Sometimes, things don't turn out as expected. As an individual investor, there will be plenty of times when my picks are just flat out wrong. The trick is knowing when my thesis is "broken" vs. when I'm having a knee-jerk reaction to a falling stock price. If the thesis is broken, maybe it's time to sell. If the thesis is intact, maybe it's time to double down.
With this in mind, I've been reevaluating my position in St. Joe. In a nutshell, I viewed JOE as a "jockey" bet on the capital allocation skills of Fairholme manager, Bruce Berkowitz (http://mevsemt.blogspot.com/2011/05/new-coattails-to-ride.html). However, Fairholme is in flux right now. With recent redemptions and the departure of co-manager Charlie Fernandez, I'm guessing JOE is very far down on Bruce's list of priorities.
Coincidentally, while my confidence in JOE has been waning, my interest in another Berkowitz pick has been growing. Further, it's a holding that I'm somewhat familiar with, after all I've lost money on it not once, but twice! I'm talking, of course, about Bank of America (click the "zz Bank of America" label on the right for my previous posts).
It's worth noting that when I finally sold BAC back in August, I was just swapping it for a position in AIG (and locking in a tax loss). Additionally, I made the point that BAC (and other big banks) could still be compelling values. Since then, my big-bank-thesis hasn't changed, but BAC's stock has fallen by a third. For anyone interested, check out Fairholme's most recent presentation on the company: http://www.fairholmefunds.com/pdf/fairholme_stays_the_course.pdf.
Now let's take a step back. Generally speaking, I want to keep a high % of my portfolio in cash due to the significant macro uncertainty. After all, when you have someone like PIMCO's Mohamed El-Erian saying an Italian default would be "worse than Lehman" and calling the U.S. political dysfunction "terrifying," I think it's safe to say that caution is the name of the game. Nonetheless, I still want to position the rest of my portfolio for the best possible risk adjusted returns (duh).
So where does this long, rambling post leave us (or as my wife says, land the plane)? Well, on Wednesday I decided to swap JOE (sold at $13.45) for BAC (bought 2850 shares at $5.18). With BAC, I'm hoping the 3rd time's a charm. Additionally, JOE is going to stay on my watch list - once things settle down at Fairholme, JOE could once again become an interesting opportunity.
Questions? Comments? Email mevsemt@gmail.com
