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    • Wells Fargo Sham Revealed [view article]
      Mr. Pug:
      Thanks for you comments. According to my calculations, the increase in dividend of $.03 per quater cost the company about $397million per year in additional capital. That is about 0.8% of their total capital. That does not sound like much to me. $397 is about 20% of the $2.0B sub debt they just raised. Therefore, I think the author has a point that they are paying from one pocket and putting it back into another. But if I were running the bank and knew for certain my loan and investment portfolio was in good share I would keep up with the long history of dividend increases. It is not like this was a special dividend or out of line. If you take a look at the 2Q08 cash flow statement you will see that they cut back share repurchases to $500M from $2B in the first 6 mos. That had the effect of leaving $1.5B in equity in the company. So all in all, I just don't see this as being a big deal let alone a sham.

      On to another point. I have to admit that I sold WFC a while back at $31. I still hold USB. I just got nervous about WFC having such a big position in home equity loans, car loans and credit cards. I don't think we have seen the end of home price declines in CA nor the bottom of consumer pain. Your comments on the loan quality?       Sep 06 11:14 AM
    • 15 Value Hedge Funds - Portfolio Update [view article]
      I guess I am dumb like you. I think seeing what some pretty bright people are buying and selling is a pretty good place to get ideas to do my own research. It also provides a good benchmark to compare to my own portfolio.

      You should do some further research on whether Buffett sold COP. I saw another post that he, in fact, got an expemption from the SEC to not report is position in that stock. Therefore, it simply droppped from the list and not sold. Given that COP is pretty cheap compared to the rest and that he and Gates were up in Canada looking at oil sands, it seems unlikely that he just punched out of this position in one quarter       Aug 21 02:18 PM
    • The Long Case for American Express [view article]
      Well Done! How refreshing to find someone on this site that actually reads financial statements!

      AXP is the largest card issuer in the world based on total billed business. It billed $181B in 2Q08. The next largest was Citi at $106B (1Q08). That is 71% more than its closest competitor. They have about 24% of total US purchase volume. Discount revenue was up in 2Q08 by 8.7% YOY and their average discount rate was 2.56%. I am pretty sure that is significantly higher than V or MC. (Let me know if you have that stat) You did not mention their superior rewards program that they can afford through their higher rate that locks in customers. Also, Basic cards in force grew 11% (7% US, 17% non US). Their average FICO at acquisition in 1Q08 was 733 charge, 750 credit. This company produces a great ROE of 35% in normal times and they expect to grow EPS 12-15% per year again in normal times. Their earnings declined 36% this quarter. But all in all, this is a great world wide franchise producing great returns with shareholder oriented management and is not going to go away.

      The big issue right now is increasing credit losses on their LOAN portfolio. As you point out their CC receivables are showing higher wirte offs but it is not that bad. It is their loan portfolio of $49.7B ($77B including their OBS securitization) that has blown their credit models and incured a 141% increase in 2Q08 YOY. And the company has said they can't predict where it will stop.

      So how bad can it get? Looking at a historical chart provieded in their 2/08 presentation, Net Write Offs went as high as 10% in '91 and dropped to around 7% the following year. It reached 7% 2 more times in '98 and '02. It looks like it averages around 4.1%. AXP would make the case that they are better at credit evaluation now. Who knows? Their charge off rate in 2Q08 was 6.7% on a managed basis or $827M on a loan portfolio of $49.7B. This write off rate and the related provisioning caused them to lose money in their US card business for the quarter. So if their write off rate increased to 10% over the next 12 months, that would be an additional $416M in expense per quarter on top of the $827M. I assume the loss provisioning ultimately equals the write offs. While not good at all, the company would still make money. Pretax earnings for this depressed quarter were $766M.

      Bottom line - this is a well run company with a very powerful worldwide brand that produces great returns on capital. It is going through a significantly difficult time. Like with all financial companies you never know how bad it will be until its over. But 12-18 months of below target performance does not kill the company. The stock is trading at depressed levels. At $36 per share it is around 15-16x depressed earnings. If you look out 3-5 years and assume the company will be earning what it did in '07 it is trading at 10.6x. Their model is not broken. The stock is cheap.       Aug 05 10:26 AM
    • Winners and Losers from the Mortgage Mess [view article]
      With all due respect, as the comments above point out, this was not a well thought out article. I have never heard before that it is OK for someone to lose their house so long as they never put up a down payment. I would not look at that as an indicator of personal financial strength. Aug 05 09:04 AM
    • Wells Fargo Lays Bear Trap on Wall Street [view article]
      Very well written piece compared to most shallow and/or emotional articles written here. I haven't read enough to make an intellengent comment but you made a very good case that I will investigate. Thanks very much Jul 19 10:45 PM
    • Investing in Dividend Paying Companies [view article]
      A couple of comments:
      1. Mr Okie - I believe your math is a little off this morining. Generating a 430% gain over ten years is NOT equal to 4% annually. If you got 4% annually on $100 for 10 years you would have $40, assuming no compounding. Using a HP17B calculator to compute the future value of $100 compounding annually at 4% you would have a future value of $148. (n=10, i=4%,pv=-100, pmt=0).

      To get a FV of 430% of your initial investment, your IRR would be 15.7%, not 4%. That is a very good return, especially considering that it is exclusive of dividend reinvestment. (n=10, pv=-100, pmt=0, fv=430)

      2. GM should be deleted from the list. They just announced a suspension of their dividend.

      It is getting bad out there!       Jul 15 10:44 AM
    • Are American Companies Now Up For Grabs? [view article]
      Wow, I can't believe the stupid reactions to the sale of BUD. KOB, do you really think Inbev bought this company for $70 to lose all its customers. Have you stopped drinking Smiroff vodka becasue DEO owns it? Has DEO sucked all their profits out of America? No they have a lot of operations in the US and support local economies. Maybe they should open an amusement park and you would be happier.

      Come On!!!! The US has spent away a lot of its capital for years. So what if a beer company is bought by a European company? It will work itself out       Jul 13 11:37 PM
    • Are American Companies Now Up For Grabs? [view article]
      Mr. Shepard,

      I really don't understand what point your are trying to make here or if there is one.

      Is it bad that a Belgian company buys BUD? You make it sound like a crime against nature. Do you think they will change the taste of the beer? Maybe they will send the Clydesdales to the glue factory and bring in Belgian work horses instead? It seems to me that many Americans only believe in free markets when we are the buyer. What would happen if BUD bought out the remaining stake in Modello? Would you be writing an article about how bad it is that Mexico just lost an iconic brand to an Amercian company? What really makes me laugh is how some people equate the sale of BUD to foreign company as the same thing as selling national security interests. It isn't. It is just a beer company. The Bush family has had years to create value for shareholders, which in my opinion they have not done. In a free enterprise economy, that is what matters. Its about time someone came in and realized the value in this company, be he Belgian or Martian.

      Maybe your point is that the dollar is down so foreign companies will find assets in America cheaper than they were a year ago? I don't think that requires rocket science. I was hoping you would make some suggestions about which companies would be especially likely to be bought and why. That would have some value.

      As for your analysis of investment banks, again what is your point?? Is it that because their profits are down they will stoop to advising European companies about acquiring US businesses?? Is that bad?? I thought that is what investment banks did - advise companies on M&A regardless of their national affiliation. Is that is lower margin business than selling stock to Mr and Mrs Retail Investor and should only be pursued as a last resort? I doubt it. Are European companies and investment banks so stupid that they would not be able to figure out on their own American companies look cheaper after the decline in the dollar? Again, I doubt it. Those little Europeans can occasionally be pretty smart all by themselves so you had better hide your women and children.

      My suggestion to you is think before you write.       Jul 13 09:59 AM
    • Phil Fisher on Profit Margins [view article]
      well done article. What are the 15 points from Fisher? Jul 10 02:03 PM
    • Phil Fisher on Profit Margins [view article]
      Well done article
      Jul 10 02:00 PM
    • Ten Reasons to Like American Express [view article]
      While I am also long AXP and agree that it is very cheap, I think you missed the main issues about the stock. Mastercard and Visa are payment processors only; they do not have loan exposure to their card holders. The issuing banks carry that exposure. With AXP, they not only have their own processing network, they carry the loan exposure on their books. With a mortgage, you at least have a house to collateralize the loan which may, at some point, be worth something. A credit card is unsecured. Therein lies Mr. Market's concern and why the stock is cheap. There is justifiable concern that things are going to get worse for Mr. Consumer and more people will default on their credit card debt.

      That said, as you point out AXP has a very high end client with some of the highest credit scores in the industry. They also have an award system that keeps Mr. Consumer locked into using the Amex card and if he becomes late, he loses his points. Amex has been through tough periods before. In 1991 I think their loss rate went up to 9% of their outstandings. (check the recent presentations on their website). Their current reserves are around 6% and they have better quality receivable now. The company should be on top of this issue. And, there are a lot of very smart guys who agree that they do.

      I personally think this is an understandable company, unlike AIG or Citi; they have very good management and I doubt you will ever get this company this cheap again. But, it may be awhile before Mr. Market recongnizes it. The risk is that Mr. Consumer falls out of bed and is killed. In that case there may be a lot more write offs than is now predicted. But that's the wager right now.       Jun 24 09:07 AM
    • The Dark Side of Dividends [view article]
      Regardless of whether the investor needs the cash, dividends give an investor the choice of how he wants to reallocate the earnings of the business. The investor can buy more shares of the company or purchase shares or bonds of another company. Cash in the hands of the investor is a good thing as it allows him to make his own reinvestment decisions.

      The other thing that has to be discussed when debating dividends is share repurchases. Many managers elect to spend their excess free cash flow buying back their company's shares. While, in principal, this can be a good thing as it eliminates taxes in dividend distributions, managers have not proven to be the best judges of when their shares are cheep and have bought shares at high prices destroying shareholder value. Share repurchase theoretically gives managers flexibility to buy in shares in periods when they have extra free cash flow and not when they have investment opportunites while maintaining their regualar dividend payout. They feel that if they were to pay out a large dividend one year when they had extra cash and then reduce it the following, investors would see this as a problem and the share price would drop. Personally, I would rather have the cash and pay the taxes rather than trust managers to always know when their stock is undervalued and should be repurchased. So give me the money. After all it is mine. I am a big boy let me make my own reinvestment decisions!       Jun 21 10:13 AM
    • CarMax: Running On Fumes [view article]
      I read your article and the comments and thought I would do some checking on the web at prices of used vs new cars. I found some interesting information. While the price of a used car is substantially different than a new, even with incentives, greater fuel efficiency does make a significant difference in the total monthly payment of a used car and brings it much closer to the monthly payment of a new car.

      I agree that there will be a decline in the number of cars purchased while we get through a protracted consumer recession. This will effect sales of both new and used cars. But let's look at the difference between the costs of buying used vs new. Since you mentioned gas guzzlers, I used a Chevy Suburban for example. A rought check that the Chevy website says a low end 2008 model goes for $39,000. It gets 14 city and 20 Hwy MPG. Take the average of 17MPG. If you go to the Carmax website, you can purchase a 2005 Suburban with 30K miles for $21,000. That is a savings of $18,000 or 46%!!! Very significant. But Chey will give you 60 month financing at 0% compared to maybe 8% on a used car. The monthly payment on the new car is $650 but the used car is only $426, 35% less!!! Again, big savings. Now, let's assume the 2005 gets worse milage, say 12MPG vs 17MPG. If one drives 15,000 miles per year you would use about 367 gallons less with a new car. At $4.50 per gallon you would spend about $1654 per year or $138 per month more on gas with a used car. That brings the total monthly cost of a used car up to $564, which is only $86 less than a new car. I was suprised at how much a difference 5MPG makes in monthly cost.

      That said, I think that the significant up front cost savings of a used car will be compelling to a lot of people. I would not write off the used car industry or CarMax. At est EPS of .84 for this year and a price of $18.50 that roughly implies a 10% growth rate over the next 5 years, which trails off over the next 10 years to 3%. Given the company has the ability to open many new stores over that period, it is certainly not unreasonable to hit this once the economy recovers. A $12 price would imply a flat 3% growth rate in perpetuity. I think they can do better than that. Therefore, I would certainly not short the stock. But, I sure don't see any obvious catalysts that would make the stock take off. Better to let the bears have their day and pick it up later at a better price. I think this is a great concept and they have real size advantages that will win the day in the long run.

      Lastly, how they account for securitization gains is irrelavent to cash flow and not worth considering. The real issue is whether they can do securitizations at all. They appear to have done one recently all be it a decreased profitability.       Jun 17 04:55 PM
    • Why Kass Is Wrong About Berkshire Hathaway [view article]
      I never considered the idea that this could be a marketing play rather than a financial one. Good insight.

      As far as shorting BRK, it does not make a lot of sense to me. The company has little leverage, other than its derivative portfolio, it has an extremely solid balance sheet. Everyone including WEB knows that company will not grow as fast in the future due to its size. And, the company does not sell for a huge valuation. Therefore, I see no catalyst that could occur that would suddenly drive the stock price down. Aren't there more interesting shorts out there? There has to be some highly leveraged companies selling for high valuations with yet to be determined true values of assets on their balance sheet.       Jun 06 01:06 PM
    • Investing in ETFs to Accommodate Change [view article]
      Sorry, but I do not know what your point is in the first 3 paragraphs. Are you saying that the majority of tax payers under report their capital gains and cheat the government? I can't figure out what the problem would be if brokerage houses reported costs as well as sales data. I must be missing something. thanks for your help Jun 02 10:52 AM
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