bmichaud

So if a company has $1,000 of intangibles with $500 attributed to a specific customer contract that expires in 5 years and $500 attributed to the "brand" (i.e. no expiration), the customer contract is amortized for financial accounting purposes.... But you are saying, if that "brand" goodwill was acquired via an acquisition with stock and is thus not amortizable, then even the customer contract cannot be amortized for tax purposes? Sorry for being dense, just trying to square it in my head.

Meaning....the total intangibles less identifiable intangibles calculation is what is amortized for tax purposes behind the scenes, whereas only the identifiable intangibles are amortized for both financial reporting and tax purposes?

I know GW is no longer amortizable for financial statement purposes, but I have yet to find that GW is no longer amortizable for tax purposes across the board. From a small business perspective, it appears GW generated via an acquisition where there is a significant change in control is amortizable over 15 years: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Intangibles BUT, what about from a GAAP/large corporation perspective? Are large corporations writing off GW behind the scenes and we only get a small glimpse via the "effective" tax rate? There are folks on here with far deeper tax knowledge than I, so I thought I'd ask. TIA

Great pick txlaw!! I've been following for awhile and I don't believe the market truly appreciates how accretive the BP acquisition is.

Up until the last several days the market hasn't been acting nearly as poorly as it did leading up to the 2011 debacle, where the "SHUT" index was strongly outperforming the market. Thus this decline is perhaps more akin to the fiscal cliff non-event that provided a buying opportunity. Given the largest market declines occur within a recession, and according to Cullen Roche's Orcam recession index we are not currently entering a recession, one must believe the Washington idiots will willingly drive us into a recession (see Goldman's analysis of the effects of default today...) for this to be the beginning of a large scale market decline. Usually I would be in the bearish camp here, but I gotta side with my NDR boys who just upgraded stocks to a 10% overweight.

Congratulations, what an awesome story, from poor to a millionaire in 16 years. I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it. I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me. I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time. It's important to enjoy the journey as much as the destination because it isn't something instant. Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind. I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss. seconded - thanks uccmal. its a good point - just using compound interest and saving rguarly will get us all rich - but maybe not as quick as we'd like - or worst still - doing it along a path wher the target of being rich is all consuming. I could have been much better of by now - maybe even retired but - I have a wife aqnd three kids.. they can be damn expensive!!! we try to visit various places around the USA and the world. My youngest is 11 (got the first house just after she was born!). She's been to 14 different countries and way more states. We see travel as a means of education (hopefully while having fun) and have taken many trips. Allof this was using money that I could have invested in order to reach the end goal of being rich. However life is a journey and for all of us to have taken those trips and seen those places is an investment that cannot be measured in dollars. The true worth of them may have a payoff in the long term. Hopefully the payoff will be forever for the kids in terms of memories of trips that can never be replicated regardless of how much money you have. In twenty years there is no chance that my kids can spend a month visiting their Grandparents - so the real cost of those trips has value that can be measured purely in dollars. Each to their own but I truly believe that there has to be a wider goal than accumulation of money. +1 all around. I couldn't agree more that these stories are great. I think too many people are focused on money as an end rather than as a means to an end. Too many people see every expense as "Buffett's Folly", that the hot dog and coke they got at the game with their kid could be worth a gazillion dollars if they just invested it and drank water instead. I have made choices in my life as well that have cost me and will continue to cost me a lot of money. However, that has been traded off against a happier life and one where my kids know me and where I'm not some guy they see in the house for 2 min on Saturday. Amen. As much as Buffett is utterly revered in these circles, he is BEYOND a terrible example of what it means to lead a balanced life. WTF cares that his net worth is over $60B - he spent zero time with his children and his marriage was in such shambles that his wife left him. Great role model.

As of today, NDR's global balanced account model is 65% equities, a 10% overweight.

And likewise, a $1 decline on a $4 cost is a -25% decline! :)

This post "dazels" me - I don't understand. "He will pay $9" and "I will not touch this without it....". What is the "it"? If the "it" is a guarantee that he'll pay $9, why won't you touch "this"? You and Cardboard were both right - about what? That he'll go through with a $9 bid?

In February of this year, the venerable market research firm Ned Davis Research issued a reported entitled "A New Era", suggesting that we were entering a period of prolonged equity outperformance over bonds....while also suggesting that we potentially entered a new secular bull market beginning in March 2009. Ten days ago NDR issued a follow-up report citing increased evidence that we are indeed in a secular bull market. While admitting traditional valuation metrics would indicate otherwise, they primarily look to the market action since the March 2009 bottom versus other secular bull market beginnings - long story short, length of time and average gains since March 2009 look nothing like secular bears, thus if it quacks like a duck it likely is a duck. Other considerations: - Jeff Saut, very good market strategist from Raymond James, believes there is a very high likelihood we are in a secular bull - Buffett believes stocks are more or less fairly valued This means: - John Hussman will likely be out of business within a couple of years - GMO's credibility regarding asset class projected returns is gone I realize bottoms-up stock picking should not worry about the broad market, but as Sanjeev has demonstrated with a 45% cash position, bottoms-up stock pickers do worry about the broad market. As such, if we are in a secular bull then this has huge implications for defensive positioning. If we are indeed in a secular bull and Buffett is right that the market is fairly valued, then I think that means the margin mean-reversion story is dead and the current S&P 500 earnings power of around $100 per share (GAAP, not operating), should be viewed as "normal", if you will. In a secular bull market, markets run up to well over 20X, say 25X, which means 2,500 on the S&P 500, or 47% higher from 1,700.... Heretofore I've been a big bear, believing we are in a secular bear market, so I am fully aware that this very post may be signalling the top of a market I've long since fought. But given the intellectual weight behind a NDR/Saut/Buffett view that we are in a secular bull/stocks are fairly priced at worst, I really need to reconsider my position. Curious what the board thinks, especially Sanjeev since he is in 45% cash....

We ran into this issue looking at Danaher (DRH). All of their "growth" capex goes into acquisitions - actual capex is way under d&a because of the purchased intangibles. Supposedly organic growth is 4 to 6%, which management claims they can achieve without spending a dime above d&a, indicating maintenance capex is at or below d&a. I don't buy it. The "Street" looks at FCF using capex versus penalizing them for intangible amortization via d&a - all that to say, I've found the best way to account for the issue this thread is discussing is to not assume maintenance capex is lower than d&a, such as is tempting to do with a Pfizer....

Ya it's ugly to say the least - amazing how quickly profits can evaporate like that. Though I wouldn't be surprised if there is some type of hidden "kitchen sinking" going on that is obscuring core profitability.

Best Buy worked out quite well for him, which is the only reason I thought ARO may fly....

Can't help but wonder if it isn't Aeropostale, a recent significant decliner that continues to get pounded.... Applying an average net profit margin of 7% to LTM sales of $2.3B, normalized EPS is 2.05. Backing out cash of 1.27 from a $9 stock price gets you to 3.8X earnings, well below Sanjeev's 7X PE target entry point 8)

That was going to be my guess - gotta be something in the resource space. One of the ags? Junor miner selling for less than net cash?

Exactly. Perhaps this whole debate is just semantics then, and ancillary products such as phones, gaming systems, tablets, online search and Skype are Ballmer's way of treating cash as if it were owned by the shareholder.

I know you're being sarcastic, but that's not accurate either. The question was who owns a corporation's assets. Technically it is the corporation. However, shareholders as owners of the corporation itself have their own bundle of property rights and expect that the value of the equity will be increased. They own a lot more than dividend payments and proceeds from a liquidation. Shareholders have collectively hired the officers and directors to run the company. They are required to do so using "reasonable" judgment (there are different standards depending on the situation). Obviously an argument can be made that in any kind of acquisition, etc it was the "best" use of capital. One may argue and disagree, but from a legal standpoint it is tough to say that they "destroyed" capital by doing something like this. In my view acting like an owner means treating "hiring" decisions with the utmost level of care since those are the people delegated to run "your" company. You may not have technical legal ownership to the underlying assets, but you have ownership in the equity of the "person" who does. Kraven your responses have been phenomenal, as usual especially with regard to legal issues. Let me ask you this - in one of his posts on the MSFT thread, Oddball stated that "a corporation cannot exist without shareholders" - intuitively this makes sense (as does believing a common stock holder is the "owner"), but based on the conclusion that a corporation is its own separate legal "person", a corporation must be able to exist as a stand-alone, shareholder-less entity, correct? Not being sarcastic here whatsoever - just trying to follow the legal logic.

The board has spoken Palantir - you win. Congrats. Shareholders own nothing but the right to some dividend payments and the proceeds from a liquidation. Ballmer - carry on as is 8)

LC - Icahn owns 80% of CVR Energy and has forced the distribution of two massive special dividends out of CVI's cash hoard. Not dissimilar to your inversion. Jut because a 1% shareholder doesn't have enough control to force management to do something doesn't mean that shareholder's "ownership" of the underlying assets is any different than Icahn's 80% controlling "ownership" of CVI's cash hoard.

Ackman IPOs a shell company for future investments . initially Pershing owns 100% after injecting $500, then the IPO for another $500MM brings pershing's ownership down to 50%.... Now that that shell company has say 100 new public shareholders, does Pershing no longer "own" $500MM (50% of a $1B public shell company)?

Mechanically no he cannot remove the bulldozer - but does that 1% owner have a 1% ownership stake in that bulldozer via his/her 1% ownership stake in the firm? Or does he/she not have ownership until the firm (if and when it decided to) distributed the 100 bulldozers proportionately to the stockholders? Bottom line - the collective MSFT shareholder base "owns" the cash on MSFT's balance sheet, thus MSFT mgmt should have the shareholder in mind when it spends the cash. MSFT mgmt behaves as if they/the Company owns the cash and can do whatever it pleases.

Curious what the board-wide thinking is with regard to what a common stockholder truly "owns". The discussion originated from the MSFT thread when Palantir stated that (paraphrasing) MSFT shareholders do not technically "own" the cash on MSFT's balance sheet because it is owned by the legal entity, the "firm" Microsoft Corporation, thus MSFT can do whatever it wants with the cash, irrespective of shareholder interests. In other words, even though common stockholders have a percentage ownership in the legal entity the "firm", the property rightfully owned by the "firm" is not transitive to the firm's owners. Oddball and wellmont weighed in and appear to believe common stockholders do in fact "own" said company's assets (net of liabilities of course). Curious what everyone thinks!

Page 1 of the attached PDF is the flow of funds balance sheet data for households and non-profits, including hedge funds and pension funds. Here is how the data shakes out as of 1Q13: Corporate Equities: $11,243B - 43% Credit Market Instruments: 5,465 - 21% Deposits: 9,150 - 35% Total: $25,858 Here is the same data for FYE 2007: Corporate Equities: $10,448 - 46% Credit Market Instruments: 4,865 - 21% Deposits: 7,495 - 33% Total: $22,808 FYE 1999: Corporate Equities: $9,763 - 59% Credit Market Instruments: 2,672 - 16% Deposits: 4,111 - 25% Total: $16,546 FYE 1968: Corporate Equities: $815 - 54% Credit Market Instruments: 204 - 14% Deposits: 485 - 32% Total: $1,504 FYE 1972: Corporate Equities: $921 - 50% Credit Market Instruments: 230 - 12% Deposits: 709 - 38% Total: $1,860 FYE 1974: Corporate Equities: $445 - 28% Credit Market Instruments: 300 - 19% Deposits: 841 - 53% Total: $1,586 FYE 2002: Corporate Equities: $5,164 - 40% Credit Market Instruments: 2,631 - 20% Deposits: 5,226 - 40% Total: $13,021 FYE 2008: Corporate Equities: $5,954 - 31% Credit Market Instruments: 5,204 - 11% Deposits: 8,106 - 42% Total: $19,264 At 43%, the current equity allocation is only 3% lower than at the peak in 2007. One could have made the case in 2007 that stocks were not as over-allocated to as they were at the 1968, 1973 and 2000 equity peaks. To be fair, I am beginning to question the validity of the Schiller PE calculation in that....if David Tepper is correct, and we are JUST NOW at the beginning of an economic expansion - i.e. the past 4 years has not been the typical post-war business cycle, and that it has just been one long recessionary deleveraging environment - then perhaps we are about to have well above-average revenue growth over the next 5 to 7 years, and even if margins correct, the actual level of earnings will remain at or slightly above current levels. In other words, if the gap between current and potential GDP closed immediately, but earnings stayed the same, then margins would "normalize"....and at 1,700, the S&P would be trading at roughly 15.5X EPS of $110, which is around fair value. Flow_of_Funds_Households__Non-Profit_B:S

Here's a good overview of asset allocation based on flow of funds data. Conclusion, nobody is underweight stocks.... Flow_of_Funds_Asset_Allocation

Packer - institutions are virtually all in due to the TINA effect. Individuals are out, but institutions control 80% of invested assets. Plus margin debt is at record highs. I just have a hard time seeing broad based pessimism toward stocks. Whether investors want to be in or not, they are in due to low rates...