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Ted Barac  

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  • REITs Are 23% Cheaper Than They Look [View article]
    "An index comprised of universe B would also have a price/FFO of 20..."

    No, actually, a universe of one company with a P/FFO of 35x and another of 5x would have a P/FFO of 8.75x. I believe that the index doesn't average the multiples, like you did, but takes the aggregate Market Cap./Aggregate FFO (unless this is different for REIT indexes?):

    Let's assume company C and D are equally weighted (as your example seems to assume) at $100:

    Company C: Price (Market Cap.): $100, (Implied) FFO: $2.86x, P/FFO: 35x
    Company D: Price (market Cap.): $100,(Implied) FFO: $20.0x, P/FFO: 5x
    Universe B: Price (Market Cap.): $200, (Implied)FFO: $22.85, P/FFO: 8.75
    Aug 31, 2015. 09:19 AM | 3 Likes Like |Link to Comment
  • The #1 Stock In The World [View article]
    I agree that risk doesn't equal volatility, but I struggle to see how this security exploits that misconception. XIV trades based on actual option-implied expectations for volatility, not based on a desire by different counter-parties to "own or avoid volatility" and resultant supply and demand considerations.

    In fact, one can wish to avoid volatility and equate it to risk while expecting future volatility expectations to decline (thus, being directionally bullish on XIV). Conversely, one can not care about volatility and not associate it with risk, but still expect future volatility expectations to increase (thus, not wanting to own this security).

    If you want to exploit counter-parties that are volatility-averse, buy volatile stocks that are priced at a discount for that reason. Buying this ETN is making a directional bet on actual option-implied volatility expectations.
    Aug 29, 2015. 12:48 PM | 2 Likes Like |Link to Comment
  • Accounting In The Cell Phone Game [View article]
    Thanks for the article.

    I believe that the real issue is that the leasing model capitalizes the costs of the handsets (and depreciates them over time), whereas the non-leasing model expenses them as a cost of product. As such, the handset expense doesn't get captured by EBITDA like it did before.

    Look at Sprint's recent quarterly results, for example. Equipment revenues declined by only $116mn (year-over-year) while cost of product decreased by a whopping $793mn (and depreciation increased by $373). As you can see, on a relative basis (when comparing to prior quarters), EBITDA is flattered by the shift to leasing and the resultant shift of handset expenses from cost of product to depreciation.
    Aug 19, 2015. 04:30 PM | Likes Like |Link to Comment
  • Viacom: Value Trap? [View article]
    Fantastic article, Thomas! Thanks, so much.
    Aug 18, 2015. 08:23 AM | Likes Like |Link to Comment
  • A High-Yield, Low-Price Stock That's Traded In A Tight Range For 5 Years Is Great For My Immediate Income Stream [View article]
    "RS didn't say that $5/shr was a 'floor' or that $5/shr was the lowest it could go. He said that $5 was the most you could lose. Friday, it closed @ $5.01 so if it goes to $0.00 the most you've lost is $5.01/shr. Get it?"

    So, in other words, your downside is limited to a 100% loss.
    Jun 28, 2015. 07:56 PM | 4 Likes Like |Link to Comment
  • Yelp: Look Out Below! [View article]
    Thanks for the article. A few questions:

    1.) Stoppelman has about $300mn tied up in Yelp shares. In such situations, it's perfectly normal for CEO/founders set up programs to periodically sell some of their options/shares over time. I think that many would consider that to be common sense diversification and not bearishness -- plus Stoppelman has a salary of $1.00 (one dollar), so he probably wants some periodic cash flow. Do you always view CEO/founder sales like this as bearish or is there something specific to Yelp's situation that makes you view it as such?

    2.) Not sure I understand the point of your comparisons. The Clippers had revenue of $146mn last season while Yelp had revenue of $377mn last year (and I don't think the Clippers are expecting 50%+ revenue growth this year like Yelp). Similarly, Denny's and Krispy Kreme (combined) don't seem like obvious bargains to me, relative to Yelp, when looking at prior financials and forward growth rates. Why do you view these comps as examples of Yelp's overvaluation?

    3.) "Billion Dollar Bully" is a "Kickstarter" project that has raised less than $100k (through Kickstarter) to produce the film. With all the haters against Yelp, you would expect that they could have raised more, no? The way some bears talk about it, you would think that it was a Spielberg production. Also bear in mind (no pun intended) that the allegations in the documentary appear to have been discredited already by the F.T.C., the court system, and a Harvard Business School study. All things considered, why do you put so much weight on this documentary?

    Don't get me wrong, there are many risks with Yelp and many reasons to be cautious (as a lot of growth is still built into the stock price and there's a lot of uncertainty as to how their business model will work over the long term). That said, I don't think that Stoppelman selling shares, or the Clippers/Denny's/Krispy Kreme relative valuation comparisons, or the "Billion Dollar Bully" documentary are good reasons for bearishness.
    Jun 14, 2015. 10:52 PM | 5 Likes Like |Link to Comment
  • Why You Shouldn't Put Too Much Weight On Dividends [View article]
    mjs_28s,

    You are right that investors should have foreseen those bubbles, but the fact is that many didn't (hence why tech and housing prices kept going up for years after they became overvalued). Investors (wrongly) justified the new prices. For tech stocks, it was a common belief that there was a new paradigm and the internet made old valuation methods obsolete. For housing, it was a common belief that, while growth may slow, real estate prices would always go up. Many held onto those beliefs through greed or impatience (after seeing prior bullish views never materialize over years...some losing fortunes shorting when valuations were way too high, but well before the corrections occurred). Worse yet (far from selling out before the price implosions) many capitulated and sold at the worst time (when prices actually became attractive).

    If you predicted the bubbles correctly, you were eventually well rewarded but it was a lonely time from '97 to '00 for tech bears and '04 to '08 for housing bears (I was both). In fact, portfolio managers lost jobs for not chasing the overvaluations and (temporarily) under-performing the indexes. Wall Street isn't known for its patience.

    Let's move on to today and make some forward-looking (rather than the very easy backward-looking) views. Take a look at this chart of 10-year Treasury yields (below). Looks similar to the bubble charts that you showed. Are you seeing a bubble now in Treasuries? Did you see one in 1987 when yields fell to 7% (after being at over 15% in 1981)? They kept falling for almost another 20 years (so far) from there. Is this an obvious bubble now or is their a "new paradigm" where low inflation and even lower European sovereign yields will anchor lower rates for the foreseeable future? Many (again) see a new paradigm. What say you (I say another bubble)?

    http://bit.ly/1dsUTns
    May 25, 2015. 09:33 AM | Likes Like |Link to Comment
  • My Amazing Quarter [View instapost]
    Contact a tax expert (I'm not one), but if it's a minor child and you control their account, I think it could be considered a "related party" and the loss would also be disallowed.
    May 22, 2015. 09:37 PM | 1 Like Like |Link to Comment
  • My Amazing Quarter [View instapost]
    "Selling a loser in a taxable account and buying it back in a retirement account avoids wash sale."

    Not true. "The IRS has ruled (Rev. Rul. 2008-5) that when an individual sells stock or securities for a loss and causes his or her IRA or Roth IRA to buy substantially identical stock or securities within 30 days before or after the sale, the loss on the sale is disallowed under section 1091 and the individual's basis in the IRA or Roth IRA is not increased by virtue of section 1091(d)."

    http://bit.ly/11Hg1PX
    May 22, 2015. 09:11 PM | 1 Like Like |Link to Comment
  • Why You Shouldn't Put Too Much Weight On Dividends [View article]
    "I'm talking only about taxable accounts and whether it's better to pay tax today on a dividend, or tax on capital gain in the future."

    Alex, your example on deferment still makes no sense. In example 1, you pay taxes on the $100k starting capital and all income derived from that $100k (deferred/paid in year 10). In example 2, you only pay taxes on your $100k starting capital (paid in year one) and then enjoy tax free earnings on the annual income from the residual $65k over the next ten years. Of course the deferment benefit is negated if you make up such a favorable (yet unrealistic) tax-free alternative scenario. Just because you pay taxes on something doesn't mean you don't have to then pay taxes on the income subsequently derived from the returns on that residual (after-tax) capital.

    As I laid out before, here's how the math for the two examples would work in real life:

    Deferred: $100 earning 10%/year for 10 years grosses you $159.37 in income. You only pay taxes on the income ($159.37) at year 10 (you taxed the whole balance - including your $100 cost basis -- in your example). At a 35% tax rate you net $103.59 in income, giving you an ending balance of $203.59.

    Non-deferred: $100 earning 10%/year would net you 6.5%/year in earnings after taxes (using the same 35% tax rate). Compounding these earnings over ten years you would earn you $87.71, giving you an ending balance of $187.71.

    So, the deferment nets you $15.88 more (off of the $100 investment). This intuitively makes sense as you are getting returns on the deferred taxes (over the 10 year period) in the first example and you are not doing so in the second.
    May 20, 2015. 06:01 PM | 2 Likes Like |Link to Comment
  • Why You Shouldn't Put Too Much Weight On Dividends [View article]
    Alex,

    Your examples are not really relevant to how taxation works in real life. A true life comparison would be as follows:

    Deferred: $100 earning 10%/year for 10 years grosses you $159.37 in income. You only pay taxes on the income ($159.37) at year 10 (you taxed the whole balance - including your $100 cost basis -- in your example). At a 35% tax rate you net $103.59 in income, giving you an ending balance of $203.59.

    Non-deferred: $100 earning 10%/year would net you 6.5%/year in earnings after taxes (using the same 35% tax rate). Compounding these earnings over ten years you would earn you $87.71, giving you an ending balance of $187.71.

    So, the deferment nets you $15.88 more (off of the $100 investment). This intuitively makes sense as you are getting returns on the deferred taxes (over the 10 year period) in the first example and you are not doing so in the second.

    Also, these examples don't even factor in the fact that your tax rate on the long-term capital gains in example one (15%) might be lower than what you are taxed on the dividends in example two.
    May 19, 2015. 09:47 PM | 6 Likes Like |Link to Comment
  • Yelp: A Deal Won't Happen [View article]
    Thanks for the article, Michael. Just a couple points:

    I think you're overly focused on goodwill (which is a non-issue in my opinion). If a company sees value in Yelp, I don't think that goodwill is going to be a key consideration for a couple of reasons:

    1.) If they see value, they don't expect a write-down.
    2.) Even if the acquisition is a failure, the goodwill issue (in-and-of-itself) isn't that big of a deal. A write-down obviously is never desirable (as it means that the acquisition was a dud), but analysts normalize earnings for valuation purposes and throw these one-off items out of the equation (as they are focused on future cash flows, which aren't impacted by a write-down). A failed acquisition of a tangible-asset-heavy (at acquisition) company can be equally undesirable.

    Also, I think you need to consider what the market considers a high EV/revenue multiple (look at the market comps) and not rely on your personal view (which only tells us that you aren't a likely acquirer).
    My view from a few weeks ago:
    http://seekingalpha.co...
    May 11, 2015. 05:03 PM | 1 Like Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Serenity, with all dues respect, you seem to be having a problem with logic in these discussions. Buffett likes A = Buffet only likes A.
    May 10, 2015. 04:53 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Exactly my point, serenity! In light of the quote that you just referenced, I hope you can now understand the point that Buffett's statement:

    "Diversification is protection against ignorance. It makes little sense if you know what you are doing".

    shouldn't be taken literally, as I believe that his meaning was that you shouldn't OVER diversify. Taking the quote literally (as you originally endorsed doing) could be very dangerous.
    May 6, 2015. 04:09 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    I agree and I'm a huge fan of Graham. Like Buffett, however, I believe that you can also find value opportunities (securities trading well below their intrinsic or expected value) and pricing inefficiencies in investments beyond those found within the guidelines of Graham. I suspect that Graham would also agree that his guidelines are general and aren't meant to be all inclusive -- i.e. capturing ALL attractive investment opportunities.

    You seem to think that Buffett follows Graham's advice to the letter, but then you say to take Buffett's quote about diversifying literally. That would put him in stark disagreement with Graham, who was a huge proponent of diversifying.
    May 6, 2015. 09:54 AM | Likes Like |Link to Comment
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