Today I made an interesting trade - it's not really a new investment but rather a different flavor of an old one. The company I'm talking about is Bank of America, and what I did was buy the class "A" TARP warrants ("BAC-WTA" on yahoo finance) while at the same time selling my 2000 shares of BAC common stock. I purchased the TARP warrants for $4.52 (costing me $18,085) and sold the common for $9.76 (netting me $19,516). In other words, I simply exchanged the common for the warrants.
For those of you not familiar with TARP warrants I suggest reading the following as a quick primer: http://www.choufunds.com/pdf/SA10%20pdf.pdf (the relevant commentary is on pages 2-5). As you can see the terms for BAC-WTA are really quite interesting - the warrants don't expire until Jan. 2019, the strike price is $13.30, and if BAC starts paying a dividend the strike price is adjusted down dollar-for-dollar so long as the dividend exceeds $0.01 per quarter.
So why'd I make this exchange? Well I've been following the big banks and TARP warrants for over a year now, but only recently has the price fallen to the point where I THINK the risk/reward favors the warrants. Prior to this I preferred to be conservative and just own the regular stock. Keep in mind this is a levered investment, so if BAC does well the warrants will be a home run, but if the economy falls off a cliff and BAC flounders I'll end up with egg on my face.
Lastly, Bruce Berkowitz just gave a great interview in which he discusses BAC, which can be found here: http://www.fairholmefunds.com/pdf/amaii2011.pdf.
Questions? Comments? Email mevsemt@gmail.com
Thursday, July 28, 2011
Thursday, July 7, 2011
Adding to Bank of America...
Today I bought an additional 600 shares of BAC at $10.93, bringing my total share count to 2,000 and making it my second largest position after LUK (as of today BAC accounts for 12-13% of my portfolio). Obviously I think BAC is a good deal at these prices, but this transaction also has the added benefit of reducing % of my portfolio allocated to cash, which had gotten a little too high after my recent deposits. Lastly, Fortune published a surprisingly good article on the CEO of BAC, Brian Moynihan (http://finance.fortune.cnn.com/2011/07/07/can-brian-moynihan-fix-americas-biggest-bank/?iid=HP_LN). It's well worth reading if you're a current BAC holder or are thinking about buying the stock.
Questions? Comments? Email mevsemt@gmail.com
Questions? Comments? Email mevsemt@gmail.com
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