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Apple is borrowing money
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Apr 30, 2013, 05:26 PM
 
     
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Apr 30, 2013, 05:43 PM
 
Maybe I don't know anything about stock, but why is Apple doing this? I don't think they need investors and shareholders anymore, so it shouldn't matter if they are happy or not. With its huge cash reserve, they should just give them the middle finger and keep their money. Who cares if stock drops to 10$ ? It seems really stupid to borrow money to give it away, while getting nothing in return, just to please some whiners who weren't even there when it mattered when Apple was dying...
     
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Apr 30, 2013, 05:50 PM
 
Cliff notes version: most of Apple's cash is overseas, and they'd have to pay their taxes to bring that cash home. Apple does not wish to pay their taxes. So they're going to borrow money and pay interest on it. They'll lose less in interest than they would to the tax man.

We've been discussing it in News.

A few points to keep in mind:
• Apple is hard up for money, and can't afford the corporate tax rate.
• They'll pay less to banks, who desperately need the money.
• They'd pay a bit more to the government, who doesn't need extra tax revenue ATM.
• Apple does have an obligation to pay their owners (stock holders).

So ... borrowing money is the obvious choice.
     
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Apr 30, 2013, 06:13 PM
 
To facilitate the recently announced dividend hike and buyback program, cash is needed. But over 70% of Apple's cash (or cash-equivalent) is earned off-shore. There is a huge repatriation tax (around 35%) if these cash were summoned back home for the aforementioned purposes. Therefore, Apple is borrowing money by issuing corporate bonds at fairly low rate.
     
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Apr 30, 2013, 06:17 PM
 
I understood that part. But I was questionning the payback part. Why do it? Apple just recently began paying dividends and now they're going crazy with it.. they want to please their stockholder, but they don't have to.. they have all the money they need for the foreseeable future. I find it stupid to waste it that way...
     
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Apr 30, 2013, 06:26 PM
 
Share buy-back is basically for a company to re-invest the money back to itself. The net effect is reduced number of shares outstanding. It's the smart thing for a company to do when the share price is significantly undervalued, which i believe is currently the case.
     
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Apr 30, 2013, 06:38 PM
 
I don't get it. From what I understand, a company initially goes public to raise money. If I understand correctly, once the cash is gathered, it changes nothing for the company if the stock goes up or down, right? Suppose a company gets 10 millions, the stock can plummet and they still have 10 millions. Same thing if the stock skyrockets, they don't get a penny more than 10 millions. Right? Then how buying the shares back is reinvesting? You spend cash to have nothing in exchange. Unless they physically have the shares then and hope the stock gets higher later? I thought the stock just disappeared when they bought it back.
     
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Apr 30, 2013, 06:48 PM
 
The less stock outstanding the less money they pay out to stock holders as dividends. Also it reverses increases in publicly held shares due to sell offs by board members and senior personnel.
     
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May 1, 2013, 02:11 AM
 
but what if they simply don't pay dividends? Shareholders = unhappy, Apple = rich anyway and shouldn't give a damn. What's the plus side for Apple if shareholders are happy or not? Even if everybody is pissed and the stock is worth pennies, they still got their 100+ billions..
     
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May 1, 2013, 06:49 AM
 
FireWire... you do understand the fact that the shareholders OWN Apple, right?

Tim Cook is just getting paid to work for the shareholders.
     
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May 1, 2013, 09:05 AM
 
It's a strange system we have going on.
     
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May 1, 2013, 10:48 AM
 
I really don't understand how it works.

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May 1, 2013, 11:45 AM
 
Nm.
     
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May 1, 2013, 11:50 AM
 
You buy a part of the company (stock) in exchange for part of the profits (dividends) and part of the risk (stock/dividends are not guaranteed). Buying stock because the price of the stock may go up is speculating in the stock market not in the company. As an individual investor there's no way you can win at that. Shaddim may have enough money to do it but I sure don't.
     
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May 1, 2013, 12:08 PM
 
It's not quantity of money which makes you a successful stock investor, it's knowledge of the stocks you're investing in.

I know people who don't have a lot of money, but they know the industries and companies they invest in and it does well for them.

OTOH, I know filthy rich people who know dick about individual industries and the companies within them. If they invest in stocks it's through cost-averaging into index funds.
     
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May 1, 2013, 12:28 PM
 
To really make money in the stock market you need enough money that you traded effect the stock market. Investing in index funds is just breaking even. Not beating the various averages and index is like not beating inflation.
     
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May 1, 2013, 12:36 PM
 
Depends on what index you're talking about and when. Admittedly, I don't know a lot of people who feel a stock index is the best investment at the moment.

When it comes to individual stocks, it goes back to knowing the company and the industry. I wanted to buy a chunk of Apple stock back around 2000 or 2001. If I had, I would have made out like a ****ing bandit, without anywhere near enough pull to affect the price on my own.
     
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May 1, 2013, 12:40 PM
 
This is probably a really dumb question, but who determines what a stock is actually worth?

Why is a share of Apple worth $400 bucks. I get that it's based on market trends in general and the amount of people selling and buying... but where does that hard number actually come from?

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May 1, 2013, 12:41 PM
 
Originally Posted by ort888 View Post
This is probably a really dumb question, but who determines what a stock is actually worth?

Why is a share of Apple worth $400 bucks. Where does that hard number come from?
Opinion, perception, allure
     
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May 1, 2013, 12:44 PM
 
The same place the hard number for a six-pack of beer comes from really.

Supply and demand.
     
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May 1, 2013, 12:47 PM
 
To put it another way, what makes it $400, is someone is willing to buy it at that price. If people aren't willing, the sellers lower their offer to $390.

This goes "and so on" in both directions.
     
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May 1, 2013, 01:00 PM
 
Originally Posted by subego View Post
The same place the hard number for a six-pack of beer comes from really.

Supply and demand.
That analogy does not work. The beer has a minimum price, below which the manufacturer loses money. If it is unsaleable at that price, it just goes away.

You also don't have orchestrated publicity and "analyst" stunts that deliberately try to affect the beer price.

You also don't have the whole derivative market, where people don't actually have stocks, but bet on short-term or long-term performance of the stock.

The latter leads to such manipulation and makes the stock market to volatile and stupid.
     
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May 1, 2013, 01:07 PM
 
You got me there. Beer never has orchestrated publicity stunts.

Overall though, yes, you're right. Beer is a commodity, not a stock, but I thought it was a nice, easy place to crack open the discussion.
     
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May 1, 2013, 01:35 PM
 
But who sets the price? Do people who own Apple stock put sell notifications on it as soon as the price hits a certain amount?

Where do the numbers even come from? What if no one wants to sell at any price?

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May 1, 2013, 01:43 PM
 
The initial price is basically made up.

If you remember when Facebook had it's IPO, the price they made up was, what... $30? I forget.

As soon as that made up number hit the real market, supply and demand brought that number way down.

The "no one wanting to sell at any price" doesn't happen with public stock. If you make a high enough bid, someone will sell. The exception is if you have a single person (or small group) trying to maintain control of the company.
     
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May 1, 2013, 02:04 PM
 
Originally Posted by subego View Post
You got me there. Beer never has orchestrated publicity stunts.
To drive sales, yes. But that doesn't affect the price — it's the other way 'round, as long as beer is sold in supermarkets, and not black markets.



Originally Posted by subego View Post
I thought it was a nice, easy place to crack open the discussion.
I see what you did there, and shall raise my glass of Störtebeker Weizen in appreciation later this evening (after junior is tucked in).

     
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May 1, 2013, 02:05 PM
 
Originally Posted by BLAZE_MkIV View Post
To really make money in the stock market you need enough money that you traded effect the stock market. Investing in index funds is just breaking even. Not beating the various averages and index is like not beating inflation.
I invest in numerous funds and am up 8% YTD. Last time I checked, that crushed inflation.
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May 1, 2013, 02:13 PM
 
He said like not beating inflation.
     
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May 1, 2013, 02:20 PM
 
Originally Posted by cgc View Post
I invest in numerous funds and am up 8% YTD. Last time I checked, that crushed inflation.
If everyones making the same 8%, your actual purchasing power isn't increasing.
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May 1, 2013, 02:41 PM
 
Originally Posted by ort888 View Post
But who sets the price? Do people who own Apple stock put sell notifications on it as soon as the price hits a certain amount?

Where do the numbers even come from? What if no one wants to sell at any price?
Initial sails prices is basically a fraction of the value of the company. After that it's what people are willing to pay for it. There you run into to speculators like subego would have been, betting in the rise in demand or people basing it off how much dividends its going to pay. So the low end price is really determined buy how dig the dividend is and how long they are expected to be paying them or the whims of the automated trading machines.
     
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May 1, 2013, 03:06 PM
 
But where does the price of a stock come from. When it gets reported that Apple is at $400, who says it's at $400? Where does the $400 price come from? Is that the average price it sold for that day? If I say I want to sell my 100 shares of Apple for $400 each, who gives me the $400?

What if the guy down the street wants to pay me $450?

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May 1, 2013, 03:09 PM
 
I'll leave that for someone else. I'd have to wiki most of it.
     
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May 1, 2013, 03:15 PM
 
Originally Posted by ort888 View Post
But where does the price of a stock come from. When it gets reported that Apple is at $400, who says it's at $400? Where does the $400 price come from? Is that the average price it sold for that day? If I say I want to sell my 100 shares of Apple for $400 each, who gives me the $400?

What if the guy down the street wants to pay me $450?
Since the guy down the street is a stockbroker, he'll only pay you $450 if he has to. Or if he's a complete idiot, like that asshole who paid $100 for a barrel of oil some years ago, briefly raising the price to that level and causing people to lose billions of dollars (and others to MAKE that money), just to be the first guy in history to have paid $100 a barrel.
     
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May 1, 2013, 03:26 PM
 
You go to a broker and place and order. You can either tell them how much you want to pay (limit) and they (and a giant computer network) looks to see if someone want so sell it to you for that. Or you say you want to buy them at whatever someone is selling it for (market). The reported price is usually the last price it was bought/sold for.
     
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May 1, 2013, 03:32 PM
 
The prevailing market price of a stock is the LAST transacted price in the open market. For AAPL, it's the Nasdaq. It's a public venue, everyone is trading there.

Even when the last share was traded at $400, you're free to offer to SELL at $450, but a lot of other people will make offer to sell below you, say at $440, or $405. There are tens of thousands of people selling (personally i am trading from Asia) so there is an offer QUEUE all the way from the prevailing market price up to your $450 offer.

From a buyer's perspective, he wants to buy the shares as cheap as possible. So even though he might be willing to pay up to $450 a share, he might fill his order way below his limit ($450).

So if you REALLY wanna get your shares sold, as a seller you'd make your sell offer at a price much closer to the prevailing market price (the last transacted price).
     
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May 1, 2013, 03:42 PM
 
That's exactly what I always assumed... but it's good to see it spelled out so simply. Thanks.

Now my next dumb question...

What does owning a share really mean... really. I mean, let's say I own 100,000 shares of Apple. What does that really mean? I don't have any real power. I can't call up Tim Cook and ask for a pink iPhone.

Isn't a share of stock sold with the promise of the company eventually buying it back? What gives a share any real value at all? Especially if the stock doesn't pay dividends?

Isn't it all basically a high stakes form of collecting baseball cards? Only instead of cards, your buying a piece of paper with a companies name on it? The value of which is the result of nothing more than a wide-spread acceptance of the fact that it has a value, when it reality it has none at all?

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May 1, 2013, 03:49 PM
 
There are certain business decisions that require votes by the stock holders. Who's on the board of directors etc. There's no promise of anyone ever buying the stock from you. If the stock isn't and is never going to pay dividends then its like trading baseball cards.
     
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May 1, 2013, 03:57 PM
 
You can vote during the annual meeting. With enough shareholders support you can motion to fire the CEO. The board of directors will vote on it. if the outcome pisses you off, the shareholders can motion to fire the board.

The share is just a proof that you own part of the company. The right of being a shareholder is written in the Memorandum & Articles of Association of the company which i believe no one has ever cared to read. Also i am not sure about the US-equivalent of the M&AA (I learned my trade from the UK common law and system). But there should be such a thing.

No the "company" has no obligation to buy back the share from anyone at any price. There is no point in mulling about the "real" value of the stock because any value is determined by the market; i.e. how much the next guy is willing to pay for what you're holding and readily for ownership transfer.
     
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May 2, 2013, 07:45 PM
 
Originally Posted by ort888 View Post
That's exactly what I always assumed... but it's good to see it spelled out so simply. Thanks.
It's just like an ebay auction, the price you see scrolling on TV is just the last sale price; where highest bidder and seller met. It's pyramid like structure becomes apparent here as not all shares could be cashed out at that high price but they calculate the net value as if it could. It's a bigger fools game.
let's say I own 100,000 shares of Apple. What does that really mean? I don't have any real power. I can't call up Tim Cook and ask for a pink iPhone.
It's worth nothing. Not even the piece of paper it isn't printed on. You could say it's worth a vote; which is pretty worthless if you aren't at least 1/8 the way to Warren Buffet rich.
Isn't a share of stock sold with the promise of the company eventually buying it back?
You might be thinking of bonds. Those are the people that if the company goes under can seize its assets.
When a company goes public it makes tons of money selling you digital air (stock) with no promises made. But for super wealthy institutions and people they can buy large chunks and have some sway in the company in such things as policy, voting people off the island, or hostile takeovers, etc..
What gives a share any real value at all? Especially if the stock doesn't pay dividends?
To the average man, or the Etrade baby.... the same thing that gives your pocket aces value in poker game. Are the cards really worth anything? No, its value is determined by the game. The stock market is legalized / encouraged gambling. You bet on companies. Thats it. In the past before the age of economic manipulation you could make decent money trading technical patterns; but it's still a strategical card game even from that angle.

Isn't it all basically a high stakes form of collecting baseball cards? Only instead of cards, your buying a piece of paper with a companies name on it? The value of which is the result of nothing more than a wide-spread acceptance of the fact that it has a value, when it reality it has none at all?
yup, a dangerous high stakes bigger fools game that much of the population is becoming dependent on and a slave to. Look how many people cheer the continued bailout for how it has helped the market. They probably wouldn't cheer unfair economy crippling bailouts if they had made wiser choices with their money in the first place.

Historically the stock market has only kept up with or barely ahead of inflation. For about 80 years or however you slice it the market has only gone up on average 9-10% (which is the real inflation rate); we must keep in mind that's including the technology revolution and .com bubble. Economic revolutions don't happen often. Check out some graphs on market vs. value of dollar to see the absolute perfect inverse correlation.
A Dash of Insight: Dollar Weakness and Stock Market Strength -- the Data

edit: I might add what institutions love to do is trash talk a company so its stock goes to the floor, meanwhile they're secretly buying it up. Once they've filled up on cheap stock from company A, they talk it up driving the price real high then sell it off taking your money.
( Last edited by el chupacabra; May 3, 2013 at 01:13 AM. )
     
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May 2, 2013, 10:03 PM
 
True. With few exceptions, you would have been better off investing in comic books and exotic cars.

edit: I might add what institutions love to do is trash talk a company so its stock goes to the floor, meanwhile they're secretly buying it up. Once they've filled up on cheep stock from company A, they talk it up driving the price real high then sell it off taking your money.
and then short selling on the way down. Which is why the strongest investors make their money in bear markets.
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May 2, 2013, 10:05 PM
 
Originally Posted by BLAZE_MkIV View Post
You buy a part of the company (stock) in exchange for part of the profits (dividends) and part of the risk (stock/dividends are not guaranteed). Buying stock because the price of the stock may go up is speculating in the stock market not in the company. As an individual investor there's no way you can win at that. Shaddim may have enough money to do it but I sure don't.
Heh, no way. I just watch what the bigger fish do and shadow them, and so far it's worked out well.
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May 2, 2013, 11:32 PM
 
I believe the appropriate layman's term would be self fulfilling prophecy. Though they'd never be that honest.
     
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May 3, 2013, 08:43 AM
 
Originally Posted by reader50 View Post
• They'd pay a bit more to the government, who doesn't need extra tax revenue ATM.
The government doesn't need extra tax revenue? This seems an odd thing to say.
I have plenty of more important things to do, if only I could bring myself to do them....
     
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May 3, 2013, 09:45 AM
 
Originally Posted by Waragainstsleep View Post
The government doesn't need extra tax revenue? This seems an odd thing to say.
Nope, currently they're just pouring it down the drain. Obvious troll comment, there.

I think they actually had a $30B surplus last quarter, if memory serves. If they keep cutting spending, we might not saddle our grandkids with a $200T debt.
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May 3, 2013, 12:08 PM
 
Originally Posted by reader50 View Post
A few points to keep in mind:
• Apple is hard up for money, and can't afford the corporate tax rate.
• They'll pay less to banks, who desperately need the money.
• They'd pay a bit more to the government, who doesn't need extra tax revenue ATM.
• Apple does have an obligation to pay their owners (stock holders).
Originally Posted by Waragainstsleep View Post
The government doesn't need extra tax revenue? This seems an odd thing to say.
You missed the invisible [sarcasm] tags. They apply to all but the last point.
     
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May 3, 2013, 12:09 PM
 
I thought it was obvious sarcasm, reader.
     
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May 3, 2013, 02:46 PM
 
Originally Posted by reader50 View Post
Cliff notes version: most of Apple's cash is overseas, and they'd have to pay their taxes to bring that cash home. Apple does not wish to pay their taxes. So they're going to borrow money and pay interest on it. They'll lose less in interest than they would to the tax man.

We've been discussing it in News.

A few points to keep in mind:
• Apple is hard up for money, and can't afford the corporate tax rate.
• They'll pay less to banks, who desperately need the money.
• They'd pay a bit more to the government, who doesn't need extra tax revenue ATM.
• Apple does have an obligation to pay their owners (stock holders).

So ... borrowing money is the obvious choice.
Excellent take on it. There's another aspect to it, though - for the firm debt is always cheaper than stock (unless it makes you go bankrupt). Because it's a different, more stable contract, it will always be cheaper in percentage or per annum terms. Stockholders expect Apple to keep up with its risk, and whether it's going gangbusters right now or not it still reflects risk in the stock price. Apple doesn't use a lot of debt, usually, so this may reflect that they are finally coming around to the idea that they have too much equity in their capital structure. As their demand becomes more predictable (if, for instance, they understand the "lock in" on iPhone users) then they will also try to use more debt as well, just as traditional utility stocks used a lot of debt b/c they had very predictable demand.

So...they've found out that fanboyz are sheep, and they're making the firm reflect that.

Either that, or they're cashing out equityholders who want to get out by issuing debt. Maybe that's part of it too.
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May 4, 2013, 10:11 AM
 
Strange that Buffet's name is only in one post. Berkshire Hathaway has (AFAIK) never paid out a dividend. Buffet believes that its better for the share to go up instead of paying out dividends (in a book that I cannot remember the title of he demonstrates that you pay more in taxes with dividends than you would if the share went up and the dividends were never paid out). He does buy shares in companies that pay out dividends though. He may be onto something, in 1990 a BRK-A share was worth $8000. Now its over $160,000.

What is daft about this borrowing by Apple is that this great company is getting into debt because its too expensive to 'use' the money it's made. It is highly likely that Apple isn't the only company that does this, since there are tax right-offs for paying off debt.

Its also worth nothing that not all shares are equal. You can see in the financial pages of newspapers the different types of shares that a certain company issues. Some may not even have the right to vote. AFAIK, the company does not have any obligations to eventually buy back the share, but it does have obligations in terms of market rules, figures to be published etc.
     
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May 4, 2013, 10:56 AM
 
One thing about Buffett, his "methods" only work for a few, you have to be able to block and strip entire segments, and that takes a lot of leverage (and few scruples). I like being able to sleep at night.

For Apple the debt is cheaper than the loss of the securities and taxes. Makes perfect sense, and so much of this goes back to antiquated and broken tax systems.
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mattyb  (op)
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May 4, 2013, 12:39 PM
 
Originally Posted by Shaddim View Post
One thing about Buffett, his "methods" only work for a few, you have to be able to block and strip entire segments, and that takes a lot of leverage (and few scruples). I like being able to sleep at night.
I wasn't under the impression that Buffet was an asset stripper or that laid off loads of people when he bought shares in or took over a company. Am I misunderstanding your post?
     
 
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