http://www.stockpickr.com/members/problog/868/
Mr. Bradford,
Sorry to say, this is a very disappointing aritcle. What is the connection between taxes and decreasing the number of shares outstanding? Is this a new strategy of Mr. Buffett? You fail to make the connection.
Other points – Why are earnings going to “rocket”? How does any of this related to Mr. Buffett’s investing strategy?
You sound like a used car salesman.
By:skipolinger@comcast.net
Date: 08/19/08
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Good Day skipolinger@comcast.net
I try to write my articles as concise as possible and omitted a few details that you brought into question.
Q1: You asked for the connection between taxes and decreasing the number of shares outstanding.
Answer1:
When a company achieves a positive net income (makes money), there are many ways to utilize this money that benefit the shareholders. Generally, this made money first is categorized under shareholders’ equity. The company can use this money to improve it’s facilities and make general repairs, expand into other locations, purchase other companies, pay dividends, or buy-back stock. It is my understanding that Warren would have it that the company will make the decisions that in their minds benefit the shareholders the most. In the case of Terex, the current construction dilemma doesn’t warrant a lot of investment in purchasing more production equipment. Also, paying a dividend involves a double taxation. The income is first taxed at the corporate level and then is taxed when the investor receives the dividend. When the company buys stock back (reducing the number of outstanding shares), this net income only gets taxed once. I don’t believe paying less taxes is a new strategy of Mr. Buffet. He achieves this through several measures, such as avoiding trading companies and buying them with the intent of owning them. This avoids lots of transaction costs and taxes.
Q2: You asked why earnings are going to rocket.
Answer2:
I play my cards with good management. It’s my opinion that good management tends to make good decisions. With companies deciding to buyback stock at lower price levels when their company isn’t being pulled to expand, I can see them also making favorable decisions when business is booming.
Hope this helps.
Glen Bradford