Guess Meaning of Mohnish's New License Plate

[karthikpm]

Thanks gjangal and tng for your explanations..

 

tng- your discussion hinges on the use of some leverage , right? My cost of capital is what cash would yield ~0 %

 

 

 

 

 

[txlaw]

I actually get a cost of leverage that is pretty high because of the dividend one is foregoing.  Somewhere around 9% if you analogize to a non-recourse loan with paid upfront interest.

 

However, the downside risk is so low from this price and the spread between what you should make on the security versus the cost of the loan is so high that it is worth it for me to start putting money back into the warrants.

[yadayada]

is anyone seriously considering those self driving cars a long term threat? Younger people buying less cars etc. I mean in next 5 years or so it probably doesnt matter. But if you assume like 12x multiples here, then you have to start thinking about year 10 and 12. A lot can happen in that time? couldnt that take a serious bite out of the market?

[txlaw]

I actually get a cost of leverage that is pretty high because of the dividend one is foregoing.  Somewhere around 9% if you analogize to a non-recourse loan with paid upfront interest.

 

However, the downside risk is so low from this price and the spread between what you should make on the security versus the cost of the loan is so high that it is worth it for me to start putting money back into the warrants.

 

I should say that the range I get is actually between 7.25% and 9%, depending on what the assumptions are for dividend increases.

[gjangal]

I actually get a cost of leverage that is pretty high because of the dividend one is foregoing.  Somewhere around 9% if you analogize to a non-recourse loan with paid upfront interest.

 

However, the downside risk is so low from this price and the spread between what you should make on the security versus the cost of the loan is so high that it is worth it for me to start putting money back into the warrants.

 

I totally missed that, thanks for the details [ My first warrant purchase so i should think of it as cost of education / leverage  :) ]. Including cumlative dividend of ( 1.2 * 5 = 6$) for 5 years,  common and warrants start to look equal around at around $39 per share, any price more than $39 on the common by 2019, warrants come out ahead

[txlaw]

is anyone seriously considering those self driving cars a long term threat? Younger people buying less cars etc. I mean in next 5 years or so it probably doesnt matter. But if you assume like 12x multiples here, then you have to start thinking about year 10 and 12. A lot can happen in that time? couldnt that take a serious bite out of the market?

 

Only worried if I see that GM and the auto manufacturers do not adapt. 

 

First, ROW growth will continue regardless of self driving cars -- someone has to manufacture the cars and distribute them.  And cars do wear out so there will be a replacement run rate even if self driving cars become ubiquitous.

 

Second, there is an opportunity to actually get into this market if you're a big auto manufacturer.  You can transform into a large scale fleet management company that happens to be vertically integrated.  GM -- like every other big auto manufacturer -- has been working on self driving cars for a long time.

 

Third, you will start to see all sorts of services being offered by these guys.  GM, for example, is going to start offering OnStar LTE for a subscription fee.  Who knows what other offerings they're working on?  I know they have a technology center in Austin where they appear to be hiring in anticipation of all sorts of interesting service offerings.

 

Ultimately, if GM were just mildly undervalued, I would be worried, but at this price, I'm not worried at all. 

[txlaw]

And I think that Barra probably is the right person to make sure that this change occurs.  She's like the Moynihan of GM -- at least, that's the hope.

 

Not a ringing endorsement some in this board would say (not me as you know).

 

I actually think Mary Barra is behind the ball. She better start doing a better job.

 

 

She reminds me a lot of Moynihan exactly because of the PR issues.  Ultimately, though, it's about having someone who can chip away at the bad culture and just get the battleship on the right track, which is exactly what Moynihan has been doing (balance sheet mistakes notwithstanding).  Neither Moynihan nor Barra are superstars, but they're both "company men" who have the right idea of what the company should become.

 

It is weird -- it's like Marchionne: Barra as Dimon: Moynihan.

 

Hmm, two articles in Forbes this week about Moynihan and Barra:

 

http://www.forbes.com/sites/halahtouryalai/2014/05/28/revealed-brian-moynihans-grand-plan-for-bank-of-america/print/

 

http://www.forbes.com/sites/joannmuller/2014/05/28/exclusive-inside-mary-barras-urgent-mission-to-fix-gm/

[moody202]

Self driving cars? I doubt that. My concern with self driving cars is that they could probably be hacked and that would prevent me from buying one even if I could.

 

I can't wait to get one. If my computer can be hacked and my financial institution can be hacked, I should be ok with the car getting hacked.

 

Upendra

[ERICOPOLY]

Mohnish should have chosen 'OBAMACAR' for his plate.

[investor-man]

Mohnish should have chosen 'OBAMACAR' for his plate.

Haha! That is some solid gold comedy right there

[LC]

I'm more concerned with the make. GM? Cmon Mohnish, treat yourself to a Maserati :)