Death Grip of A Falling Knife

Mortgage in Latin translates to "Death Grip" and it just happens to be a festival of falling knives nowadays. Your truly, whom by the way, bought puts on the financial index less then six months ago, found a way to participate in the "death grip" festivity during the past two months.

Thankfully, the Christmas Spirit found a way to resurrect the evaporation of gains this past Friday. The question now is, why would an aspiring value investor devote a whole post on a loss at such a young age? The answer, it's never too late to take a bite of the humble pie. The reason, put short, I maintain a strong bias in believing the business franchise and industry fundamentals.

"and so it goes", like the beginning of every change of heart in "Slaughterhouse Five" by Kurt Vonnegut. Fittingly, we learn from out mistake and swear to never make the same mistake again. The business I speak of is The First Marblehead Corporation (FMD). Up until this past Friday, I was down a little over 50%, that is until Goldman Sachs made a decision to infuse capital. The dividend was eliminated and an increase in dilution. My average purchase price of this business was around 20 and change, and I sold what the market was offering at one time on Friday around 18.11.

As I mentioned earlier, I still believe that the private student lending business represents some opportunities for growth for the foreseeable future. However at the time of sell I felt that First Marblehead, after the Goldman Sachs deal had become a 80-85 cent dollar. After I made the sell, I added to a position that I believe is being offered to the marketplace at 60-65 cents on the dollar. I will not disclose the business in question until next week for the annual 2007 annual business of the year, "Make it Rain."

Because I still believe in the fundamentals of the student loan industry, more so the private. I have started to navigate an alternative to FMD that I will expand on in a future post because I have not yet examined all aspects of the company. I did find it Ironic that GS made this purchase on a) options expirations day, b) after 14 straight down days for FMD, and c) year-end meet the number's game.

Moreover, I also sold half of my puts on the Financials at a 435% gain in 5 months because I wanted to add to the same position that I placed the FMD proceeds in. Thus far, the position in question represents a little over 8% of my portfolio of businesses and I hope to increase to 15-20%. It is an insurance company, run by superb management, trading at book value, and offered at a 4% premium to the average price the company has been buying back shares over the past nine months. Management, has been aggressive with their buyback and I will say no more. Well...until next week!

And so it goes...

It has been an eventful past four months, starting my underwriting career has allowed me to pursue other learning curves that I find most intriguing. I sincerely apologize for being unable to write more often and have placed the task at the top of my 2008 new year's resolution.

The insurance industry is interesting and I challenge any avid Sir Buffett enthusiast to look past the numbers that any insurance company reports and for a change try to read a Commercial General Liability ("CGL") guideline for a change. Or any other guideline for that matter.

I also had the opportunity to have "brown bag" lunches with the executives of a top 5 P & C company, and I will write about that in a future post.

And so it goes...

I want to wish Merry Christmas to everyone other there who aren't already depressed about the title of this post and be careful not to catch a falling knife. Next week I will attempt to strike in one of the better cells.

Take care,

S. K.