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BAC Puts/ Sell?


wescobrk
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I'm holding until it's well over 20 and/or indefinitely!

 

I concur Racemize, I have no plans on selling my commons or warrants until its more reflective of IV.  I'll go out on a limb with closer to $30 over 7 years.  I hope the price stays below TBV for a number of years while the company buys back a ton of stock and issue nice dividend.  :)

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If BAC plays out like I (and a lot of people on this board) expect it to, it will probably become a "hold forever" type position because of the tax consequences. Don't forget the expected capital gains tax increases for those in the U.S.

 

I made the mistake of getting too happy when I sold my AIG bonds that I brought in 2009 to lock in a 1000% gain (it was my first 10-bagger). Within a hour of my celebration, I thought about the tax consequences and it felt like a knife twisting in my chest because I realized I made an incredibly dumb mistake. That big check I wrote to Uncle Sam could have been generating nice interest payments for the next decades.

 

If you have a big gain and there is nothing wrong with the company, just sit on your ass and let it compound.

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I'll play devils advocate. In 2014 and 2015 I can understand BAC going above tbv, but among 30 analysts BAC will earn about 90 cents a share in 2013.

Mr. Market places primacy on earnings and not the balance sheet. I don't see how BAC can hit tbv (Sanjeev) by Christmas which would imply about 14x earnings.

 

BAC's cost of capital consensus is about 12% and it is earning low single digits. Clearly Mr Market can become euphoric and it go to 14 by year end but it looks unlikely even dare I say through March when tbv will probably be 14 a share.

 

BAC is over half my portfolio and thanks to this board I'm up over 60% ytd in IRA and about 35 in taxable (my portfolio isn't that big though it is under 250k and I'm in my upper 30's to respond to a different thread regarding performance). I did my own analysis bit have a complicated option setup like Eric along with out of the money puts on S&P.

 

I plan on selling quite a bit once it crosses 10 and probably switch to the common with a lower weighting of my port and if it comes back down -which certainly is a possibility- I can do it again, if it doesn't, I still profit but not nearly as much (but with less risk).

 

I'm ready for board criticism on my doubts for BAC as i know it is very popular on this board.

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BAC is over half my portfolio and thanks to this board I'm up over 60% ytd in IRA and about 35 in taxable (my portfolio isn't that big though it is under 250k and I'm in my upper 30's to respond to a different thread regarding performance). I did my own analysis bit have a complicated option setup like Eric along with out of the money puts on S&P.

 

I plan on selling quite a bit once it crosses 10 and probably switch to the common with a lower weighting of my port and if it comes back down -which certainly is a possibility- I can do it again, if it doesn't, I still profit but not nearly as much (but with less risk).

 

I'm ready for board criticism on my doubts for BAC as i know it is very popular on this board.

 

 

 

I'm wondering if anyone here views BAC as a forever holding??

 

I think anyone who was able to buy BAC at $4,$5, $6, $7 is sitting on something very similar to Philip Morris Companies, Inc back in 1999/2000. This would be the old Philip Morris that included Kraft, Nabisco, Miller Brewing, PM International, and PM Capital. This was a $20 stock with a 9% dividend. No one wanted it and it was in the $20's for years. Today those pieces are worth $150 and your dividend yield would be approaching 35%

 

The sentiment shift on this will not be something that happens overnight. BAC could compound 20%+ for decades. Why would anyone sell that?

 

Just curious. Did Buffett ever sell any AXP shares?

 

I'd view BAC in the same category as American Express and Philip Morris. By the time BAC is $20, book value may be $30. By the time BAC's $30, book value could be $40. This can go on forever. The dividend could rise annually for the rest of our lives beginning in 2013.

 

Sorry if I'm sounding overly hopeful here, I'm only 35 years old. I wish I had more Philip Morris back in 2000... And I say that even though I had over 25% of my portfolio in it.

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I'll play devils advocate. In 2014 and 2015 I can understand BAC going above tbv, but among 30 analysts BAC will earn about 90 cents a share in 2013.  Mr. Market places primacy on earnings and not the balance sheet. I don't see how BAC can hit tbv (Sanjeev) by Christmas which would imply about 14x earnings.

 

Not true.  Market perceptions always change.  Why is Fairfax around book, but BAC isn't?  As litigation and loan loss overhang disappears, markets will value BAC closer to TBV and then BV.  I suspect you will see some settlements in the next couple of months and continued positive improvements in 3rd Q and 4th Q financials.  BAC needs to settle some issues so that dividends and buybacks are definitely approved in the next round of stress tests.  2012 was the last year of strengthening the balance sheet  for BAC and losing weight after the heart attack.  2013 and forward will be building back the muscle mass and continued efficiencies. 

 

I'm ready for board criticism on my doubts for BAC as i know it is very popular on this board.

 

No one liked this thing at $5, so why would they like it anymore now after significant improvement.  Markets always jump in after all the heavy lifting is complete...not before.  I couldn't see any reasonable reason why it would not hit TBV by Christmas, but I cannot control market sentiment.  I still think it will get close...$12-12.50.  If it doesn't do it by year-end, barring any significant broad market correction, it will hit it sometime next year...onwards and upwards!  Cheers!

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BAC is over half my portfolio and thanks to this board I'm up over 60% ytd in IRA and about 35 in taxable (my portfolio isn't that big though it is under 250k and I'm in my upper 30's to respond to a different thread regarding performance). I did my own analysis bit have a complicated option setup like Eric along with out of the money puts on S&P.

 

I plan on selling quite a bit once it crosses 10 and probably switch to the common with a lower weighting of my port and if it comes back down -which certainly is a possibility- I can do it again, if it doesn't, I still profit but not nearly as much (but with less risk).

 

I'm ready for board criticism on my doubts for BAC as i know it is very popular on this board.

 

 

 

I'm wondering if anyone here views BAC as a forever holding??

 

I think anyone who was able to buy BAC at $4,$5, $6, $7 is sitting on something very similar to Philip Morris Companies, Inc back in 1999/2000. This would be the old Philip Morris that included Kraft, Nabisco, Miller Brewing, PM International, and PM Capital. This was a $20 stock with a 9% dividend. No one wanted it and it was in the $20's for years. Today those pieces are worth $150 and your dividend yield would be approaching 35%

 

The sentiment shift on this will not be something that happens overnight. BAC could compound 20%+ for decades. Why would anyone sell that?

 

Just curious. Did Buffett ever sell any AXP shares?

 

I'd view BAC in the same category as American Express and Philip Morris. By the time BAC is $20, book value may be $30. By the time BAC's $30, book value could be $40. This can go on forever. The dividend could rise annually for the rest of our lives beginning in 2013.

 

Sorry if I'm sounding overly hopeful here, I'm only 35 years old. I wish I had more Philip Morris back in 2000... And I say that even though I had over 25% of my portfolio in it.

 

I'm hoping it is a forever holding.  My issue right now is that I've got so much financials.  Assuming they do what I think they will, and I keep holding, I'll be very heavy financials later too, when they get closer to IV/normal operations.  It seems like there is a recurring theme of financials killing themselves over long periods of time, so perhaps that would not be so wise...

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I'm wondering if anyone here views BAC as a forever holding??

 

I've put a lot of thought into this.. I like the story and, I like the fact that Im a shareholder in a wonderful business that is an integrated part of the US system.. Im also young and agree with you that BAC could very well be a 20+ CAGR story for many years to come.. (not sure if its such a good thing two young investors agree on this).. I don't have a pre-determined selling price or metric so will just see how the story develops.. "A few really big ideas carry most of the freight." - Munger

 

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Mike Mayo put a $2 in earnings power number on BAC last year and then just a few months later set a $7 price target on the stock (as you would expect he did the price target drop after the share price had dropped significantly).

 

I suppose there is career risk involved in these decisions.  Once the analysts get comfortable to stick out their necks again they'll remember the $2 in earnings power that they so quickly forgot.

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Mike Mayo put a $2 in earnings power number on BAC last year and then just a few months later set a $7 price target on the stock (as you would expect he did the price target drop after the share price had dropped significantly).

 

I suppose there is career risk involved in these decisions.  Once the analysts get comfortable to stick out their necks again they'll remember the $2 in earnings power that they so quickly forgot.

 

LOL!  That's why I've never paid any attention to analysts.  Half the stuff I would have bought would never have been purchased if I had listened to them.  Cheers!

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Guest rimm_never_sleeps

i remember cio for Markel praising the bac franchise in mid 2006 as if it was an inevitable. what the debacle taught us is that no financial company that needs leverage to produce earnings should be considered that.

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BAC is over half my portfolio and thanks to this board I'm up over 60% ytd in IRA and about 35 in taxable (my portfolio isn't that big though it is under 250k and I'm in my upper 30's to respond to a different thread regarding performance). I did my own analysis bit have a complicated option setup like Eric along with out of the money puts on S&P.

 

I plan on selling quite a bit once it crosses 10 and probably switch to the common with a lower weighting of my port and if it comes back down -which certainly is a possibility- I can do it again, if it doesn't, I still profit but not nearly as much (but with less risk).

 

I'm ready for board criticism on my doubts for BAC as i know it is very popular on this board.

 

 

Just curious. Did Buffett ever sell any AXP shares?

 

 

Correct me if I'm wrong, but Buffett did sell his AXP shares after the salad oil scandal only to repurchase them later. 

 

I plan on holding until BAC reaches fair value.  Today that would be around BV.  Remember BAC sold for over TBV back when it was recording it's heaviest losses in late 2009 and early 2010.  A little better than a year ago the concerns were all about having to raise capital.  Today the balance sheet is in much better shape, they are very well reserved, and housing seems to have found a bottom.  That said, concerns still linger over litigation and putbacks issues.   

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i remember cio for Markel praising the bac franchise in mid 2006 as if it was an inevitable. what the debacle taught us is that no financial company that needs leverage to produce earnings should be considered that.

 

He praised the BAC franchise that existed in 2006.  That part of BAC did just fine, leverage and all.

 

Anyways, here is how I hope to dispose of my BAC.

 

Hold it until they are paying a dividend yield of 60 cents a year -- begin to sell it when other large cap stalwards are paying a similar yield.  This way I can preserve my earnings power while diversifying.  The first 50% of BAC that I sell will be the easiest because it will be a tax-free transaction.  The taxable portion will be harder, but I can always hedge it instead of selling it (by writing puts on other stalwarts and using the proceeds to hedge my BAC position).

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What is the board's view on what Merrill Lynch is worth?  I've heard various different valuations, but have to believe it's worth at least what the current price of BAC is thus making the bank free.  Also, what does the board think are the odds it is spun off?  To me the cultures have never really meshed.  The commercial bankers with the gunslingers isn't a match made in heaven.  I would think it does get spun off at some point, but who knows.

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What is the board's view on what Merrill Lynch is worth?  I've heard various different valuations, but have to believe it's worth at least what the current price of BAC is thus making the bank free.  Also, what does the board think are the odds it is spun off?  To me the cultures have never really meshed.  The commercial bankers with the gunslingers isn't a match made in heaven.  I would think it does get spun off at some point, but who knows.

 

I'm sort of hoping (a long shot) that somehow the bank splits itself into smaller pieces to get out from under the onerous 9% Tier 1 common capital rules.  Wells Fargo is smaller and/or less risky (no Merrill Lynch) and only needs 8% Tier 1 common capital.

 

 

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Kevin42u, you are correct.  When BRuce B was first buying BAC it was in the 15 range, and he saw it as deep value.

 

Buffett held AXP awhile but had definitely sold out before he wound up his partnership.  Then he bought back in sometime in the mid 80s pre coke. 

 

Merrill was bought for 50 B.  BAC is valued at 90 B today.  If they floated ML they could do one hell of a buyback and dividend, and reduce their Basel and Sifi requirements.  My guess Kraven is that ML is probably worth closer to 100 B these days.  It was kind of a fire sale at the time to keep it afloat. 

 

Countrywide, maybe not so much....

 

The IB business is going to pick up.  It would not surprise me if ML was IPOed at an optimum time.  Since they dont really need the cash they might as well wait until they canget top dollar for it.

 

 

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Kevin42u, you are correct.  When BRuce B was first buying BAC it was in the 15 range, and he saw it as deep value.

 

Buffett held AXP awhile but had definitely sold out before he wound up his partnership.  Then he bought back in sometime in the mid 80s pre coke. 

 

Merrill was bought for 50 B.  BAC is valued at 90 B today.  If they floated ML they could do one hell of a buyback and dividend, and reduce their Basel and Sifi requirements.  My guess Kraven is that ML is probably worth closer to 100 B these days.  It was kind of a fire sale at the time to keep it afloat. 

 

Countrywide, maybe not so much....

 

The IB business is going to pick up.  It would not surprise me if ML was IPOed at an optimum time.  Since they dont really need the cash they might as well wait until they canget top dollar for it.

 

It's a shame Mr. Magoo, aka Ken Lewis, didn't do what Wells Fargo did with Wachovia several years when they got it basically for nothing. 

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