A HOUSING SLUMP BOTTOM
SEEN: IN 2011
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KEITH OLBERMANN ON IRAN
Did you know all this?
FMD
Michael F.: “I’m a little alarmed that you’re actually
averaging down on this stock. I have no opinion on FMD, never been
involved with it. I don’t really care how you personally deal with your
FMD loss, but I do know a lot of your readers (including me) regard you as a
personal finance role model. Therefore some may actually copy and follow
your act. This may be the last thing you
want to hear after suffering a huge loss (believe me, I've been there, just go
take a look at the chart of IMGN – I owned 50,000 shares in 2001 ~ 2003, and
more recently, the NSTK debacle, although in a lot smaller size), but in my
opinion, buying a stock you previously owned after it has plunged is just
throwing good money after bad – the market is telling you you
are wrong. Is it possible that your guru has moved from the realm of
fundamental security analysis into the realm of boneheaded-ness
and wishful thinking?
“FMD may come roaring back – who the hell knows, it may very
well happen. If that is the case, you and your readers who followed your
act would have taken the wrong lesson out of this. Reading your blog through the years, I get the sense that you seem to
buy individual stocks as sort of a hobby/past time using what you allocate
for ‘mad money.’ which is apart from serious personal financial planning and
asset allocation that you advocate in your books. That’s fine. But
if it is indeed a hobby, I would assume the goal it is to make money, not
character-building, a test of will, or the pursuit of ‘being right.’
“If the goal is to make money as a hobby, there are other ways
than being a buy-and-hold investor. Perhaps a trader mentality is
warranted -- and what is the central tenant of a successful trader? In my
opinion, famed commodities trader Paul Tudor Jones said it best, "Losers
average losers."
“One thing I religiously do now is to follow William O'Neil
(founder of Investor Business Daily)'s admonishment: whenever I suffer a
7% loss, I IMMEDIATELY sell it, no exception and excuse. I would cool my
heels for a month, and then, having kicked the loser out of my portfolio, I can
objectively analyze whether it is still worth a long-term hold. If it is,
I will buy it back. The stocks may come back during the 1-month kick-out
period, but I made peace with myself and accept that as part of the game:
it is called risk management. And you
know what? I seldom buy the stock back. Usually it's because I was
liberated to pursue other better opportunities.”
F I admire anyone
with a plan and the discipline to stick to it.
But there are different ways to skin a cat – and different ways to get
burned.
Limiting losses to 7% will generally
limit your losses to 7% on any given stock – with the occasional larger loss if
a stock announces bad news after the close and opens the next morning down,
say, 20%. But if you have three 7%
losses in a row (perhaps the market is in a tailspin?), you’re now down 21%,
when in the natural fluctuation of things the stocks might not be doomed after
all.
Risk management is hugely important. But in my case, I’m pretty ridiculously
diversified – and that’s my principal risk management device. Often, if a stock seemed to make sense at $30
it can make more sense at $17 – and then, yes, get a bid from Carl Icahn at $36. (That’s
what Lear did.) Years ago I bought
Audible.com (ADBL)
at $3.75 (adjusted for a subsequent split), then more at $1.98 – I liked the service!
– and then lots more at 96 cents – and ultimately sold bits and pieces a year
later all the way up to $30 a share. Not
typical, by any means. And I definitely have had it go the other way, where I
bought more of something only to see a total loss.
But I prefer to look at each situation separately. And, yes, stubbornness and “the need to be right”
probably do enter into the equation, and at a not inconsiderable cost.
All that said: the risk in
FMD is definitely real, but I wouldn’t sell, or necessarily fail to buy more, just because it’s half price. Isn’t one of the recipes of success to buy a
good company after a devastating – but survivable – misstep or shock? Like American Express after the salad oil swindle? FMD may not
turn out to be that kind of story. But
the freeze-up in the credit markets was not of FMD’s
doing; and it may one day thaw.
Here’s
the Motley Fool’s take.
BANKRUPTCY AND FMD’s STUDENT LOANS
Sam: “In most
instances, as you say, bankruptcy does not dismiss the obligation of a student
loan, but it is up to the judge’s discretion.
Over the history of the federal student loan program fewer than 300,000
loans have been discharged due to bankruptcy out of the 242 million loans
issued.”
ALDABRA 2
This site is devoted
to SPACs – blank-check companies – like Aldabra
(which became Great Lakes Dredge & Dock, giving us a five- or ten-fold gain
on our warrants last year) and Aldabra 2 (which is becoming Boise Cascade Paper,
and whose warrants are up about 50% since July and will be up five-fold if, by 2011, the underlying stock, hit $14.50 or so). I’m not a member of the site, but someone
sent me this emailed summary:
Tuesday, December 04, 2007 12:49 PM
Subject: AII - Aldabra II / Boise Cascade Paper, Packaging &
Newsprint Road show started last week, Aldabara 2 remains a
top pick as it still undervalued despite drop in peer multiples, current fair value range $10.25 to $16.10
* AII remains a favorite
idea despite peer multiples coming down in the past month
* On a 2007 EV/EBITDA
outlook, AII is now fairly valued at $10.25 vs $11.00
one month ago
* AII is fairly
valued at $11.20 to $13.75 on a 2008 EV/EBITDA basis and $12.55 to $16.10 on a
2008 adjusted EPS basis (reflects the benefits of a low tax rate from the
acquisition amortization tax shield)
* Thus at minimum AII should currently
trade at $10.25 and should move towards the $11.20 to $16.10 range as
confidence increases of hitting the 2008 EBITDA targets
* Boise Cascade (BCC)
3rd Q results gives confidence they will hit the $250M
EBITDA target for 2007
* 2008 EBITDA range
of $315M to $367M
* $315M EBITDA target
appears highly likely as it reflects LTM EBITDA adjusted for October commodity
paper (UFS) price increase and the annualized effect of recent mill
conversions/enhancements and it does not include price increases in 2008 of
several of product lines that are forecasted by industry analysts as well as
anticipated input cost declines
* $367M EBITDA target
appears reasonable as it includes all or part of the positive impacts of
announced and anticipated price increases and excludes the benefits of
declining input costs
* Strategically, AII
is the best way to invest in the paper and packaging industry as it the direct
beneficiary of the higher commodity prices from the capacity shut downs of its
peers
* BCC has not
participated in the capacity shut downs because it has a minority market share
and thus enjoys the benefits of the higher prices driven by its peers who are
doing the heavy lifting of reducing production in line with market demand
declines
* If annual demand
declines for paper and newsprint continue at the same pace then eventually
Boise Cascade will have to cut production or invest more capex
to switch production to other products, but for the next several years it
should be able to continue to drive the same production with no shut downs
especially if declines in UFS revert back to the normal 1% to 2% range from
this years 6% decline
* BCC has 100% USD
based operations which is an additional positive as some of its peers are being
hurt by foreign currencies strengthening against the USD
* The Aldabra 2
management team has credibility (GLDD), good business acumen and a strong
understanding of what they need to deliver to get investors excited and they
have been regular buyers of AII common in the open market
* We see this deal as
a high probability yes given it has a 40% max redemption, solid story and good
valuation
* However, we acknowledge that it is hard
to get excited about any paper company if a recession occurs and this could
become a situation where a cheap solid name just gets cheaper
* We maintain AII as
a top pick since the US
is currently not in a recession, the recent trends in paper inventories are not
concerning, Boise Cascade is strategically more interesting than its peers and
AII currently trading below estimated cash per share of $9.72 should currently
trade at $10.25+ creating a win-win investment
* We would not be
surprised to see AII repeat the performance of Aldabra 1 where the common crept
higher towards the vote and then had a nice break higher once the deal was
approved. Please click on the Link
to read the full analysis.
F Don’t sell your
warrants.