Here is an article that will provide some in-depth background and a case for concentrated portfolios. Its a good read.
With the rise of the Modern Portfolio Theory, for more than five decades diversification has been inherent to portfolio construction. However, this trend has evolved into what may be deemed over-diversification—where securities are included in a portfolio to dampen volatility rather than because of fundamental stock picking. We believe the inclusion of a security in a portfolio should be driven by high conviction in the underlying investment idea.
Given the bank’s roughly 9.95 billion outstanding shares, the 2017 capital plan entails a payout of almost $17 billion to investors over Q3 2017 – Q2 2018. This is more than double the $8 billion figure announced by Bank of America as a part of its 2016 capital plan. We are currently in the process of updating our price estimate for Bank of America’s stock in light of its better-than-expected capital return plan.
Still significantly undervalued with fundamentals and macro environment improving quarterly. Write OTM covered calls, over them, to create additional income. With the premium and dividend create a positive carry.
Warren Buffett’s bet on Bank of America Corp. is about to pay off with a roughly $12 billion windfall.
The billionaire plans to exercise warrants obtained six years ago in a vote of confidence in Bank of America while its shares were tumbling amid multibillion-dollar probes tied to the housing meltdown. The cash infusion helped the bank put to rest doubts about whether it had enough capital, and its shares have more than tripled since then.
In the 2011 deal, Buffett’s Berkshire Hathaway Inc. invested $5 billion in Bank of America in exchange for preferred stock and the right to buy 700 million common shares, a stake now worth $17 billion. Berkshire said in a statement Friday that it would convert its preferred shares into common stock once the Charlotte, North Carolina-based bank increases its dividend, now planned for the beginning of the third quarter.
Buffett laid out his thinking for the conversion, which will make him the company’s biggest shareholder, in a February letter to investors, saying that the decision would come down to simple math: The preferred investment pays $300 million a year in dividends, so it makes sense to convert that into common stock if those shares began earning more.