Reader Feedback

One of the many benefits of this blog is the feedback I get from my readers. Here are a few interesting e-mails that I received over the past week. If you have any questions or comments, please drop me a line.
The first e-mail is in response to one of my many rants against share buybacks:

Share buybacks give an investor the option to receive cash (by selling some portion of their shares) or to own a larger portion of the company. Pre-tax considerations, it seems that an option to receive cash is superior to just getting the cash, no?

In theory, yes. But keep in the mind an important factor: the shareholder must take on some risk. Money used to buyback a stock will not always have the same effect as getting cash. Over time, it will. But in the short-term, there’s a risk factor that’s not present with a cash payout.
The ROE of a stock will in theory match the stock’s return after awhile. But even the least volatile stocks are volatile, so we have to shoulder some risk in the process. (Of course, sometimes the volatility works in our favor.)
Ideally, I’d prefer to not have to deal with taxes, and get a cash payment. Then I could decide if and when I reinvested the funds in management. I think that would be best for the shareholders, and accountability.
The is in response to my post on valuing Berkshire Hathaway (BRKA):

Berkshire’s non-insurance businesses are much larger than most people realize (e.g. your comment that BRKA is mostly an insurance company). In fact, in 2005, nearly 2/3 of Berkshire’s revenues were non-insurance (~65% thru 9/30/05). The profit contribution varies due to the cat losses on the insurance side, but less than half of BRKA’s recent earnings come from insurance.
If Berkshire’s non-insurance businesses were publicly traded, they would be one of the largest companies in the SP500. One issue the NYT article and yours didn’t mention is that BRKA’s disclosure on these large business – which are now a majority of revenues and earnings – is poor. That, along with the Buffett issue, weigh on the stock’s valuation, in my view.

That’s an excellent point.
In resonse to Mark Stahlman giving Google (GOOG) a $2,000 price target:

I think the most compelling reason behind Stahlman suggesting a target price is also the most compelling reason to sit on the sidelines of Google. It was written in the last paragraph of the article.
“Stahlman said his prediction was designed in part to comfort investors concerned by Google’s rapid ascent.”
Hmmmmm. Will he be there to comfort investors during Google’s rapid decent?

Exactly! Wall Street doesn’t turn to analysts for comfort. That’s been alcohol’s job for over 200 years.
And lastly, here are some comments on the news of the Dow passing 11000:

Could there be any more irrelevant index than the Dow? Made up of basically of 30 behemoths that were yesterdays news. They put stocks like Intel and Microsoft in at the very top of the bubble and have done little sense. They keep companies like GM until it will likely goes bankrupt. A very mismanaged group of 30 stocks that tell you little about where the growth of America is. It does a worse job every year.
I really wish people would stop quoting it.

Agreed!
Here’s my rant on that very subject.

Posted by on January 12th, 2006 at 12:18 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.