Trying Something Different... Again

On Friday I swapped out my Bank of America stock with Bank of America Class A TARP warrants.  Specifically, I sold all 2850 shares of BAC at $5.58 (for a total of $15,898) and bought 5000 shares of BAC-WTA at $2.09 (for a total outlay of $10,495).   By the way, if this sounds familiar, it's because I did the exact same thing back in July (http://mevsemt.blogspot.com/2011/07/trying-something-different.html).

And again, my logic for the swap is the same.  Simply put, I feel the warrants now have a better risk/reward profile.  It's actually pretty interesting, the common and the warrants usually move in tandem with each other, but recently their prices have deviated.  Here's what I mean.  I bought BAC on 11/25 at $5.18 (http://mevsemt.blogspot.com/2011/11/bac-my-favorite-mistake.html).  That same day the warrants closed at $2.47.  However, by last Friday, the common had RISEN to $5.58 and the warrants had FALLEN to $2.09.  In other words, in just under a month, the common outperformed the warrants by over 20%.  

Finally, for anyone who wants some light reading, I suggest you check out this 1992 OID interview with Bruce Berkowitz (http://www.fairholmefunds.com/pdf/oid1992.pdf).  The interview took place right after the Savings and Loan crisis, when just about everyone thought Wells Fargo was going bust and California was minutes away from falling into the Pacific.  So why do I bring this up?  Well, from 1991 to 1992, Berkowitz was buying Wells Fargo frantically, paying between $52 and $78 a share.  In fact, according to the interview, he put roughly 1/3rd of his liquid net worth in the stock.  So how'd it turn out?  Well, by 1998 the stock had risen to $374, at which time Wells merged with Norwest.  After the merger, Wells split 10 for 1, and by the end of 1999 the stock had risen as high as the equivalent of $498 a share.

Today, Berkowitz has been pounding his chest over BAC, much the same way he did for Wells over two decades ago.  In fact, he's even said BAC reminds him of Wells, and that he's basically staking his reputation on the company.  Given that he said this earlier in the year, when BAC was trading much higher, maybe it's time to listen?  

Questions?  Comments?  Email mevsemt@gmail.com