in a $500k house are over. It simply doesn't exist anymore. The number I've been given by a local realtor is 5% a year -- and by that number he was including the opportunity costs of having the money in relatively low risk investments. But anyways, I agree that the space is unnecessary. I rent a 1 acre property, and I like that size. More interior living space probably wouldn't make much difference. We're sort of quiet though and don't entertain large numbers of guests. 2,300 sqft is on the small size -- I could go up to 4,000 but beyond that I think we wouldn't really use it.

That sounds about right. Besides, when it's 65 degrees outside average in December/January, why would you want to sit indoors? That's the difference -- in Seattle when it was raining and 40 degrees, I didn't want to spend my day sitting outside with a book. Same size house here as compared to there, but I got serious cabin fever there.

Having spent 15 years in the Seattle area, I'm if somebody gave me a waterfront mansion in Seattle for free, I still wouldn't want to live there again -- well, I'd use it as a summer home only (nice in August/September). I don't find Seattle or Vancouver dreary. I like the four seasons...and you get that here, and I would suppose in London as well. The rain keeps the streets spotless, the grass and trees green, and plenty of snow on the local ski hills during winter. You haughty, toty California guys don't know what you are missing...even though you lived here for 15 years! ;D Cheers! I joke that Seattle doesn't have four seasons either. They have: Spring Fall and Winter Hey c'mon...July and August are pretty close to what most people would call summer...but that's about it. Cheers! But July is preceeded by a month affectionately termed "June-uary". The end of that month is what I officially celebrated as the last day of winter.

Having spent 15 years in the Seattle area, I'm if somebody gave me a waterfront mansion in Seattle for free, I still wouldn't want to live there again -- well, I'd use it as a summer home only (nice in August/September). I don't find Seattle or Vancouver dreary. I like the four seasons...and you get that here, and I would suppose in London as well. The rain keeps the streets spotless, the grass and trees green, and plenty of snow on the local ski hills during winter. You haughty, toty California guys don't know what you are missing...even though you lived here for 15 years! ;D Cheers! I joke that Seattle doesn't have four seasons either. They have: Spring Fall and Winter

Last year the Euro was going to collapse and there was to be a daisy chain domino effect on global banking. So now if the "Euro is here to stay" it might mean that BAC and AIG will be spared this year. http://www.bloomberg.com/news/2013-01-24/soros-says-euro-is-here-to-stay-with-two-tense-years-ahead-2-.html Very likely - thus why I would love to buy more at 30 and 9 again, versus 25 and 7. I get from $7 to $9 over twelve months just from the passage of time. A year of earnings power burning through the fog of legal settlements and LAS expenses. And one year closer to getting to the end of the tunnel (the end with light at it). This time last year people were still sweating over the Fannie Mae putbacks. Then the collapse of the Euro being taken off the table has got to be worth something.