Archive for August, 2008

MODEL PORTFOLIOS – August 2008

August 31, 2008

Simpliciter 76.16 $ +3.04%(monthly return)
base 75 $ – 4 Oct 2007 +1.55% (since inception return)
1° gen 2008 – 72.04 $ +5.72% (ytd return)

Closed positions ytd: VPHM +50.67% IVAC -7.1% MVL +33.32% CDNS -34.59% UNTD +16.2% 

 €uroIncome 25.9 € +3.06%(monthly return)
base 25 € – 4 Aug 2008 +3.06% (since inception return)

Julians 26.72 $ +6.87%(one week return)
base 25 $ – 21 Aug 2008 +6.87% (since inception return)

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TOTAL INVESTED CAPITAL – August 2008

August 31, 2008

 

Maedhros Currency Index 105.65 -2.06%(monthly return)
40% standard allocation
base 100 – 19 nov 2007 +5.65% (since inception return)
1° gen 2008 – 103,04 +2.53% (ytd return)

closed positions ytd: SDS +15,61% FXY +2,7% EVF -1,55% JGT -0,17% FXE +5.96% FXF +2.91% 

Maedhros P&C Insurance Index 91.89 +4.24%(monthly return)
25% standard allocation
base 100 – 4 dic 2007 -8.11% (since inception return)
1° gen 2008 – 99,3 -7.46% (ytd return)

closed positions ytd: AFG +2,43% HUM +6.18%

Maedhros Distressed Value 25 Index 97.94 +3.2%(monthly return)
20% standard allocation
base 100 – 8 gen 2008 -2.06% (ytd and since inception return)

closed position ytd: TMA +16,47% NVR +27,68% EDS +49,23% EK -5,1% IMN +22,93% GGC -0.3%

Maedhros Banking Index 100.67 +4.58%(monthly return)
10% standard allocation
base 100 – 8 gen 2008 +0.67% (ytd and since inception return)

closed position ytd: MCBC +18,28% – CRBC -2,99% CHFC +6,04% MBWM -42,83% PRK +8,28% IBCP -21,44% LYG 5.44%

Maedhros Top of the Shorts Index 106.9 +1.5%(monthly return)
5% standard allocation
base 100 – 9 gen 2008 +6.9% (ytd and since inception return)

closed position ytd: ALNY +26,55% – AMZN +6,36% DSL +64,48% FAST +2,81% PNC +8,67%

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Total Invested Capital 500.76 +1.1%(monthly return)
base 500 – 19 nov 2007 +0.15% (since inception return)
1° gen 2008 – 505,2 -0.88% (ytd return)

Benchmarks
S&P 500 -12.64% (ytd return)

Longleaf Partners Fund -12.21% (ytd return)
Sequoia Fund -8.76% (ytd return)
Third Avenue Value Fund -15.67% (ytd return)

(in US dollars, dividends & broker’s fees included, taxes not included)

THE DAY BEFORE

August 29, 2008

August 28, 2008

From now on you can access to the market news everyday by clicking on the Seeking Alpha link in the blog roll.

Protected: ALERT – JULIANS PORTFOLIO

August 28, 2008

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THE DAY BEFORE

August 28, 2008

August 27, 2008

THE DAY BEFORE

August 27, 2008

August 26, 2008

THE DAY BEFORE

August 26, 2008

August 25, 2008

ACTING

August 25, 2008

In my precedent post I told that subscribers could expect a concrete action scheme to develop the ideas I explained there in a couple of weeks. I wanted to do a little testing and get eventually even better prices for the choosed securities.

I’m going instead to give them at once the name of those securities, the structure of the portfolio and the scheme of protection on the downside. They will be free, as always, to do what they think to fit best with their personal situation. So check your e-past later.

The rationale for this portfolio (it will be named “JULIANS”) is simple: as I explained yesterday regarding financial insurers, there are in the market now very compelling opportunities to buy stocks that are priced as they have no tomorrow. According to the worst way of thinking, the linear one, the market is assuming that the problems those stocks are facing today will last forever. I don’t think that’s the case, it has never been in the past and I don’t think it will be different this time. Sure, the risks are high and maybe I’m mistaking the prospects for some of those businesses, but the reward is higher, much higher, and forgiving some of the eventual gains you can buy protection on the downside, so that you limit your loss to 30-35% of the capital you are willing to deploy (use anyway surplus money and not a great amount of it, the reward is so potentially high that you don’t need to).

The securities has been selected with one general rule: an educated guess about their normalized earnings power and NAV showing the potential to double at minimum their current price (most of them anyway could deliver four or five times the capital risked). I don’t know how much time will be needed to reach that “normality”, but buying protection for six months in the future will give us no anxiety about that waiting. This protection will cost, of course, and maybe it will even be vain, but isn’t this what we hope every time we buy insurance? By the rest, I repeat, the potential here is so high that we can gladly give up some bucks.

I’ve tried also to get a little sectors diversification and to find a good insiders buying in these stocks. I’ll add another stock in the near future (still searching for it) for a total of ten.

I hope you’ll enjoy it.

THE CASE FOR FINANCIAL INSURERS

August 24, 2008

In my last article I said that financial insurers could very well be the subject for another piece, always about financial conundrums. In fact, the conundrum here is very well explained by the unfair behaviour of some folks who were shorting those securities, helped by the usual behaviour of mainstream media (a megaphone for the strongest screaming at any given time).

Since then however there have been some very good pieces, which have done a very good job restoring the truth and exposing the bad faith of some market actors and the lunacy of the rest. As I could not do better and as I hate to waste words (there are already tons of vain words in every field of our life), I refer to them.

Steve Lukather

Tom Brown

Tom Armistead

I’ll limit myself to add a different perspective to point the compelling opportunity to pick these businesses at their current price, resorting again to plain, cool, cold numbers. These companies (MBI, ABK, RDN) have been producing free cash in past years as they were the US Federal Reserve. In the past ten years to 2007 RDN has delivered 4.575 $ of average annual FCF to shareholders, MBI has minted cash at 5.39 $ rate average every year and ABK has done even better: 7.154 $ every year on average, a figure equaling almost two times its current stock price. In 2007 fiscal year RDN has cashed 3.71 $ per share, MBI 8.09 $ and ABK 9.3 $. Impressing, isn’t it?

Sure, I know your objection: those were just the good old times, the party’s over now, you can forget about that free cash. Well, in fact ABK and MBI have delivered free cash even in the first half of this year, 0.4 $ and 1.84 $ respectively; just RDN has burned 2.3 $ of cash in that period. Not the end of the world, admittedly. Of course, in the years coming it could be very well possible that they will lose cash, but I don’t think these (eventual) cash loss will be of the magnitude necessary to justify their current stock price; in fact, a strong case could be made that actual defaults on the securities they insure will be much less than everybody seems to assume now; moreover, the actual defaults will be paid over a long period.

You see, it’s not only a free cash case here. Apart from book value (6.76 $ for ABK, 16.67 $ for MBI and 30.54 $ for RDN, but you should adjust here and the numbers will be much better), and even considering a mere run-off scenery, for every share you buy of ABK you get 59.76 $ of investments pool, 81.26 $ per share if you buy RDN and a whopping 159.64 $ per share if you choose MBI. A very conservative 4% annual return on those investments would mean 2.39 $ per share for ABK, 3.25 $ for RDN and 6.38 $ for MBI, every year. Again, I invite you to check their current stock price one more time.

In short, my friends, here you have the opportunity to make a bet risking 1 to get 4-5 times what you risk, and with very good probabilities on your side, better than 75% in my humble opinion. No bookmaker would give you such a deal but Mr. Market, with its schizophrenic problems. In fact, it’s possible to build a scheme to limit your loss to a 25-30% of that 1 if things will develop for the worst. I’m working over this, there are other stocks in different sectors which present the same opportunity, and I hope to present a concrete action to subscribers in a few weeks.

You can play it even more safely, with Old Republic (ORI). This insurance company is not a pure player, just a part of its business is about financial insurance, so it offers a cushion and a good discount at the same time. It’s a cash machine as almost every insurance company: 2.73 $ average annual free cash flow in the last ten years to 2007, 3.68 $ in 2007 and 1.43 $ in the first half of 2008. You can buy a share for a little more than 10 $ today and get 17.59 $ of (not adjusted) book value and 37.67 $ of investments pool. It yields just shy of 7% and it’s been around since a century; my guess is it will still be around a long time from now.

P.S. – To address current and future financials crisis a very good start would be to dismantle rating agencies and their hateful, nefarious legal monopoly. They are really a joke!

Disclosure – no personal position (yet), RDN and ORI are picks of my model portfolios.

THE DAY BEFORE

August 23, 2008

August 22, 2008