JSArbitrage

Michael Lewis usually writes book about complex subjects in order to educate the average person. So it makes sense he takes complex subjects and boils it down to simple examples. That's like saying you hate biographers because they take a lifetime of experiences and crush it down to 200 pages. It's kind of what they do man.

Um, these aren't refugees from a third-world country trying make a better life for themselves getting screwed by US Immigration. These are people entering the US under false pretenses probably for two reasons: (1) it's takes time and money to bring them here legally for work and/or (2) the US authority would probably be collecting taxes on their labor in the US. Basically, the company wants to avoid paying these costs so they pretend they are vacationers. As someone who works for one of the largest global consulting firms in the world, I can assure you that global deployments are not easy nor cheap. And our firm takes this processes VERY seriously.

People that pay the money and take the time to do it legally, I would say. I guess sneaking into movie theaters shouldn't be enforced either?

Agree. Entering the US under false pretenses is illegal. This company is committing a crime.

I don't agree. Beneficial is just beneficial. This reminds me of the Nietzschean discussion of "virtue." After Christianity, people believed something "virtuous" had to be something "good" according to Christian values. But, for the Greeks, virtue was excellence. So if you were, say, an excellent liar, you were virtuous. We now have a new religion in much of the world called capitalism and for this new religion, virtue is benefit. Not to speak ill of the dead but Steve Jobs might be an example of such a thing. He was pretty much a selfish asshole for most of his life but he was rich and created benefit for society. So he is virtuous.

I think people are getting two concepts confused: (a) goodness and (b) beneficial. Many seem to be saying that someone that provides more benefit to society is "more good." You're mistaking two concepts IMO and it's a very common mistake among the wealthy (because they've provided more benefit so they want to believe they are better people.) Goodness and beneficial sometimes overlap but often don't. Examples: (1) Building a time machine and going back in time and murdering Hitler as a child. Provides a TON of benefit but it's probably not a good act. Massacring the Native Americans in the US to build a benevolent empire. Provided a TON of benefit to the world but was not much different than an American Holocaust. (2) People who devote their lives to something good but it never pans out. Example would be a technique to cure cancer that, in the end, proves useless. A really good act that provided no benefit in the end. So I guess my point is that a pure utilitarian view of goodness (goodness = beneficial) can lead you to some crazy results. And is probably responsible for the massive egos of many wealthy people.

... what?

It's neither good nor bad; it's just investing. It's funny to me that anything anyone does, they have to make it out to be some higher good. Oh, you like playing football? It's not about football - it's about competition, discipline, work ethic, personal character, etc. You probably invest because (a) it's fun and (b) it's profitable. If you didn't find it fun, you'd probably do whatever you find fun like fishing or whatever. But it'd not fishing - it's getting back to nature, conservation, respecting Mother Earth, etc.

How can this be justified in any way? I hope the lawsuits fly.

I think this is an important point. I think businesses have to solve different problems at different stages of growth. I really have never liked the idea that some people promote that these business were basically destined to success from the start. I think large chain restaurants, in order to be successful, have to be really really good at consistency. I did SBUX every day and it's not because it's the greatest cup of coffee in the world. It's because it's plus or minus exactly the same every time. I tried my local hippy place and hated it because the drink always tasted different. When I travel internationally, I always seek out SBUX because it know exactly what I am going to get. And when you are craving a caffeine kick, you don't want to play Russian roulette with your barista output.

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.

I'll add my 2 cents: 1. We don't have an education problem in the United States if you are upper middle class or wealthy. We only have an education problem with the middle class and the poor. Therefore, "market solutions" have little offer this problem. You can't squeeze blood from a stone and you can't get $15k/year tuition per student from the middle class and the poor. So, at some point, the government is forced to subsidize the education of the vast majority of Americans. Saying the market alone will find a solution for this is asinine. 2. I like to take the easy route to problem solving - find people who were able to consistently solve this problem and copy them. And the best school systems in the world are almost all big-government, very draconian styles of education. 3. There will always be an education gap in the United States. The government can't stop me from educating my children with my own money. And I think education is extremely important. But many, many Americans don't think education is important. They just want a place to drop off their kids while they go to work. I don't know if you can solve a problem where so many parents really don't give a crap. My best friend is Korean and he said even the poor kids feel academic pressure from their parents. You don't see that as much in the poor communities in the United States.

I don't think Fama and Shiller quite agree with each other on the "strength" of the EMH. Fama is a true Chicago academic - he's on record saying that no analyst could have predicted the housing crash, banking crisis, etc. Even though many did. Shiller is on the other side of the fence and has used the term bubble on numerous occasions to explain asset prices. But both believe that the investing public should invest in index funds and not try to beat the market. This is also Buffett's opinion as well. This was their reason for the Nobel Prize. The Nobel Prize is less of a "your research was progressive and changed economics for the better" award. It's more of a "Lifetime Achievement Award" for economics at this point.

I think what I am trying to communicate is the following: economically, a firm that puts $1M in FCF in the bank and a firm that uses FCF to buy $1M in shares are of equal value assuming the shares are rationally priced. So I am confused when you say the buy-back "creates value" for the shareholder. It doesn't create any more than putting it in the bank. Do you agree or disagree with this?

Not true, it does matter whether the cash is used on buybacks or not. From the POV of a shareholder, the shares are worth different values, and that's the relevant metric, not the value of the firm. You are not the sole owner of the firm. Let's think through this. Company 1 gives you $1M. Company 2 is giving you (a) $800K cash and (b) $200K worth of stock. That's all a buy-back is doing. This is ignoring any effects of taxes and frictional costs. A company *does not* create value for a shareholder with a buy-back (ignoring under/overvaluation of stock in our example.) It is simply buying, dollar for dollar, a part of the business. $1 of FCF gets $1 of stock. You're getting $1 either way.

FCF is FCF, it doesn't matter whether the cash is used on buybacks and not. Buybacks are irrelevant to the definition of FCF. The two companies above are worth the same amount in a DCF analysis. Or to think of it another way, the difference between the two examples above is basically cash versus PIK. Company 1 gives you $1M/cash, Company 2 gives you $800K/cash plus $200K stock. Assuming the stock is valued rationally, you're not gain or losing value in example two. You would be indifferent to the method of payment (excluding any externalities such as taxes, etc.) I never compare companies using a per share metric because the denominator (shares) can be whatever the company wants. A company with FCF/share of $100 is not worth twice as much as a company with a FCF/share of $50. One company could just do a split and they'd suddenly be equal. What matters is the FCF multiples.

I agree in theory but disagree in practice. The budget stalemate isn't about the budget; it's about an attempt to reverse Obamacare without the votes to do so. This is the problem with the Tea Party movement. They aren't for tweaking legislation to a more sustainable path. They want to dismantle altogether and, absent that option, they'll just grind the nation to a halt. The Tea Party doesn't think Medicare/Social Security are bloated; they think they are illegal. And if Obama makes a deal with the GOP, the Tea Party knows they can continue to strap on the dynamite vest and walk into Congress and get what the want or take the US down with them. I actually spoke with a Tea Party advocate down here in Texas and he actually WANTED a default. He said he'd rather default small now than big later. I am very pessimistic about this round of negotiations because Obama knows he cannot budge or the Tea Party becomes a de facto terror cell in Congress. So the Tea Party might get what they want (a small default) and they don't understand the saying "Be Careful What You Wish For."

WSO is kind of crappy for BVAL. Way too iBanking oriented.

Big 4 BVAL here. PM me if you'd like.

I am not quite sure how you came to the conclusion that RE is a high margin business.

Maybe to you personally, but not to the hiring manager. I have thought for sometime that online classes were somewhat suspect. I now have examples. One example is of a local lady in my area that makes $200k a year - cash - by taking tests for people. Her biggest clients are taking tests for would be nurses!! True that educational resources are available, just like any resource. The question has always been how you use that resource, is it not? Cheers JEast There is a difference between online classes and online testing. Some very well-regarded MBA programs allow distance students to take the classes online and then fly to the campus to take the tests at the end of the semester.

Your rule of thumb is not true. If a company can buy another that has reserves worth $1 billion but only paid $500 million to develop those reserves will be worth more than the value on the books, period. The problem is rarely does many oil and gas firms earn high returns on capital to generate goodwill. I don't think you quite understand purchase accounting. If Company X buys Company Y for $1B in total consideration, the only way goodwill exists is if there is not enough identifiable assets (tang/intang) to allocate to the purchase price. In oil and gas, almost all the major accounting firms hold the opinion that goodwill almost never exists in an E&P acquisition. Therefore, the value of the oil and gas properties becomes the plug value. They literally back into the value of the O&G properties. They use DCF and market approach and pulls the levers as needed to ensure that goodwill no longer exists in the allocation. The only way accounting goodwill exists in an E&P transaction is that the price paid was so high that levers can't be pulled any more. So accounting firms will start pushing the discount rate down. 10% discount rate results in goodwill? Try 9%? Still goodwill? Try 8%. Still goodwill? Start moving reserve adjustment factors. Put 100 percent good for all proved. Still goodwill? Start increasing percent good on the probables. Etc. etc. Historical development costs are basically irrelevant to purchase accounting because reserves are adjusted to fair value at the closing date. If it costs $100M to drill and you have $1B worth of reserves, it's booked at $1B. No goodwill. So that's why I say be careful if E&P companies have a history of booking goodwill on acquisitions. It usually means that every rosy possibility was considered in valuing the reserves and goodwill somehow still existed (which it shouldn't.)

Well, there is a lot of private sector deleveraging going on meaning that any excess cash is going to pay down debt instead of investing.

I think this is simply a result of the nature of E&P: you are always buying depleting assets. This isn't like Coca-Cola where you can be reasonably certain there will be more servings 10 years from now than today without much effort from Management. The only way for an E&P company to sell more servings is to buy more assets or explore for more assets. Secondly, when it comes to reserve adjustments, you have to understand how PV10's are created. There is really no such thing as purely proved, probable or possible reserves. Reserves are defined using SEC (previous 12 month) pricing as an indicator of the "economic environment." So you can have a reserves that are proved reserves at some level of commodity prices and probable reserves at some other level of pricing. If you've ever tinkered on ARIES or some other similar reserve engineering software, you can see that there are 100 levers that can be pulled to change volumetrics, reserve classification, reserve values, etc. One rule of thumb to keep in mind is that any acquiror that buys reserves and books goodwill as a result are massively overpaying. Most major accounting firms have the idea that there is almost never goodwill in an E&P acquisition. They will pull every lever they can possibly pull (within the bounds of reason) to eliminate goodwill. So you know if an E&P company is repeatedly doing deals with goodwill, they are paying huge premiums and will probably have a write-down sooner or later.

No offense but this one of those typical "my team is the being persecuted!" posts. The Koch Brothers literally shovel millions upon millions of dollars (hundreds of millions) into the pockets of politicians and political parties to get legislation that they want passed. Oh and their environmental record is so bad they have literally killed people. Look it up. Now some unions send a letter to a shareholder and all of a sudden it's a "War on Information?" Oh please. Cry me a river, Charles or David or whichever you are. The Koch Brothers belong at the bottom of the ocean along with the Masters of the Universe. I've never seen so much whining from billionaires, bail out recipents and back-room-dealers in my entire life.