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Ted Barac  

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  • 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 | Likes 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 | Likes 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
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Oversimplify and take the quotes literally at your own risk, Serenity. I think that you will find that Buffett's investment criteria goes well beyond that of the traditional Graham methodology (though that's clearly a huge component of it).

    Buffett has shown to be attracted to mispriced securities of different kinds (not just the traditional ownership of undervalued businesses with a high margin of safety). For example, he sold billions in options (puts) on both junk bonds and the equity indices because he believed that they were mispriced. He also recently said that he would short long-term bonds if there was an easy way to do so and he could do it in scale that made sense for him (does that fit into what you believe Buffett's value investng is about?).

    If you think Buffett wouldn't put money into an investment that he believed had a 45% chance of quadrupling and a 55% chance of losss of principal (an investment most likely to produce a loss and to go against "rules number 1 and 2"), I don't think understand him as well as you think that you do. That security would be severely mispriced and trading substantially below its intrinsic value (though the most likely outcome of investing in it would be a loss).
    Oversimplifying complex issues is easy, but not always wise.
    May 5, 2015. 09:44 PM | Likes Like |Link to Comment
  • Has Revenue Growth Stalled At Level 3 Communications? [View article]
    I really don't get the attractiveness of LVLT here. If they meet your expectations over the next 4.5 plus years, then they grow into their lofty valuation (at over 7.0x 2019 EV/EBITDA and almost 2.8x 2019 EV/revenues, based on your estimates). If they don't, the downside could be huge. Risk/reward seems horrible to me at these levels.

    That said, I've believed this for a while and the market has strongly disagreed with me, so far.
    May 5, 2015. 11:56 AM | Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I would be inflationary because it increases the money supply. Think of it this way, $100bn of QE increases the money supply by $100bn while reducing the financial assets available for purchase in the markets by $100bn.

    Let's just leave it at that. If you want to believe that QE doesn't increase the money supply and/or, that an increase in the money supply can't have inflationary effects (granted, it's also dependent on the velocity of money and other factors), then that's fine. It doesn't appear that I'm going to be able to convince you otherwise.
    May 4, 2015. 03:50 PM | 2 Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I think you responded to the wrong comment, Colin. I said nothing about stock prices or the stock market. I was talking about the impact of QE on the money supply.
    May 4, 2015. 03:30 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    You seem to be confused by the fact that the money that's being created by the Fed is used to buy financial assets (and not just given away). That only means there is no increase in wealth for the private sector (you are right that it is just an asset swap for the banks). However, since the money used to buy the bonds was created, there is an increase in the money supply.
    May 4, 2015. 02:58 PM | 2 Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    Buffett didn't leave billions in the table because of "macro misunderstanding". Not timing the peak of a bubble shouldn't be confused with being wrong. In 1998 and 1999, people also accused Buffet of "being wrong" about the value of internet stocks. I believe this call on interest rates will end the same.

    Buffett understands Q.E. just fine. Yes, it is just an "asset swap" but the cash used to buy the bonds is created and increases the Fed's balance sheet (and the money supply). Do you not believe this to be true?
    May 4, 2015. 02:45 PM | 2 Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Mark_A, it's also interesting to think what would have happened if some unforeseeable catastrophe (e.g. undetectable accounting fraud) subsequently occurred with Buffett's (40% concentration) AMEX investment (always a possibility, no matter how small).

    What if a very unlikely tail risk event occurred and he lost all 40% of his capital (plus never obtained the massive returns that AMEX delivered for him).

    How would his long-term track record have been impacted? Did that highly concentrated investment put him just one black swan event away from never being considered "The Oracle of Omaha"?
    May 4, 2015. 10:20 AM | Likes Like |Link to Comment
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