Saturday, November 19, 2011

Reshuffling the Deck

Generally speaking, some of my best stock picks have happened when the company is under duress.  Assuming the company is able to survive/turnaround, you've made several times your investment simply because so much of the perceived risk has disappeared.  For example, I bought Fairfax back when it was at $100 and sold several years later just shy of $300 (pre-blog).  I bought USG at the height of the financial crisis, and here's how it turned out:

In fact, if you look at some of the best investments made by the great investors, you'll see they've done the same thing (Buffett - Geico & American Express, Berkowitz - Wells Fargo).  Of course there's a risk to this approach - maybe the market is right, and there's always a chance the company could indeed fail!  In fact, I bought AIG just as the financial crisis was hitting the fan, and lost over 50% before selling.

With this in mind, on Friday I decided to add to two of my "stressed" positions, and sell one of my holdings where I may have overestimated the upside.  Specifically, I bought an additional 500 shares of JEF at $9.92 and 1000 AIG warrants at $5.37.  The stock I sold was MIL (formally Terra Nova) at $6.80 (2268 shares).

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