Shoot First, Ask Second

Busy activity this week.

For anyone that has any "chips" or a vested interest in the market of businesses, there was disappointment this week. I can't say all, but the majority of asset classes had a downward revaluation of business value, some warranted and others unwarranted. When it was unwarranted, it was "recession" issues. Now, I am not surprised with the downward revaluation of some businesses because I have expressed my worries for the past six months and made subsequent purchases of cheap insurance ("puts") on the financials, S&P 500 (because of the 20% weighing from the financials) and the Russell 2000.

This week, I sold to close the puts on the Financials (+750%) and the S&P 500 (+290%) and immediately placed the proceeds in the "pick of the year" ORH. Friday was a great day for this transfer because what I sold was up and what I bought was down. This is as ideal a situation becomes and very thankful the market allowed for this opportunity. When I first mentioned ORH, I stated my intentions to increase the position size from the 12% to somewhere in the 20% range. Because my account is down a little over 4% for the year and the purchases this week, ORH is now my largest holding and represents 25% of my portfolio of business.

Realized to Unrealized

I sold the puts because I believe there was a little too much pessimism. Also, we still have not heard the realized genius moves from the ORH portfolio of CDS. So this move makes a lot of sense to me, especially because ORh has had a downward revaluation recently. At 36.56 you are buying at the same price that management has repurchased shares at, and with $87 million left from their $200 million dollar buyback, I can't imagine why they wouldn't be buying at these prices. In fact, this is utterly unbelievable! So I realized profits and placed proceeds in a business with unbelievable unrealized profit potential. I think you understand by now why I am so intrigued with this offer.

Finally, about two weeks ago I ran into a quote from my primary inside info in the banking industry, CEO of Wells Fargo, Richard Kovacevich who stated "We're buying with both hands" on acquiring triple A rated jumbo mortgages, as the spread they are paying over smaller home loans quadrupled since July to 1.1%. Now I glanced at this quote everyday for the past two weeks and looked at the market action on the sidelines. Could I have been wrong in my action of selling the financials puts, or is it the market that is over-reacting? That is utterly unknowable, but I am happy to have a guy like Mr. Kovacevich's rational as opposed to the now famed "shoot first, ask second" analyst momentum. Where were you 6 months ago?

In my very first post on this blog titled "Cancer and Random Gleanings" I ended with a Mr. Kovacevich quote when he said, "I am not a forecaster of the future; I'm a historian. And history says this will blow up. It always has. And there will be some blood on the street." That was June 2007, this is now, and when he says "We are buying with both hands" he has more credibility!

Thank you and have a great long weekend, unfortunately the insurance industry or my company don't recognize tomorrow as a holiday, so that's it for today.

Take care,

S.K.