ERICOPOLY

Not sure why, but you subtracting principle payments from "profit". This is similar to a corporation taking a charge to earnings for paying down debt.

I would question why you even type the name of your main search engine. You can set it as your browser's 'home', so that pressing the home button brings you there. You can put a bookmark in the bookmark bar that is always visible.. Most modern browsers have a search field or a URL address bar that can be used as a search engine field (you set it in the preferences), or they auto-complete URL (so that you just type G and maybe O and it'll suggest "www.google.com"). Personally, I have my Chrome set up so that I can search from any search engine from the address bar with one prefix letter; so "g something" is google search for "something", "a something" is on Amazon.com, "i something" is on IMDB.com, "b something" is bing, etc. You should question many of the things I do. Really though, I just go to the address bar. Historically I've been an IE user (except when using a Mac). You just press "Tab" after a page loads and then you're in the address bar. And the Yahoo! and Google toolbars destabiized the browser process -- not sure if they've fixed those issues, but it was enough to keep them off my system. It's been at least 4 or 5 years now since I last tried those search toolbars in IE.

Regarding this discussion on Bing vs Google. I was an Altavista user originally. It was a painfully long name to type. Then I moved over to Google. It gets the job done. Because of this thread, I've been giving Bing a shot today. Honestly, I like it. It actually feels faster than Google -- especially the map feature. Maybe it's bias. I can't say. I do prefer typing "Bing" vs "Google". The latter takes 75% more keystrokes. But if Google's website goes down, I can move to Bing without missing a beat IMO.

That point about competitive pressures on rents is true today, it was true last year, it was true 10 years ago... etc... What matters is this... why will the competition increase? Why hasn't this already happened? If competition hasn't yet hit a zenith during a long period of housing oversupply, when will it ever? Home-building at record lows nationwide, especially in the most oversupplied areas. This is favorable for the future direction of rents. The buyers aren't irrational in areas where cap rates are 10+%. So as long as you are right on your cap rate being 10%, then you have eliminated this concern.

Are you using the Russel 2000 index again? It seems to be the small caps are where the highest prices are, and the most vulnerable.

Suppose you get one of those HomePath deals where you put 10% down, and you buy a home with a cap rate of 10%. I'm not sure what interest rate you get with that, but I'm guessing about 6%. I think that's a 46% yield on your invested equity. 46%! So if this were a stock, you might say it trades at roughly 2x pre-tax free cash flow. And this doesn't even consider the other part of the equation: A 10% property price increase doubles your equity, plus you get the yield on top of that. You should be begging for high nominal price inflation, as that's where you get your biggest bang! Besides, rent inflation drives up your interest coverage ratio... you will be routing for Bernanke. Now here is an asset class any dummy can understand, yet people are passing it up.

I'm just going to drop the subject. Let it be known though, that I think people who say it earns 0% are wrong.

So it's 100% of the time -- unless you have found houses on the rental market where the rent is free? Well it's both at the same time really. You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house. Especially difficult in a market when rent is rising -- buying the house is the investment that perfectly cancels out the rental expense, no matter how fast the rent is rising. In either scenario, the house remains "a place to live"... but so what? Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent. Which is why it's the better investment for most people to own the house before investing elsewhere.

This makes the assumption that the criminals are unsuccessful in their endeavours. It appears that they were attempting to kill FFH , put it out of business . It smacks slightly of hubris not to understand that the good guys do not always win. Come June of 2006 that game was already won by the good guys. Runoff was breaking even as posted months beforehand in the annual report, big gains were being booked on Indian equities, the only catalyst left for the hedgies was a major hurricane season. But the people who do this professionally were still writing business in Florida, albeit at higher rates (insurance companies). The expectation as we discussed at the time was to NOT have a repeat of 2005, which of course is exactly what happened. The hedgies overstepped when they became dependent on natural disaster as their sole recourse -- I remember we were discussing the company otherwise trading at a P/E of 3 for the year due to the big gains coming in. I think they got too emotionally caught up in their lie -- too hard to give up and admit that the good guys has already won. I remember one of those hedge funds was still trying to short the company even when they had all the CDS hedges during the financial crisis -- was killed in the short ban. I agree. The key to our using options to double down on FFH and then double down again before the hurricane season was over was the fractal way hurricanes in the gulf develop. The key to understanding fractal phenomenae in time series is the high correlation with the recent trend. It's the same pattern we see with earthquakes. The hurricane trend in prior years leading up to 2006 had been ominous, but the most recent trend was zip halfway through the 2006 hurricane season. Therefore, knowing that the strongest predictor was the most recent results, we doubled and redoubled our holding of FFH before the hurricane season was over. :) Another funny tidbit is that despite Katrina/Rita/Wilma, they actually made money in 2005 were it not for the runoff 1) In 2005 runoff lost $536 excluding KRW losses 2) In 2005 Fairfax as a whole (including runoff) lost $498 million So if you'd had break-even runoff in 2005, they would have actually made a net profit, despite KRW!!! So the shorts only had one thesis: 1) Continued runoff losses Yet runoff was beginning to break even in 2006. So the shorts were toast. And they were paying more than 20% per annum to borrow the shares to continue their short. Something had to give.

The real return on businesses is zero if you disallow their earnings. Similarly, real estate offers no returns when you disallow the cap rate. But neither scenario is realistic. For some reason though, perhaps it's the real estate crash, it is becoming popular to pass around articles suggesting that real estate offers zero returns.

Do you think there is an inverse way to do with options so you can take money out of tax-deferred account and not be taxed on it? (could be useful when close to retirement when you have to start taking money off the tax-deferred account) You could probably buy long term at-the-money calls in your taxable account and write them covered (same strike, same price) in your IRA. This way you don't ever lose money on the whole (in terms of net worth), but you "withdraw" gains at the long term capital gains tax rate instead of paying the regular income tax rate that IRA gains are taxed on. Could be useful today, with 15% LT gains rate vs potentially 35% income tax rate on IRA withdrawal. Not sure if that's even legal by the way, but I don't see why not. I don't have a regular IRA anymore though -- 100% RothIRA at this point.

I'm not a Johnson&Johnson heir. Given the station in life I was born into, I think my fair federal tax burden is right where it would be if I were still employed at Microsoft. I took a huge risk and I feel strongly that the reward is mine. Nobody would have shared in my losses. ericopoly, I can't figure out what you mean here. The reward is yours, but so are the tax liabilities. How else should it be? Are you just making a statement that you would prefer a flat tax system? The system I want is one where I can make unlimited contributions to a tax-deferred account, and can withdraw money at any time without early-withdrawal penalties. This way, I pay income tax in line with the income I consume, just like most everyone else. So it's sort of similar to variable annuity, except it eliminates the early withdrawal penalty and is more cost efficient (variable annuities carry heavy fees) -- plus I can select the investments, rather than be stuck only with funds. I don't think Americans are first in line for taking my money -- I would rather help people elsewhere in the world first where the money goes farther and the problems are deeper. I would also like to make the money compound for a while before giving a large part away. So I follow in the tradition of Gates and Buffett somewhat in this thinking (the former wants to help people outside the US, the latter wanted to compound it tax-deferred before giving it). And neither believes the US Treasury should be the beneficiary of their gifts!

Yep, a 7% real return, after income tax. You would need to earn ~11% from a taxable account to get an equivalent return. The stock market does not return 7% real, but Siegel's work would suggest that it might return around 6.5% in real terms. With such a small difference in expected returns, the only meaningful advantages that housing offers is the ability to easily leverage returns and the income tax aspect. I bought my house at a cap rate of about 7.5%, and it's been a good deal so far! SJ It's funny though that the article claimed the real rate was 0%. Were that to be the case, every rental out there would have a cap rate of 0%. And that was from the Harvard Business Review?

Well, most people pay rent on the money they borrowed from the bank ;) Oh, so we're assuming they don't have cash? So what do they use to buy the stocks? The article compares stock market returns vs using that same cash to buy a house. I could buy a house in Sacramento for $150,000 in a decent area, or I could put $150,000 in S&P500. One of them has 10% real returns (Sacramento), the other has nowhere near that. And that 10% real is after-tax, because the "would be" rent paid is always in after tax dollars. Owner-occupied ownership of single family homes makes more sense than investor ownership of single family homes for this reason -- the owner/occupier gets 10% after-tax, the investor gets 10% cap rate before paying income tax. Which, is what StubbleJumper just said.

Like, for example, when the landlord/investor evicts you and sells the house.

My thinking is that if you purchase and live in a single family home that would otherwise rent at a cap rate of 7%, then you have a 7% real return. The stock market does not return 7% real.

Amongst those getting the math wrong are the authors of that article. Perhaps if they move out of their grandmother's basement they would realize that people who don't own houses need to pay rent.

I'm not a Johnson&Johnson heir. Given the station in life I was born into, I think my fair federal tax burden is right where it would be if I were still employed at Microsoft. I took a huge risk and I feel strongly that the reward is mine. Nobody would have shared in my losses. I may need to start employing games like purchasing deep in the money calls for leverage in my RothIRA and an offsetting amount of deep-in-the-money puts in my taxable account -- so that on the whole I'm not leveraged, and over time the gains flow disproportionately to the tax-free account. Could be done with safe things like BRK-B to ensure the gains don't flow to the taxable account.

It just looks better than it really is. They could very easily put my tax rate up to 40% in their soak the rich campaign because the voters don't want to pay their own way. Wow! 6% compounding. I'll pass. Just too much opportunity cost. So I would either use the income to cover the cost of call options, or would be happy to buy 10% bonds in a non-taxable account (where I would use the proceeds once again for call options). This way at least you can have equity upside with bond downside.

For me, it's 5% compounding after taxes if no bond price increase. I would rather go with the FFH stock -- 5% is low hurdle rate. However, it might be a safe way to play the market right now since volatility is cheap -- buy near the money calls, to be paid for with the earnings from the bonds. If market crashes in deflation, you likely make a gain on the bonds price. If no deflation, you could do well on the calls.

Like a lot of these global US large caps, they'd likely get hit with more tax if they paid out 100% of FCF. I hope the tax code gets cleaned up soon so that this sort of thing can be more likely. Right now MSFT is yielding over 5% counting the buybacks. Most of the rest is likely earned abroad.

IE9 asks you if you want to allow Bing to make recommendations. So when you start typing an URL in the address bar, it helps you type the rest. It always did this before, however it was based on your previous browing history, not a search database.

I've been a chatterbox lately because I've been stuck in the house recovering from foot surgery. I think though you can safely ignore me.

There was more support for home buyers last year via the free government giveaway to "first-time" homebuyers. Next twelve months will be interesting as it will be a more fair comparison (no-free-money vs no-free-money). One would tend to expect the slope of decline to ease. At least, that was the argument made last year (in reverse).

I don't understand who they think is going to win. Apple not priced like it's going to.