DocSnowball

Your skepticism is valid, personally I still have no clue about the the future - "restructuring" is the operative word (see quote from Republican platform 2016 released at time of convention, and well after Mnuchin came onboard the campaign which was April). I'm basing my 50%+ probability of return to par on the historical base rate of Fifth amendment being honored in this country, I still think it is a very conservative estimate, although you can argue about timing of compensation. Also factor in the the admin/ DOJ does talk to Chuck Cooper who knows the facts. The companies are viable and profitable, despite all efforts to wind them down. If the Government wants to restructure them for public good, it has to give just compensation to the current owners. While this may not be a totally legal investment thesis, the legal part still provides the margin of safety. Quote from page 4: "For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them. Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all loses. The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home-buying." Link to original: http://www.housingwire.com/ext/resources/files/Editorial/Files/DRAFT_12_FINAL1-ben_1468872234.pdf

Other activist investors (including some on this board who have the human and financial capital to become activist) are also a margin of safety against greenmail, since the goal of a settlement would be to put the cases behind. I also realize that Berkowitz is over the 35% I reach by full Kelly, ,and he may be over 50% by next weekend, so he's seeing less risk than I am perceiving.

Over a one year timeframe, assuming current value of equities invested in preferred 1. Restructuring with return to par :50% Value 2.5x 2. Status quo or settlement only favoring plaintiffs 25% (cases go on w same or new plaintiffs) Value 0.5x. Loss 0.5 3. Liquidation without just compensation or other black swan scenario:25% Value 0 , Loss 1 Edge 0.50*2.5 + (0.25*-0.5) + (0.25*-1) 1.25 - 0.375 0.875 Odds 2.5 Edge/Odds = 0.875/2.5 = 0.35 Disclosure Newbie

What about basing position size by Kelly or half Kelly?

i've been thinking about this also. first, with a rights offering, you have the existing shareholder base. second, if the NWS senior prefs are wiped out and junior prefs are enticed to convert to common, you have a clean financing slate for new conventional senior pref that would be enticing to many institutional investors (pensions, insurance etc). but you are right, more is needed. but dont forget, if income rates go down, fnma can retain mucho dinero as long as dividends are foregone on all but any new senior prefs. let me put it this way, mnuchin calls in wall st, and says to bankers he has about $1B in fees to dole out, my guess is that you will see the bushes being beaten (so to speak) Buffett is on record about what he doesn't like - the non cumulative nature of preferreds, and the companies taking on too much risk in the past and focusing too much on quarterly earnings at the time he sold them. Berkshire certainly has the cash on hand to fire the "Elephant gun" and finance a very large part of the deal, the reinsurance market is well within their core circle of competence, it is a time when there are few undervalued investments around. This would certainly beat buying more of his least favorite industries in tech and airlines lol. The word lolapalooza effect comes to mind

Glad to hear that it turned. Cheers. Take great care of yourself, we have to believe and invest in ourselves to let the magic of compounding work in the long run

Are you still holding the 3 for more? Yes, two of them are still way undervalued in my very naive opinion! Haven't found anything with high conviction in last 6 months FNMAT/FNMA, AKAO (long only)

2016: 192% (in my very concentrated portfolio of only three investments) Beginner's luck - my first full year in investing after becoming infected with the value investing bug midway into my MBA. Hope to continue compounding slowly year on year Best wishes to all of you for 2017!

FNMAT is available to buy online through Fidelity - I have bought through an IRA and general account both without a problem. A huge thanks to this community and the legal eagles here for your insights. I studied this case for Corporate Law paper as part of my MBA in early 2016 (5th amendment violation), and have greatly appreciated all the insights ever since. Thanks a lot! hey doc, did you get a good grade on your paper? Yessir, A for originality. Thanks again for your insights Cherzeca! Fingers crossed going into this big catalytic event, whenever and however it unfolds. edit: my analysis back in April was that preferred shares are protected by the Fifth amendment - even if companies are liquidated (which Fifth amendment allows), "just compensation" and liquidation preference would provide a margin of safety perhaps of par value. The commons are outside my little circle of competence. Fairholme not selling any shares even now is a very very good omen in my opinion, as the catalysts are now political.

FNMAT is available to buy online through Fidelity - I have bought through an IRA and general account both without a problem. A huge thanks to this community and the legal eagles here for your insights. I studied this case for Corporate Law paper as part of my MBA in early 2016 (5th amendment violation), and have greatly appreciated all the insights ever since. Thanks a lot!