ERICOPOLY

He mentions Warren Buffett not caring if he buys IBM at the highest price possible because he's got $10b in his back pocket.

If it's only 1/3 of the money going to new hiring, the 2 million new jobs at $50k each adds a lot to new household formation. New household formation drives recovery in home construction, and that drives new jobs and new household formation even further. Anyhow, like I said I've concentrated my portfolio upside in BofA. So my narrative fits my strategy. What a coincidence :o

Well damn I'm up 20+% now in 2012. How arbitrary. Could be higher next week, or gone next week.

Dividend rate may be retarded somewhat by the piles of cash being retained overseas by US multinationals (the S&P500 is after all a large cap weighted index). I would expect some improvement (how much I'm not sure) if there were no US tax levied on repatriated profits. This slope might be associated with the increasingly globalized nature of the profits (or might not): http://www.early-retirement-planning-insights.com/SP500-dividend-payout-chart.html Has there been any historical rise in acquisitions using retained earnings? Like for example the rise of conglomerates in the index.

LOL. You are always so optimistic. Let us ballpark this. I think publicly traded stocks total profits are something like $1200 billion very roughly. This is at a profit margin of about 10%. Say profit margins drop by 2.5% that is about $300 billion or before tax about $400 billion. This amount would go to either consumers via lower prices or to employees via higher compensation or higher costs of raw materials. Let us assume all this goes to either higher compensation or to raw materials for simplicity. I would think of this about 25% would easily go to foreign exporters/subsidiaries as either compensation or raw materials. So at most we have $300 billion in additional money in the hands of consumers. Does this give enough of a boost to bank's profits, given that non-financial businesses that are major customers of banks have lost about $400 billion in pretax earning power? Vinod Hire 6 million people and pay them $50k each. That's $300 billion. Nice dent in the unemployment rate. What drives bank consumer losses BTW?

My portfolio is concentrated in financials which trade well below the mean, however I remain very interested in the market valuation level as a whole. Partly because it impacts financials. What is going to cause this mean reversion in profit margins? Will it be an investment and hiring boom from upstart competitors that will blow bank earnings and growth through the roof? Is S&P500 mean profit margin reversion something for me to fear as a bank investor or is it instead an opportunity?

Second question: If retained earnings are used to acquire cash cow bolt on acquisitions (like when JNJ buys a medical device maker)... What is your method? Do you disregard the new earnings from the retained-earnings-induced-acquisition -- that is, do you just pretend it didn't happen and use the prior decade-ago earnings when you value JNJ?

Historical dividend payout ratio (not going back as far as I would like): http://www.early-retirement-planning-insights.com/SP500-dividend-payout-chart.html Do you guys reckon any per-share return is earned on the retained earnings? Berkshire Hathaway grows it's earnings per share at an above average rate in part because it retains it's earnings (the rest is pure magic of course).

The data is inflation adjusted per share earnings. Does anyone have data that strips out the effect of share issuance/repurchase? Surely it matters to you too.

Costco both delivered and installed our exercise bike and elliptical machine. Ordered online. We had a problem with the elliptical machine going "clunk, clunk, clunk" after a while -- so Costco arranged to have a person come to our house to repair it. Didn't cost us a penny.

Everyone thinks their family is more dis-functional than others, but what can you make of this data? You've got a couple of years of recession in 2002 and 2003, then a mega recession in 2009. I mean, those three years combined don't even measure up to 2011 which is a year in which many people feel like we're still in a depression! Are we in a normal dataset or is there something a little messed up here? Oh, and our dollar depreciated like crazy during this time frame thereby boosting the earnings of our huge exporting multinationals. Our financial sector is also still taking crazy losses that are suppressing their earnings. The data: 2011-09 86.73 2011-01 80.82 2010-01 56.68 2009-01 13.08 2008-01 68.86 2007-01 91.71 2006-01 80.82 2005-01 70.16 2004-01 60.87 2003-01 35.48 2002-01 31.54 source: http://www.multpl.com/s-p-500-earnings/table

So just don't own that speculative stock Berkshire Hathaway and you'll be fine: (h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.

I think it will happen again (market at 5x P/E). However because I don't know when it will happen I therefore can't make any use of my forecast. I also think that I'm going to die. But that doesn't help me either because I don't know when. So I can't even get dressed in the morning because I think maybe today is the day that I get killed by a drunk driver.

This is an outstanding paper: http://www.prosper.org.au/wp-content/uploads/2011/07/PhilipSoosBubblingOver1.pdf Myth, What (if anything) do you make of the 7% vacancy rate in Melbourne? See page 21. Nice quote on page 24: The question remains - if there is a housing shortage, why are rents not increasing? There can be two possibilities: either the rental market is fundamentally broken and there is no link between demand, supply and price, or there really isn‟t a housing shortage.

True but in the next two years the recession earnings numbers from 2002 and 2003 expire.

An apartment unit has the same number of appliances as a single family home. 1 dishwasher 1 oven/range 1 refrigerator 1 washer/dryer etc.. etc... Some people have been negatively commenting on how the recent increase in construction has been skewed towards multifamily housing, however there must be some businesses (appliances for example) that will see the same recovery in unit demand as they would from a single family home sale. Perhaps the Sears appliance business.

You stopped short of calling them glass lookers. Maybe they have a stone in a hat that they peer into?

Gotta love forbes... :) This explains very succinctly the difference that makes SHLD different from early years BRK. One guy redeployed the cash from a textile mill in order to buy valuable streams of income, and the other guy just returns the cash to shareholders. The two strategies are very different. Berkshire practically never returns cash, just uses it to diversify the river of profits that's grown to be an Amazon. Eddie always returns the cash.

"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304 Whitman got the monolines completely wrong as exemplified by the ACA Holdings investment. Keep in mind that, unlike Berkowitz, Whitman's thesis actually relied upon Brown and Dunton being strong financial underwriters. Whitman's responses to Ackman never strayed from ad hominem, and he seemed to treat the idea of ratings downgrades as "poor form". I don't remember him speaking up when Brown tried to keep the proceeds of a 2008 equity raise at the holding company, an action that caused the hapless Eric Dinallo to complain, "I thought that we had an understanding." A lot of big ego talking here too: "The analysts -- Ackman and all the others -- have no background in distressed securities," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304

"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304

There's nothing quite like recovering lost ground and feeling like it's a gain.

I was up 8% in the first week of 2011, but I ended up having a terrible year. This year I'm also up 8% again. Hopefully it's not a repeat.

Not as savvy as me, that's pretty funny Al. I may evolve to a 2 trick pony once BAC recovers. Retirement gets a lot easier if you have enough where you're only living on 4-5% even when your portfolio is down by 50%. Buffett can most easily ride out volatility because he'd need to be down 99.99+% before he had to worry about the things the rest of us worry about. Stated differently, you become a better tempered investor as you get richer because the losses are less significant (it's non-essential money that you lose to volatility). Living in Australia will make my life easier because the US markets will be closed when I wake up in the morning, and won't open until after I go to sleep.

Hah! I'm just waiting for some poster who shall remain unnamed to jump all over you for that one!

Actually, in Canada we can use the capital losses against past years capital gains at the same rate of taxation. I don't know if that is the same in the US for individuals. We can't, unfortunately. You can make a big fortune one year, pay a lot of tax, lose it the next and you are left with nothing -> the government keeps your tax even though you have no gain. You can carry the tax loss forward to future years but you may never use it up if you've lost a fortune and are broke. -25%.