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Hello Kent,
My reading on Buffet's approach says a bit more than just buy back
shares. First, he's talking about companies he has invested in
already. He invested in them because he has seen and fully expects to
see earnings grow at greater than normal rates because management has
shown itself able to reinvest earnings to create yet more earnings.
the snag comes in the case of companies that aren't very successful at
using the money to make more money--which of course he would not own.
Buffet's history validates in part Gross's premise that equity return
is determined primarily by the valuation at which one buys. Take
Buffet and Coke. People jumped into Coke at greater than normal PE's
because Warren owned--it must be good. But he made his primary
investments when Coke was at 7-9 PE; they made theirs when Coke was
25+. His was a great investment, their's was ill-informed.
FWIW-- the best presentation of Buffet's approach is the stupidly
named Buffetology by his daughter.
Best regards,
Jim Johnson mailto:jejohn@xxxxxxxxxxx
--
Saturday, September 7, 2002, 12:27:18 AM, you wrote:
KR> Has anyone done a study of what the effect would be if you normalized Bill
KR> Gross 1900 S&P dividend yield for taxes? It seems to me that way back when,
KR> dividends were not taxed at all and corporate taxes were much lower if they
KR> existed at all back then. Warren Buffet disliked the taxes on dividends so
KR> much that he encouraged companies to buy back their stock rather than pay
KR> out dividends so that shareholders could decide when they wanted to realize
KR> gains.
KR> Although the S&P yield is at 1.7% today, I dare say that every company major
KR> that pays a dividend and many that don't have announced share buybacks.
KR> Shirley, this fact must be taken into consideration when analyzing how low
KR> can the Dow go based on dividend yield.
KR> Kent
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