Cash and Cojones

Recently I've read a handful of articles that basically say the same thing in different ways: proceed with caution.  Or, to put it more colorfully, in early 2009 you only needed two things to make a killing: cash and the cojones to commit it.  Ironically, if you had those two things in 2005-2007 you probably got killed.  So what does the market feel like today?  Well, while we may not be quite at the excesses of 2005-07, we're definitely nowhere near the palpable fear of early 2009.

So the real question is what’s an investor to do?  Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns.  This means keeping a high % of cash and only making new investments if I feel the downside is already baked into the stock price (CSCO, BAC, JOE).  Additionally, I’m thinking about trimming AHS as it’s been bouncing around its 52-week high.

So, while my conservative stance may come with opportunity costs in the form of missed returns, I’m sleeping well at night AND in the case of a market sell-off I’ll be able to swoop in and pick up some bargains.  Remember, even a cursory glance at history tells us market corrections tend to happen suddenly BUT with surprising regularity – real estate crash, tech crash, LTCM, savings-and-loan, 1987 crash, etc.

Finally, if you’ve got some spare time I highly recommend reading this memo by Howard Marks (http://www.oaktreecapital.com/MemoTree/How%20Quickly%20They%20Forget%2005_25_11.pdf) – it’s very readable and encapsulates my thoughts on the current market much better than I ever could.  And of course I always recommend reading the Hussman weekly commentary, the most recent of which is here (http://www.hussman.net/wmc/wmc110523.htm). 

Selling EXC

I'm doing a little bit of spring cleaning, and after reviewing my portfolio I decided to throw in the towel and sell my EXC 2012 options.  The thing with options is you either win big or lose big, and after the fact your either look really smart or really dumb - in the case of EXC it's definitely the latter.  To summarize, I acquired these options in May of 2010 (click the "zz Exelon" label to the right to see the posts) for a total outlay $4,123.  My proceeds from today's sales is... wait for it... $528... ouch!

Oh well, I guess stupid is as stupid does.  Next time I'll have to remember to only buy stocks that are going to go up ;)

Questions?  Comments?  Email mevsemt@gmail.com

New coattails to ride?

IMHO Bruce Berkowitz is one the best investors out there, and yesterday I came across a great article about him and one of his holdings, St. Joe (JOE) - http://www.institutionalinvestor.com/Article/2824162/Fairholmes-Bruce-Berkowitz-Is-Beating-Hedge-Fund-Managers-At-Their-Own-Game.html?ArticleId=2824162&p=1.  In fact, after reading the article I came to see JOE in whole new light... 

But before we get into that let's take a quick step back.  For regular readers of my blog you know I've been following JOE for awhile, and what I've come to find is it's a bit of a unique beast.  They are the largest owner of real estate in Florida; most of it is timberland, some of it is beach front, and smack dab in the middle is a brand new international airport.  As you can imagine the housing bust was not kind to them, and if you take a look at their 10 year chart they've basically made a round trip and are back to square one. 

Personally, I think the NPV of JOE's real estate is worth somewhere between $25 and $35 a share.  This assumes the economy continues to recover and the housing market returns to normal over the next 5 to 10 years.  Of course, if JOE were to sell all their real estate today they'd only be worth $10 a share, but the fact is they have a healthy balance sheet and can afford to wait for prices to recover.

Now here's where it gets interesting.  Berkowitz (who owns about 30% of JOE via his mutual fund) recently decided he was unhappy with the way the company was being managed, so he went in and fired the top executives, swapped out most of the Board of Directors, and made himself Chairman of the Board.  BUT I'm not excited because I think Berkowitz will do a better job selling real estate...

The thing about Berkowitz is he runs a mutual fund (i.e. not a hedge fund).  So, when it comes to investing, he's got one hand tied behind his back due to restrictions on owning real estate or other illiquid assets.  The great thing about JOE is it solves that problem - by controlling the company's capital allocation Berkowitz can effectively invest in real estate and other illiquid assets via St. Joe!

So, over the next several years I'm guessing we'll see JOE monetize its real estate in various ways (outright sales, joint ventures, etc.).  Then, probably somewhere around the 5-year mark, we'll begin to see JOE dabble in non-real estate deals.  Finally, after 10+ years I think there's a very real chance that JOE looks a lot more like a Leucadia or Brookfield Asset Management than its current self, which would make an investment at today's prices an absolute home run.  More simply, it's my hope that Berkowitz uses JOE as a vehicle for allocating capital, and in doing so turns it into a wealth compounding machine... 

So with that in mind I decided to jump on his coattails now while there's still room, and yesterday I purchased 1000 shares at $22.23, for a total outlay of $22,235 (including commissions).  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Finally!

Today I was finally able to sell the remaining 25 NRG LEAPS in my portfolio.  All things considered this was a very successful "trade" - in less than 3 months my investment of $6,071 turned into $17,486 (all figures are after commissions).  In a way this is very reminiscent of Sandridge (http://mevsemt.blogspot.com/2011/02/sold-sd-call-options.html), i.e. the stock popped and I couldn't resist locking in my gains.  However, like Sandridge, it may turn out I'm selling way to early and leaving a ton of money on the table, I guess only time will tell...

Anyway, for reference here are the posts from when I made the purchase: http://mevsemt.blogspot.com/2011/02/new-purchase.html and http://mevsemt.blogspot.com/2011/02/nrg-order-filled.html.

Here's why I made the purchase: http://mevsemt.blogspot.com/2011/03/so-why-nrg.html.

And finally here's where I've previously sold: http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html and http://mevsemt.blogspot.com/2011/05/still-selling.html.

Still selling...

This is going to be a quick post - today I sold 64 NRG LEAPS at prices between $1.75 and $1.80.  Since I sold 11 contracts yesterday (http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html) I'm now left with 25 in my portfolio - hopefully I'll be able to sell these at similar prices over the next few days.

Selling some NRG...

For those of you following NRG you've probably noticed it's been on quite a run.  Personally, I tend to get a little nervous whenever a stock is bouncing around its 52 week high, so today I placed a limit order to sell 50 NRG 2013 $30 LEAPS at $1.70 (as of this writing it's been partially filled at 11 contracts, leaving me with 39 left in the order and 89 left in my portfolio).  Anyway, I'll do a more in-depth write up as time permits (and of course I'll do a quick post each time more LEAPS get sold).

Questions?  Comments?  Email mevsemt@gmail.com.

Big Banks?!

For those of you keeping up with my blog you've probably noticed I have a huge % of my portfolio in cash, so today I decided put some of it to work by buying Bank of America (BAC).  Specifically, I just bought 1,400 shares at $12.38 (for a total outlay of $17,337, or about 10% of my portfolio). 

Rather than do a lengthy write-up I'm just going to reference 2 previous posts, which should go a long way toward explaining why I think the stock's attractive: http://mevsemt.blogspot.com/2010/08/investing-checklist.html and http://mevsemt.blogspot.com/2010/09/uu-investing.html. 

Questions?  Comments?  Feel free to email me at mevsemt@gmail.com.

I too like to live dangerously...

I just purchased 5 additional contracts (bringing my total to 25) of SHLD Jan 2013 $95 LEAPS at $4.50 for a total outlay of $2,258 (including commissions).  Wish me luck!