ERICOPOLY

"value" is implicit. Otherwise "low" isn't actually low, and "high" isn't actually high.

Buy low and sell high is an old fad, not a new one. I suppose you might question whether "value investing" is any different than "buy low and sell high"? Seriously, I don't think they are different.

Only if the company is repurchasing at prices below fair value. You should think of it as a dividend. Why is the stock valuation of any relevancy? It's the total amount of cash returned to investors that matters. Proof: each shareholder can sell an offsetting amount of shares at any price that the company buys it from them. Like a tender offer for example. The company can offer to buy out each investor's fractional ownership at a billion times IV. It won't matter, they'll each get exactly the same amount of cash as they would have received if instead a cash dividend had been paid. After the transaction, they will each own exactly the same % of the business as beforehand. Cash is the same as dividend. Ownership is the same as with the dividend. The only key here is that they need to do their part and sell some shares to offset the buyback. This whole thing about high priced buybacks destroying value is a hoax -- the shareholders are the ones destroying value by holding their shares instead of selling them. They're the ones making the bad capital allocation decisions, but ain't it convenient to blame management? Management is at least helping them with tax efficiency.

True, I am being lazy with the definitions. I would say the relevant metric for DCFs should be "Adjusted FCF" = FCF - Buybacks. In your scenario, if the firm suddenly stops buying back, then Adjusted FCF = FCF, and then growth becomes 0, which essentially is the pre-buyback state, although now with higher FCF/s due to the buybacks. Now if the firm returned all its FCF to shareholders via dividends, and assuming that no other cash was returned, then in that case, I would not revise the FCF figure downwards, as all FCF immediately flows to shareholders, and more importantly that cash is not reinvested to create growth in FCF/share. Therefore Adj. FCF = FCF, and growth is unchanged. That still fails my code review. I would suggest you merely add back in the number of shares repurchased. After all, you are willing to ignore a dividend. So why not ignore the share repurchase? This is more straightforward. You can then think of the share repurchase and dividends as the same thing -- cash return yield to investors. That's what they are.

That gets a little weird if the firm were to stop buying back shares. You are going to have free cash flow jump from 700k to 1m in a single year, even though FCF isn't growing. That might sound like I'm bickering over semantics, but if I was collaborating with you on a software project I would mention that your choice of naming for variables makes the code difficult for others to understand/maintain. It might compile and run just fine though, no argument there. Let me ask you a question though. How would you go about it if you were instead looking at a company that returned cash to shareholders only through dividends. Would you ignore the dividend yield, or would you instead count the dividend and redefine "free cash flow"? Maybe there is another way without redefining what free cash flow is -- that's all I'm trying to say. I'm not saying that your end result would be wrong.

You can see the cash as soon as you sell the incremental % share ownership. I suppose "later" can asymptotically approach zero and still be defined as "later". Similar to a person who reinvests his cash dividends automatically on a DRIP plan. He too doesn't get the cash until "later". Does that not qualify as cash returned to shareholders?

Palantir, 1) Company buys back shares (packaging the payload of cash into the pool of existing shares) 2) shareholders who want to access their share of this cash then sell offsetting share(s) -- now they have cash. They have taken the knives out of the box. 3) Shareholders arguing that they didn't get any cash are just refusing to open the box of knives. But hey, it fools the tax officials so all the best! This is smarter than a regular dividend -- it achieves the same thing for the shareholders who are willing, and it launders the dividend as a capital gain. Those shareholders who are holding their shares at perhaps a capital loss are able to get their tax laundered "dividend" as cash while at the same time writing off a capital loss on their tax return. Otherwise, if you merely got a cash dividend, you would be owing dividend tax even if you held the investment for a total return loss! Boy that really sucks don't it!! And most of the time, even if you hold your shares for a gain, your cost basis isn't as low as absolute zero, so you certainly pay less in tax.

No, we are discussing continuing shareholders, not those that chose to sell back to the company. If you are a continuing shareholder, then you will never see the cash, and hence it is an outflow. You see the cash when you sell off the incremental % ownership. I could ship you a set of knives packaged in a box. You could tell me that you didn't get any knives, all you see is a box. I tell you to open the box.

I think you've got it backwards. Return of capital by definition flows to shareholders, it's not a reinvestment in the firm. It doesn't flow to shareholders. When a firm produces cash from operations it goes to the firm's equity, if it's used to buyback, it is an outflow that continuing shareholders do not see. Then you admit, it is an outflow. To shareholders. Continuing shareholders, if they wish to "see" it, merely need to sell a few shares -- bringing their % ownership back to the prior level. It's value given to shareholders (essentially identical to a dividend). IF you think the shares are overvalued, and the repurchase is a bad capital allocation decision, then the shares are too expensive and you shouldn't own them anyways. If you already own the shares, then they're overvalued and it's time to sell. This is the truth, amen brother.

I think you've got it backwards. Return of capital by definition flows to shareholders, it's not a reinvestment in the firm. It doesn't flow to shareholders. When a firm produces cash from operations it goes to the firm's equity, if it's used to buyback, it is an outflow that continuing shareholders do not see. Then you admit, it is an outflow. To shareholders. Continuing shareholders, if they wish to "see" it, merely need to sell a few shares -- bringing their % ownership back to the prior level. EDIT: Their choice of not selling any shares, thus not witnessing any cash, is similar to a shareholder who gets a dividend while enrolled in a DRIP plan. He never sees a bump up in cash balance in his account, but he does see his % ownership of company earnings increase. Same as with the buyback. Both are merely return of capital to shareholders.

I think you've got it backwards. Return of capital by definition flows to shareholders, it's not a reinvestment in the firm.

Cynically, I think Obama sees the government shutdown as useful. It gives him political cover to do some things that he probably wants to do anyway, but that he knows his "base" would recoil at. Probably the same story on both sides of the aisle. I handicap the chances of default at 0%.

Make sure you draw it after you get it raised. My brother in law (the responsible one that married my sister, not the derelicts on my wife's side) thought he had this reserve of liquidity in his HELOC -- then when things got tense in 2009 the bank froze the credit line. They never ran into any troubles, the bank was just trying to cut it's exposure in a scramble to cut risk.

To play devil's advocate, let's say one does that and there is a depression and the counterparty fails or something similar and now your puts are worthless. While I don't think that's very likely...well many didn't think the muni reset market would ever collapse back in 07 either. You can construct the same position just buying the $10 strike call and writing a spread with the $17 strike calls. So you are still hedged for any crash below $10 per share. You just never put that $10 down on the table in the first place. Eric, you know way, way more about options than I do. So, I could certainly be wrong here. However, if the OCC were to default or not process trades. What type of coverage is there to make sure your options are going to go through like you think they will? I took a look at their site, http://optionsclearing.com/clearing/clearing-services/ And it says they have $3.5 billion in a fund to cover contracts. "OCC is dedicated to promoting stability and financial integrity in the marketplaces it serves by focusing on sound risk management principles, including rigorous initial and ongoing membership standards, prudent margin requirements and a substantial $3.5 billion clearing or guarantee fund." Now, I may be totally of base here, but $3.5 billion in a derivatives market doesn't seem like a great cushion. Don't worry, the $10 is in cash. Imagine the bargains to be picked over in that scenario. There would be so many forced liquidations if puts were all torn up. You might get KO for ten dollars!

To play devil's advocate, let's say one does that and there is a depression and the counterparty fails or something similar and now your puts are worthless. While I don't think that's very likely...well many didn't think the muni reset market would ever collapse back in 07 either. You can construct the same position just buying the $10 strike call and writing a spread with the $17 strike calls. So you are still hedged for any crash below $10 per share. You just never put that $10 down on the table in the first place.

What if you put all of this money into your house and then it burns to the ground? Is the value of the structure lost? Well, sure, if you don't have insurance. Same with investments.

Again, if you have puts to protect your investment portfolio then the "Great Depression" scenario is a 0% risk. We should stop using that as a reason given that it's so easy to hedge against that. It's just impossible, never going to happen. You just buy your puts. Simple, easy, we all can do it.

They don't have a 100 yr old date palm.

I would hardly consider it catastrophic if I invested my house money in BAC and it dropped down to $10. Nobody would be booted to the street under that scenario. The $10 strike put only costs 47 cents. You can raise the cash for those puts by selling the $17 strike covered calls on roughly 1/2 of your position. Let's say your BAC shares escape Armageddon for a couple of years... as the stock rises you roll your puts to increasingly higher strikes. Eventually you have 100% of your house money riding below the strike price. I'm pointing out that "on the street" isn't even on the table.

My house is a California bungalow -- actually it was built in 1912. It is 2,300 sqft. It has a tax assessed value of $2.7m. Don't ask what a McMansion costs here!

Depends also on how you have it invested. You don't have to take big risks for a big potential payoff. 4.5% fixed-rate mortgage only really costs you 2.43% if you are faced with 46% income tax rate in California. (there, I just explained part of the high cost of house prices relative to rents in California) You can make 2.46% in the California medium-term tax-exempt muni bond fund from Vanguard. That fund has an average duration of 5-6 years. So far that's a wash. Now, come maturity on those bonds.... interest rates could be twice where they are today. Hooray!!! Now your interest income would be double the outflow. So a way to play a potential rise in rates.

They are tracking user's browsing history, and showing relevant targeted ads. I'm getting an ad for Furnace Creek Resort in Death Valley -- I went to Death Valley earlier this year and clearly I was tracked.

Even when I had just $5,000 to my name I was investing the money. I had no house yet. Then one day I buy a house -- does this mean that I'm freaking out suddenly that my investments are just a gamble and they should all be dumped into paying down the mortgage? That gamble was there all along, from the very first $5,000 I had invested. It just seems harder to ignore once you've decided to buy a house. Same thing goes for saving for retirement. Do you dare invest the money that you'll need in the future to pay for your food? I'm pretty sure 100% of financial advisors say that you should risk your retirement food money by investing it today.

The ability to "ignore" a particular thread is the best of the suggestions so far. I might be interested in a tech thread, and I don't want it banished off to a place where I'll never see it. But if a particular tech thread (or non-tech thread) gets annoying, just "ignore" it. But anyways, this is all more work for Sanjeev to deal with. I hope you all give him donations every now and then.

Alternate proposal: Two men enter, one man leaves