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Author: WBuffettJr Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 46837  
Subject: Re: Listening to free cash flow Date: 5/6/2005 9:49 AM
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BUT... if you think a dollar in your pocket is worth as much as a dollar you are owed and might get...

I think a dollar in my pocket is worth less than a dollar I keep in a bank account called Berkshire that is managed by Warren Buffett, because he can take advantage of many things afforded to him by his position to invest that dollar better than I can.

I don't see an ocean of difference between retained earnings and returned earnings. The dollar is mine either way. If I think the company can invest that dollar better, I prefer they keep it. If I think they can't, I prefer they return it to me. However, even in that situation that doesn't mean I necessarily want a dividend. The money can also be returned to shareholders with a stock buyback, which would allow me to avoid paying taxes on my dollar.

Warren Buffett is a manager of money... not business. For him to retain earnings is really for him to do the job you hired him to do... manage your money.

I strongly disagree with this. Nothing else should need to be said here.

For Tome Seibel, one of the grossest abusers of ESO's I ever saw, to retain my earnings... for me to trust him to "do the right thing" with me money is lunacy.

I don't find this to be a meaningful example. As I said, if I think the company can invest the dollar better than I can, I prefer they keep it. I don't know why someone would invest in a company with dishonest executives, but if they did, than it makes sense that they demand as much money as possible in the form of dividends because otherwise management will squander it. And if that is the case, then why settle for $0.10 per share? You should demand 100% of free cash flow be returned as dividends.

free cashflow is a poor proxy for the thing that produces all value in equity... that is money returned to the shareholder.

Perhaps I don't understand what is being said here, but free cash flow tells you how much money IS being earned by the shareholder, whether it is returned or temporarily held onto by the company.

Money returned is the sole reason to own any business, be it a corner dry cleaner right up to MSFT.

This is common sense, I'm not disputing that. What I am saying is that it doesn't make any difference whether the money is returned now or later, it has still been earned by you. If you company can invest it better, they should keep it and return it later, if not, it should be returned now.

And finally, I don't see why you would say my "dad" (Warren Buffett) can keep your cash but I cannot. He agrees with everything I have just said and has been saying it himself for 40 years.
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