redskin

I don't understand why you are using BAC's price/book, but KO's price/earnings. I would rather have BAC at 0.40 book with 10% ROE than Coke trading at 5X book and earning 40% on equity.

I will never be the first to defend Tilson, but in this situation he is right - pre tax earnings do NOT include insurance earnings. Look at any of Buffett's letters - he tracks non-insurance EBT and investments both on a per share basis. Tilson adds zero originality to the analysis, he just copies Buffett. Actually if you look at Tilson's slides he does use a portion of the insurance earnings (see note on slide 15). He includes "half of the $2 billion of annual profit over the past nine years." Tilson actually asked Buffett about not including the underwriting profit in his calculation of value at last years annual meeting. Tilson noted that the insurance business had averaged $2 billion annually in underwriting profit over a number of years. He wondered why he didn't include a portion of that. Buffett said he didn't disagree with Tilson and he would expect BRK to have an underwriting profit over time, but he was just being conservative with his valuation since insurance underwriting can be lumpy.

Brad Kinstler is a possibility. He started as a manager of one of the insurance subs, was sent to Fechheimer, and then to Buffett's beloved See's Candy.

A lot of emphasis on how intrinsic value far exceeds book value. It is my understanding that, should we see "particularly weak markets", the market will offer him even better ways to allocate capital elsewhere. Makes sense! I was thinking about it like he would deliberately stop buying in weak markets, perhaps to preserve liquidity. But this makes more sense. I think he is saying that he will not be sitting there with 110% book value bid for $10 billion of shares. If markets are weak he will not be the backstop for the world to front run. If the markets know this, there is a better chance he'll be able to purchase shares.

Unfortunately, BAC has indicated they are not going to request to buyback shares. I don't understand this at all.

I actually don't get the sense that most people want BAC to pay dividends and buyback shares just yet. But you're exactly right -- lifting the clouds of doubt by continuing to generate capital will definitely get BAC back up to IV way faster. I would say that the only big banks right now that should be buying back stock or paying out dividends are WFC or USB. Maybe PNC, but that's debatable given the lack of clarity regarding their recent M&A activity. I don't want a dividend. I want them to take advantage of the doubt and buy back shares at these levels. Moynihan has said in the past that he plans to get back the shares that were issued during the crisis. It is a lot easier to do that when they are trading under 10 than 20+. I understand wanting to have a strong balance sheet to weather a storm, but I feel as if they have done that. They have charged off $100 billion of their worst loans over the past 4 years, set aside $15 billion for reps and warranty liability, raised legal reserves and set aside $34 billion for loan loss reserves. They have higher capital ratios than at any other point in history. They have $370 Billion of excess liquidity. Basel III requirements have to be implemented by 2019. They are saying they will be compliant by the end of this year. I am wondering if they got the heads up from regulators not to ask for divy or buyback. Frustrating to me. Look at where BAC was in 2007 on the eve of the crisis as compared to today.... 2007 Risk weighted assets 1,212,905 Total Loans 876,000 Total Common Equity 142,394 Tangible Common Equity 54B Loan Loss Reserves 11.5B Tier 1 Common Ratio 4.93% Tangible Common Equity ratio 3.46% Today Risk weighted assets 1,284,500 Total Loans 926,000 Total Common Equity 211,704 Tangible Common Equity 133B Loan Loss Reserves 34B Tier 1 Common Ratio 9.86% Tangible Common Equity ratio 6.64%

They stated today that they have asked for neither a dividend nor a buyback. There is even talk of issuing $1b worth of shares to employees (in lieu of cash compensation) in order to build capital. This is disappointing. I understand building a fortress balance sheet and trying to meet the Basel III requirements as soon as possible, but they will not have another opportunity to buy back shares at these levels. I wish they would try to balance both. Huge missed opportunity in my opinion.

I think it will be difficult for the regulators to deny BAC a dividend increase and share buybacks. BAC's capital ratios are better than what JPM's were at this time last year. JPM was given the ok for a divy and $9B share buyback. BAC could buy back 10% of their shares with a $9B buyback. I guess the regulators could be reluctant to give BAC the ok due to the litigation issues if they are not satisfied with their legal reserves. 12/2010 JPM Tier 1 Common 9.80 Tangible Common 5.59 12/2011 BAC Tier 1 Common 9.86 Tangible Common 6.64

Marty Whitman made the following statement in the Graham & Doddsville Fall issue. Am I missing something? I thought Graham took advantage of Mr. Market and ignored market fluctations. http://www4.gsb.columbia.edu/null/download?&exclusive=filemgr.download&file_id=7310273 G&D: If an analyst comes into your office with a new idea, what are the first few things you would want to know? MW: What I want to do is understand the business. I want to know the estimate of NAV, and can we buy it at a sizeable discount from this. We guard against investment risk, but we pretty much ignore market risk, which is different from Graham and Dodd, who were very conscious of how much you suffer when the price goes down.

Spreadsheet... TARP_Warrants_021.xls

Do you have any insight on the market in Daytona? Any thoughts on Consolidated Tomoka's land? I'm fairly familiar with CTO but don't have any real insights. I don't own it and don't really want to (for a few different reasons, primarily because I require a higher return than what I believe current stockholders will experience and prefer to stick with higher return assets with more of a catalyst in general). I haven't valued it in a while but I wouldn't assume too many new raw land sales in the near future. Not very much is happening with raw land in northeastern Florida. Interesting things could happen now that McMunn is going to be out of the picture. Their actual land has huge potential, it's just a matter of making something happen. They could put a new mall (sell the land to SPG perhaps) at the southeast quadrant of their southern I-95 interchange at some point for example, or a theme park is another game-changing possibility(CTO isn't that far from Orlando). Have you seen their land? I haven't seen CTO's land. I also don't see a near term catalyst. However, it seems that you are getting the land for close to zero considering they have an investment property portfolio that produces over $9M annually. As an investor, I would like to see them repurchase shares instead of using the income property proceeds to enhance current land. The land improvements can always be done in the future. Who knows how long we'll have the current low valuation to take advantage.

Do you have any insight on the market in Daytona? Any thoughts on Consolidated Tomoka's land?

http://www.sequoiafund.com/Reports/Transcript11.pdf

Shalab, 2.95 is the multiple you would make on the stock if it went to $24. You would also make 2.95X your money on the warrant if the stock settled $24 at expiration. Ericopoly, You also have to consider the adjustment to the warrant strike price if BAC pays a dividend over $0.01/qtr. If BAC earns $20B annually and has a payout of 25%, the dividend would be $0.50 annually. 7 years of that dividend would reduce the strike price by $3.50. New strike would be around $9.50.

BAC has and should earn somewhere in the range of $40-50B in pre tax, pre provision profit. I think the question is what are the provisions in a normalized environment? Here are the annual charge offs as a percentage of total loans for BAC... 2010 3.60% 2009 3.58% 2008 1.79 2007 0.84 2006 0.70 2005 0.85 2004 0.66 2003 0.87 2002 1.10 2001 1.16 2000 0.61 1999 0.55 What do you use as a normalized charge off ratio? I think a conservative number would be 1-1.25% of total loans over the long term. With approximately $950B of total loans, this would give you annual charge offs of 9.5-12B. PTPP Profit of 40-50B and charge offs of 9.5-12B gives you pre tax earnings in a range of 28-40B. This doesn't account for the possibility that they may increase loans in a stronger economy.

With the $10 billion of debt, the deal was valued at $44 billion. http://www.berkshirehathaway.com/news/NOV0309.pdf

Intrinsic Value – Today and Tomorrow "Though Berkshire’s intrinsic value cannot be precisely calculated, two of its three key pillars can be measured. Charlie and I rely heavily on these measurements when we make our own estimates of Berkshire’s value. The first component of value is our investments: stocks, bonds and cash equivalents. At yearend these totaled $158 billion at market value. .....Berkshire’s second component of value is earnings that come from sources other than investments and insurance underwriting. These earnings are delivered by our 68 non-insurance companies, itemized on page 106. In Berkshire’s early years, we focused on the investment side. During the past two decades, however, we’ve increasingly emphasized the development of earnings from non-insurance businesses, a practice that will continue." The first component is $158 billion. You need to make your own estimate of normalized earnings for the second component. Just remember, Buffett paid $40 billion for BNSF and it is working out better than he expected. $158 billion + $40 billion = $198 billion. Current market cap of BRK is $183B. I think you can safely say there is a nice margin of safety in the current valuation.

I have my CFA. I personally don't think it is worth the time needed to complete. You are correct there is a lot of efficient market theory, etc... Benjamin Graham was instrumental in starting the CFA program as he advocated a certification for security analysts. While studying for the CFA there were many times I thought Graham would've been disappointed with what it had become. To truly learn about investing I would read as many books from true value investors. Start with all of Buffett's annual letters. Other suggestions would be Klarman's book, Whitman, Hagstrom's book on Buffett.

This was a classic 'Fast Money' segment... http://www.cnbc.com/id/31494704/Gartman_%C2%A0_Warren_Buffett_Isn_t_An_Idiot_But_He_Allowed_Inexcusable_Losses

I'm embarrassed to admit that I occassionally watch the Fast Money show on CNBC. I usually finish thinking it was a huge waste of time as there is very little substance discussed. I think it is entertaining how the 'Traders' reacted to Microsofts results. They are disappointed with the performance of the company and some of them are suggesting letting Ballmer go. I don't have an investment in Microsoft, but look at the numbers under Ballmer.... Operating income has increased from $11B in 2001 to $24B in 2010. Over the same period sales have gone from $25B to $64B. Return on Equity the past 3 years.... '08 52% '09 38% '10 43% I don't know what they were expecting out of management. Doesn't seem justified to change management.

Not sure what you mean by this? I think I understand what you are saying. By paying a dividend it will reduce their retained earnings? I understand the point, but if they are making 20-30B per year, I don't think they will be able to efficiently reinvest all of it. Will work out better to pay out. I personally think the best option for shareholders and holders of the warrants will be for them to buy back shares (if they are allowed) while prices are anywhere near where they are now. When they get the ok from regulators I hope they aggressively buy back shares rather than hike the dividend initially.

Not sure what you mean by this?

If BAC pays out the dividends that are assumed in the spreadsheet (approximately $50B) the strike price on the 'A' warrants will be reduced by $5. It will go from 13.30 to 8.30. This increases the IRR substantially. I think you could also expect that there will be some share buybacks which should increase the EPS. I wouldn't be surprised to see BAC returning 50% of their earnings in 2-3 years through dividends and share buybacks depending on the level of the stock price. Maybe 25% divys and 25% share buybacks?

From the 13D.... "Please note that this letter should not create the understanding that Loeb would accept an offer of $29.00 per share; rather, Loeb is simply of the opinion that Biglari’s offer is credible and that the valuation is high enough to be a springboard for a value maximization process. Loeb reserves its rights as a shareholder to take such actions to secure value maximization. Further, we hereby request a meeting with the CEO and Chairman of the Board of Fremont as soon as is practicable but in any event no later than October 29, 2010."

It seems to me that Loeb will be looking for a higher price than $29.