Mozillo agreed to sell CFC to Bank of America for $7.17/share, or more accurately a .1822 share swap where CFC shareholders would get basically 1/5th of a share of BAC for every share they own.
If you take BAC's record high price of $54.77, that'd be just under $10/share for CFC shareholders. Mozillo sold $15B of equity, roughly $20/share of assets for between 50% and 75% discount.
Of course, its not a big deal for him because he's entitled to a $120M severance package.
Friday, January 11, 2008
Monday, January 7, 2008
Turning a Profit in a Bear Market
Bear markets can be disheartening but they can also be very profitable. There are four ways you can make a lot of money off of bear markets:
1) Short term plays on over-panics. You'll notice that small issues in unpopular sectors tend to have incredible volatility. This means that, generally speaking, there's a lot of movement and options are priced highly. As a result you can either buy stock directly or buy call options at extremely depressed prices and turn a profit in a day or two when the market realizes its error. See my E*trade transaction from November for an example. This tends to be purely technical so your mileage may vary. (A nice example of this today is CFC, which dropped 17% on an unsubstantiated rumor that the company will file for bankruptcy this week.)
2) You can short securities. I wouldn't do this on single issues because on a day to day basis its tough to time properly and almost all the action happens pre-market or post-market. As a result you're day trading and when some surpise information comes out you'll wind up getting caught on the wrong side of the trade and eroding all your profits in trading costs. Rather, I'd consider trading QID (Powershares UltraShort ETF). Its a leveraged ETF that amplifies the inverse of the market. In other words, if the market goes down 1%, QID goes up 2%.
3) Instead of shorting securities you can buy long term put options. A put option contract is a contract to allow someone to sell a given security to someone at a pre-determined price by a given date in the future if it is profitable for them to do so. As an example right now you can buy BIDU Jan 2009 $350 put contracts for about $86. That'd be $8600 per contract plus brokerage fees. If BIDU were to drop 10% the option contract might go up by over 30%, since now it'd be profitable to use right away. Options unlike stocks themselves however can become worthless, which means the risk can be total. (As a sidenote its worth noting here that the options market has Baidu priced at $110 in January 2010, which says a lot about smart money's view of Baidu in the long term.)
4) High yield securities. This is my personal favorite since they are relatively easy to find. I'm currently scooping up various bond funds and most of all, a small diversified selection of REIT's (real estate investment trusts). Some REIT's right now are paying out yields of over 20% thanks to their stock depreciation overshooting their earnings. The way an REIT works is that pay out at least 90% of their profits as dividends; its like a mutual fund that allows you to get into the real estate market as a landlord or loan originator. As a result, their dividend is entirely based on their earnings. In essence, a yield of 20% would indicate the market believes their earnings will be impaired by roughly 40-60%. If you choose a commercial oriented REIT do you really believe the earnings will face 40-60% impairment?
1) Short term plays on over-panics. You'll notice that small issues in unpopular sectors tend to have incredible volatility. This means that, generally speaking, there's a lot of movement and options are priced highly. As a result you can either buy stock directly or buy call options at extremely depressed prices and turn a profit in a day or two when the market realizes its error. See my E*trade transaction from November for an example. This tends to be purely technical so your mileage may vary. (A nice example of this today is CFC, which dropped 17% on an unsubstantiated rumor that the company will file for bankruptcy this week.)
2) You can short securities. I wouldn't do this on single issues because on a day to day basis its tough to time properly and almost all the action happens pre-market or post-market. As a result you're day trading and when some surpise information comes out you'll wind up getting caught on the wrong side of the trade and eroding all your profits in trading costs. Rather, I'd consider trading QID (Powershares UltraShort ETF). Its a leveraged ETF that amplifies the inverse of the market. In other words, if the market goes down 1%, QID goes up 2%.
3) Instead of shorting securities you can buy long term put options. A put option contract is a contract to allow someone to sell a given security to someone at a pre-determined price by a given date in the future if it is profitable for them to do so. As an example right now you can buy BIDU Jan 2009 $350 put contracts for about $86. That'd be $8600 per contract plus brokerage fees. If BIDU were to drop 10% the option contract might go up by over 30%, since now it'd be profitable to use right away. Options unlike stocks themselves however can become worthless, which means the risk can be total. (As a sidenote its worth noting here that the options market has Baidu priced at $110 in January 2010, which says a lot about smart money's view of Baidu in the long term.)
4) High yield securities. This is my personal favorite since they are relatively easy to find. I'm currently scooping up various bond funds and most of all, a small diversified selection of REIT's (real estate investment trusts). Some REIT's right now are paying out yields of over 20% thanks to their stock depreciation overshooting their earnings. The way an REIT works is that pay out at least 90% of their profits as dividends; its like a mutual fund that allows you to get into the real estate market as a landlord or loan originator. As a result, their dividend is entirely based on their earnings. In essence, a yield of 20% would indicate the market believes their earnings will be impaired by roughly 40-60%. If you choose a commercial oriented REIT do you really believe the earnings will face 40-60% impairment?
Intertwined Support Levels
There's an interesting thing about support levels which is worth noting. When the larger market breaches a support level, all other support levels are up for grabs. You can see this with CFC as an example. Shortly after the DJIA broke its support level at 13,000 CFC went and broke its support level at $8.60. The result? CFC is down in the $7's and approaching its support level of $6.00.
If you're into technical indicators this is a pretty nice one because its rare to see the DJIA break multiple support levels without a rally. When the DJIA does rally, you're likely at least to see stocks like CFC hit their prior support levels as resistance points and you can trim the profits on that action.
If you're a long term buy and holder you want to know the support levels because those will represent levels you want to buy more stock at. If CFC drops past $6.80 for instance I'll probably double up assuming its only price action and the fundamentals haven't changed.
If you're into technical indicators this is a pretty nice one because its rare to see the DJIA break multiple support levels without a rally. When the DJIA does rally, you're likely at least to see stocks like CFC hit their prior support levels as resistance points and you can trim the profits on that action.
If you're a long term buy and holder you want to know the support levels because those will represent levels you want to buy more stock at. If CFC drops past $6.80 for instance I'll probably double up assuming its only price action and the fundamentals haven't changed.
Friday, January 4, 2008
The Sky Is Falling
The Sky Is Falling
You might believe that if you saw the way the end of December went. ASFI has been beaten down badly because it was a few days late filing its annual report and the market as a whole is down 5.5% over the last 3 days.
I'm not going to bother to predict what is likely to occur over the next few days but here are some of my general thoughts:
1) ASFI went down on a meaningless downgrade. It then went onto the naked short list which speaks volumes of why this low-turnover, low-volume stock dropped so far and so fast for no apparent reason. I doubled up, this is a great business.
2) My problem with the market is not that its gone down. My problem is the stocks that should have gone down haven't gone down enough to bring the markets to an attractive overall valuation.
3) Ultimately I would keep putting smart money into well priced, high yield, high quality securities. If you want an example look into ABR (I'll talk about this in a following article).
Currently I myself have been rebalancing my portfolio to make sure its not heavily weighted towards financial services thanks to my recent aquisitions. I only typically keep roughly ten issues at a time, excluding option speculations, but I wanted to shift some weight into a close ended municipal bond fund.
I sold out of SPN after its 20% day earlier this week for a net of just over 35%. I like the company for the long haul but when you get a 20% profit in a single day on mildly good news its time to take some profits and walk away.
You might believe that if you saw the way the end of December went. ASFI has been beaten down badly because it was a few days late filing its annual report and the market as a whole is down 5.5% over the last 3 days.
I'm not going to bother to predict what is likely to occur over the next few days but here are some of my general thoughts:
1) ASFI went down on a meaningless downgrade. It then went onto the naked short list which speaks volumes of why this low-turnover, low-volume stock dropped so far and so fast for no apparent reason. I doubled up, this is a great business.
2) My problem with the market is not that its gone down. My problem is the stocks that should have gone down haven't gone down enough to bring the markets to an attractive overall valuation.
3) Ultimately I would keep putting smart money into well priced, high yield, high quality securities. If you want an example look into ABR (I'll talk about this in a following article).
Currently I myself have been rebalancing my portfolio to make sure its not heavily weighted towards financial services thanks to my recent aquisitions. I only typically keep roughly ten issues at a time, excluding option speculations, but I wanted to shift some weight into a close ended municipal bond fund.
I sold out of SPN after its 20% day earlier this week for a net of just over 35%. I like the company for the long haul but when you get a 20% profit in a single day on mildly good news its time to take some profits and walk away.
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