ERICOPOLY

Eric, Of course I have already said it many times, and you know very well my thought on the subject… But I repeat it once again: the reason to hold FFH today is not that the price of its stock will do fine in a market panic… Sincerely, I have no idea how it will behave… And I don’t see how anyone can predict such a thing… What I do know, instead, is that no other company I am aware of is so well positioned to take advantage of a market panic. This is the only reason I hold such a large investment in FFH today. Because it is a business led by opportunistic people, who are doing something I understand and like. Period. And because I think it is cheap. No idea what the stock price shall do. And don’t care. You might say: well, I don’t like what they are doing… That’s perfectly fine! It is a business judgment. It is different from mine, but I understand and respect other points of view. And also find them useful. I think that’s what Packer is saying: he thinks this bull market will go on for years, therefore he feels no need to be invested in a business positioned to take advantage of a market panic. Very well! I can accept eventually to be wrong. (And don’t forget my firm’s equity is up 22% this year, the FFH’s investment notwithstanding! ;)) What I cannot relate to is the following thought: in a market panic FFH will go down with everything else, therefore I will buy it later at more advantageous prices… This is something I really don’t understand, because business is not done that way. Gio The insurance operations hold them back -- I don't think they can go 100% into equities in a crisis... they have credit ratings and things like that which hold them back in a crisis -- I view those things as a hidden & very real cost of their float. A better preparation for a crisis, IMO, is to just hold cash now instead of holding FFH. Then fully deploy the cash when things are really cheap. That approach would have worked a lot better in the last crisis of 2008/2009. They have this really complicated approach of owning lots of insurance companies, the headaches that come along with that, and lots of hedges, but in the end they only double their equity in the crisis -- this is a result I'm sure those guys could individually outperform if they were not investing within an insurance company. So given those shackles it puts on their investing freedom, one would hope the insurance operations would be extremely good in order to make up for this -- lots of underwriting profit. Where is it?

Nygren had 16% in Washington Mutual. Kaput! Back up the truck when the market is .... Greedy? For the record, i was an apologizer -- but out of lack of confidence i hid out with FFH. And Nygren is a better investor than me, but still gets a little playful ribbing for being bold when braver men were hiding. Original Mungerville played it well by having 100% notional Russell 2000 puts, and then having a 100+% long ORH position. I think that is roughly right. Instead, I had no cash and mostly FFH. I quit my job in early January, 2008. So I had nothing better to do than watch the daily events unfold. FFH dropped from $285 range down to $218 or so around September 2008 -- somewhere near $230 and $220 I was selling common FFH purchasing $120 strike FFH calls. Then out of the blue on a Friday the short selling ban was announced, FFH pre-announced a gain of roughly $400 million on AIG CDS the following Monday, and my (bruised at this point) net worth doubled by end of day Tuesday. So that was completely random. Because of that short selling ban (and due to the leverage I added soon beforehand), I finished 2008 up 20%. I would rather have been positioned like Original Mungervillle, but wasn't as smart/prepared. I didn't have a very complicated strategy -- just blown by the wind. It is somewhat amazing it worked out okay.

It wasn't the financials of the banks that were important (without context). The important thing was who they collectively lent to and their ability to repay. That's my hindsight opinion.

In that video, Justin Fuller says that Berkshire Hathaway looks like a call option. What the hell is he talking about?

Nygren had 16% in Washington Mutual. Kaput! Back up the truck when the market is .... Greedy? For the record, i was an apologizer -- but out of lack of confidence i hid out with FFH. And Nygren is a better investor than me, but still gets a little playful ribbing for being bold when braver men were hiding.

Happy Holidays everyone. Sanjeev, I'm very grateful that you decided to run this board and keep it running.

Look at what I'm getting for Christmas! http://www.weather.com/weather/tenday/Santa+Barbara+CA+93108:4:US Not a day below 71 in the 10 day forecast. 76 on Christmas Day. I'm going to Santa Claus Beach tomorrow -- where else!

Berkshire dropped about 46% from the 2007 high to the 2009 low. The at-the-money puts today cost less than 5% annualized for the first couple of years. Should Berkshire continue to climb in price, the annualized cost of the puts will drop as you roll them (due to skewness). This skewness thing is interesting. The gains from the leverage don't come in the early years, they come in the later years. Initially, Berkshire will climb at only a token amount higher than your cost of borrow (inclusive of the put). But over time the cost of that put comes down -- it only costs 1% annualized to hedge at $80 strike for example. So after 4 or 5 years, perhaps your $115 strike put will cost a similar amount. Right, so because it costs so much less after the stock has risen a great bit, I like the idea of using this approach with deeply-discounted situations. That way, you have a spring that will elevate the price up a good deal such that in future years your gains will come (still fully hedging the loans). So I liked that approach quite a bit for BAC where you have this catalyst over the next couple of years that bring it up to normalized earnings. Before then, the at-the-money puts eat up 2/3 of the net income. After then, they will be very cheap relative to net income -- likely more than covered by the dividend.

You would be better off with MohnishEnvy. He's richer and he took less risk to get there.

Now, if he makes 70% annualized our 13 yr old will have this much at age 100 in his Roth IRA: $111,958,265,066,587,594,584.00 That's for every single dollar invested today. So what if he's already got $1,000 packed away? But he'll only have $8.18 billion if he makes 30% a year -- on $1 invested today, or $8.18 trillion total if he's already got $1,000 packed away.

Capital gains at the time of selling or spending it. You don't know that do you? http://online.wsj.com/news/articles/SB10001424052702304773104579268322915488180?mod=WSJ_hps_LEFTTopStories So far, the Internal Revenue Service hasn't ruled on or addressed such issues directly. An agency spokesman released the following statement: "The IRS continues to study virtual currencies and intends to provide some guidance on the tax consequences" of transactions involving them. The agency is also "aware of the potential tax compliance risks posed by virtual currencies," he added. ... Mr. Marian says that he and many other specialists are "stumped" as to how the IRS will rule on bitcoin. He says his own sense is that it's a commodity similar to gold, because there's a finite supply and it's a store of value. He adds that some bitcoin transactions may be akin to barter—which has its own tricky tax rules.

How are these things going to be taxed in the US? As an asset (like gold): capital gains rates apply As a currency (like Euros): income tax rates apply Bartering? http://money.howstuffworks.com/bartering4.htm

What do you suppose will happen next? Pigs flying backwards? Textile Work Winds It Way Back to the U.S. One Chinese Yarn Maker Finds Savings in South Carolina Hard to Resist http://online.wsj.com/news/articles/SB10001424052702304202204579256120230694210?mod=WSJ_hp_LEFTWhatsNewsCollection U.S. Economy Begins to Hit Growth Stride Stronger-Than-Expected Increase in GDP Fueled by Consumer Spending http://online.wsj.com/news/articles/SB10001424052702304367204579270003162012122?mod=WSJ_hp_LEFTWhatsNewsCollection

It is hard to believe we're on the same planet as two yeas ago: The age of austerity may be nearing an end. After three years of belt-tightening, governments from Washington to Madrid are easing up. That may be good news because one of the forces tempering recoveries in the U.S. and Europe is what economists call the fiscal drag. ... The improving fiscal health of U.S. state and local governments also bodes well for the economy. Their $1.74 trillion in inflation-adjusted spending is 50 percent higher than the federal sector, and they employ seven times more people, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank. Having declined for three consecutive years, state and local government spending jumped 1.5 percent in the third quarter of 2013, the most since the second quarter of 2009. “The positive incremental effect from stronger state and local activity is considerable,” says LaVorgna, who predicts the U.S. will expand 3.2 percent next year after 1.8 percent this year. http://www.businessweek.com/articles/2013-12-19/austeritys-fiscal-drag-nears-end-as-europe-u-dot-s-dot-go-for-growth?campaign_id=yhoo

Go back three years on this board and gold and silver are the only true money. Search for broxburnboy's posts. Today that's forgotten and now if dollar gets replaced it will be bitcoins. Bitcoin's price skyrocketed, gold and silver... down.

I'd like to hear a bit of follow through from the Sprott lovers out there. He said in March 2011 that silver was the way to go!

Do you get paid in any way? In nature? ::) In my opinion I should be compensated better given her account returns: RothIRA.tiff

I manage my wife's RothIRA but let's be honest -- it was my money that went into the account in the first place, given that she spent all of her income.

Actually, you can't deduct a dime of student loan expense if you make above a certain amount (I think it's like $76,000/year.) I knew some of my business school classmates that paid off their student loans with HELOCs so they could get the deduction at their income level. So let's say they raise the tax rate back to 70%. The government is going to keep 70% of a person's revenue and expect them to repay their loans and interest with the remaining 30%? Imagine if they were to modify corporate tax law by eliminating the ability to depreciate capital investments. Further, image if they were to eliminate the deduction of interest used to finance capital investments. Your company would be taxed on revenue, not net income! That's exactly what the government is doing to these people with large student loans -- the government is taxing revenue, not net income. As for the people who paid cash for their educations -- same thing applies. You might be getting taxed on income yet be unprofitable overall if you consider the amount paid for the education. Tax rates in this country are likely a lot larger than they look compared to certain European countries where the university education is practically free.

This year my wife's Roth account did twice as well as mine (mine is up about 31%). It was a wise political move on my part.

The LED candelabra bulbs that I purchased this summer were terrible. 75% of them already need to be replaced -- failed/defective. The also had too cool of a color temperature. Perhaps this shape is very difficult to get right. The incandescent bulbs look a lot better. But some of these light fixtures we have in the house have 8 bulbs on them. 40 watt incandescent bulbs multiplied by 8 is 320 watts. They are an energy nightmare.

It's simply that you write off the puts used to hedge the position (the expectation is that they will be worthless). You don't write off the gains on the underlying shares. Overall, the position will be an economic gain even though you get to take a loss from time to time on the puts. Under community property laws here in the US, when either you or your spouse dies all of the capital gains held in the marriage community are forgiven via a full step-up in basis upon the death of the first spouse. You might find yourself a billionaire, with a ton of unrealized capital gains, separated from your wife and living with another woman. It would be better not to formalize the divorce under community property law.

But now that this secret is official, people will adept and reduce or remove the inefficiency and the only one thats going to get rich is the man who sold him the tips. :) I made a similar comment about the FFH situation. There may have been some illegal naked short selling, there may have been some illegal manipulation putting false reports out on the company and stories of Prem leaving the country with shareholder money.... all of those illegal things may have been knocking the price down... but you can make a lot of money from that illegal manipulation without breaking the law yourself (buy the calls after the stock is knocked down). I believe that if you can figure out that some criminal activity is involved, then you are more likely to find legitimately undervalued stocks (the price reflects falsified facts).

This is the equivalent of just buying calls (synthetic calls). Interesting that you consider the tax angle. I suppose that doing the synthetic call is in fact more tax efficeint? you keep taking the tax losses and can hold the shares and not pay those taxes indefinitely? Is that the strategy? Yep, you just hold the shares and kick the unrealized capital gains on the shares down the road, writing the puts off against dividend income or whenever you take a capital gain. Let's say you buy something like Berkshire, and hedge it with a put. The capital gains of the shares will compound tax deferred, there will be no pesky dividends from Berkshire, and you would eventually get a step-up in cost basis on Berkshire (eliminating all tax on them) when either you or your wife expires. Meanwhile, every year you get this valuable put that can be used to offset capital gains or dividends elsewhere in your portfolio. So Berkshire merely needs to beat the after-tax cost of the puts. I think that's a pretty good use of money that would other wise just be sitting there in cash. But you can pick something other than Berkshire -- it's just an example.

This is worth some more thought on my part; however, I've never actually used puts before. Would you mind giving an example that you think would be in the ball park of what you are saying, so I could play around with it? I'm about as Australian as you can get without having actually been born there. So the concept of negative gearing is in my blood ::) ::) ::) That might explain everything if you take the totality of all my trades. Let's say you put your last 20% of liquidity into BAC stock and you want that 20% to be available on a moment's notice. You purchase $15 strike puts that can be exercised (worst case) in a panic to ensure that you do in fact have $15 worth of cash to pay your monthly bills (or meet redemptions if you are a fund manager). The puts cost you an annualized rate. So that's the hurdle rate on what would otherwise have just been a cash position. There will be times when you wind up with less can than otherwise (due to the puts costing you money). But the rest of the time when you are beating that hurdle rate, it should make up for it. Anyhow, in my personal life I don't hold any cash at all. I just have a large chunk hedged with puts for liquidity guarantee. I would rather lose it to the options market than the tax man anyhow. The puts don't cost as much as they appear in a taxable account -- the IRS shares my losses on them.