groty

Bank of America: Smarter Than We Think?

Investors have taken off $45 billion of market cap since May 1. I'm guessing they are anticipating a dividend cut, an equity offeirng and more writedowns.

Plus, no matter how much due diligence BAC is doing on CFC, it's impossible to estimate with any degree of accuracy the litigation risks they are facing and how regulatory mortgage/banking reforms will impact the business.

Seems like a value trap.

USG Corp: Another Buffett 'Failure to Sell' Mistake

My point was Buffett could not have sold at the top even if he wanted to.

Good luck finding a buyer for 170,000 calls. I'm not going to count the open interest for all contracts, but just eyeballing it I'd estimate the open interest for all strikes going out to January 2010 is about 12,000 contracts. And you think Buffett could find a buyer for 170,000 contracts?

The only buyers would be a gunslinging hedge fund or an I-bank prop desk, both of whom would only do the trade if they could not only screw you on the premium paid but also hedge their exposure.

I've already shown it would take about 8 months to sell 17,000,000 shares (i.e, hedge 170,000 options). Nobody is going to buy 170,000 calls from Buffett because the trade can't be hedged.

USG Corp: Another Buffett 'Failure to Sell' Mistake

The silliest part of this article is your assumption that Buffett could have sold at the peak. It implies that whoever top ticked the stock in April 2006 was willing to buy all of Buffett's stock from him at that price. Highly unlikely.

Buffett's positions are often so large he can only sell when the stock is in a parabolic upmove, as he did with PTR. If he waits until other larges holders are in distribution mode (after April 2006 in this case), he will destroy the stock.

Your argument makes more sense if you frame it that he should have sold from January to April 2006 (hindsight is always 20/20), when the stock was in its parabolic uptrend and traded roughly between $70 and $120. Just eyeballing the volume that traded then, I'd estimate it traded about 1 million shares per day. Even when a stock is in a parabolic uptrend, anyone who tries to trade more than 10% of the daily volume will move the market. So Buffett could only have traded about 100,000 shares per day without putting pressure on the stock price.

100,000 shares per day*22 trading days per month*4 months means Buffett could have only sold about 8.8 million shares at prices between $70 and 120 from Janaury to April 2006. After the peak, the stock dropped from $120 to $60 in about 2 months. If he had been a seller of even 10% of the daily volume then, he would have absolutely destroyed the stock.