Parsad Posted August 8, 2011 Author Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. Eric, either you are going to continue to really enjoy retirement, or you may be coming out of retirement! ;D I'm betting on the former. Cheers! Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 8, 2011 Share Posted August 8, 2011 I also got BAC 2013 $10 strike calls. at what price? Looks like they're currently around $1.15. That's about the average price I paid. Link to comment Share on other sites More sharing options...
enoch01 Posted August 8, 2011 Share Posted August 8, 2011 Down to about 30% cash now. BAC and AIG prices got a little crazy today, no? If somebody only wants $1.10 for me to be able to take their BAC from them over the next year and a half at $10, it's a bet I can take. Also liking the IBKR position with VIX and volume spiking. They must be minting money these days... Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 8, 2011 Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. Eric, either you are going to continue to really enjoy retirement, or you may be coming out of retirement! ;D I'm betting on the former. Cheers! Yes well I spoke to my brother-in-law yesterday who has a financial planning/advisory business on the side. He said he had a client call up last week and sell everything -- including the mutual funds in his kids college funds, with early redemption penalties. His plan was to put it all into gold this morning at the open. I was at a picnic Saturday night at my "old money" mother-in-law's "country club" just quietly gasping at the 40-50 year old heirs of old fortunes nervously chattering about the debt downgrade and the markets etc... This morning I just figure these people are all getting out and the mutual funds just have to sell to meet redemptions. The fund managers want to buy, not sell, but what can they do? Cash levels in funds are at record lows. So once the last marginal retail investor has panicked, guess whas' gunna' happin? Link to comment Share on other sites More sharing options...
Parsad Posted August 8, 2011 Author Share Posted August 8, 2011 I was at a picnic Saturday night at my "old money" mother-in-law's "country club" just quietly gasping at the 40-50 year old heirs of old fortunes nervously chattering about the debt downgrade and the markets etc... This morning I just figure these people are all getting out and the mutual funds just have to sell to meet redemptions. The fund managers want to buy, not sell, but what can they do? Cash levels in funds are at record lows. So once the last marginal retail investor has panicked, guess whas' gunna' happin? Yup, same thing. I was at a wedding Saturday night, and everyone was asking me about the downgrade and the markets. They all sounded really nervous. I don't think my rational explanation of how markets worked calmed anyone. The types of questions I was getting were "My broker told me that Royal Bank is going to do well next year...will it?" I said to myself..."Oh boy, this is going to be tough to explain." Cheers! Link to comment Share on other sites More sharing options...
Smazz Posted August 8, 2011 Share Posted August 8, 2011 I was at a picnic Saturday night at my "old money" mother-in-law's "country club" just quietly gasping at the 40-50 year old heirs of old fortunes nervously chattering about the debt downgrade and the markets etc... This morning I just figure these people are all getting out and the mutual funds just have to sell to meet redemptions. The fund managers want to buy, not sell, but what can they do? Cash levels in funds are at record lows. So once the last marginal retail investor has panicked, guess whas' gunna' happin? Yup, same thing. I was at a wedding Saturday night, and everyone was asking me about the downgrade and the markets. They all sounded really nervous. I don't think my rational explanation of how markets worked calmed anyone. The types of questions I was getting were "My broker told me that Royal Bank is going to do well next year...will it?" I said to myself..."Oh boy, this is going to be tough to explain." Cheers! I got tired of those discussions, feeling bad but now i just say "its 50/50" - really, it is a fair answer cause the long term answer they dont want to hear and the short term answer we really dont know so - thats where they just leave because they know they cant figure it out. Link to comment Share on other sites More sharing options...
bluedevil Posted August 8, 2011 Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. Ericopoly, what do you think AIG is worth? More than its book value of $50 bucks a share? I bought a very small position today. I haven't had the time to study the company because of work (hence the little position), but I thought if Berkowitz is willing to pay in the 40s, what the heck. Link to comment Share on other sites More sharing options...
onyx1 Posted August 8, 2011 Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. You mentioned several ways to play this one... do you mind me asking which option(s) you ultimately went with? I went with AIG & BAC warrants. I also got BAC 2013 $10 strike calls. No AIG. But bought the same calls on BAC that you did. Eric/Txlaw/others, Wondering why you bought the BAC call options today, rather than the underlying? On a day of panic where implied vol. has spiked to 62%, the option price is over two times the price at a normalized vol. of say 42%. Link to comment Share on other sites More sharing options...
DCG Posted August 8, 2011 Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. Ericopoly, what do you think AIG is worth? More than its book value of $50 bucks a share? I bought a very small position today. I haven't had the time to study the company because of work (hence the little position), but I thought if Berkowitz is willing to pay in the 40s, what the heck. Most of AIG's stated book value is not tangible. Barrons explained it last week: "The $58 billion of AIG shareholder equity includes more than $42 billion in preferred stock issued under the Troubled Asset Relief Program (TARP). That preferred, owned by Uncle Sam, is senior to AIG common. Take it out, and AIG's common equity falls to about $15 billion, or $21.80 a share. The $21.80 figure is buried in a footnote in the second-quarter financial supplement as "book value per share assuming adjustment to AIG's shareholders' equity for U.S. Treasury equity investments." Then there are some intangible assets, including $6.4 billion of goodwill and about $14 billion of a "prepaid commitment asset" linked to the government financial backstop for AIG. This will be written down by $5 billion in the current quarter as AIG reduces its $44.8 billion of Fed borrowings by giving the Fed equity stakes worth $25 billion in its two big international life-insurance operations. Strip out these two items and AIG would have had negative tangible common shareholder equity of $7 per share at the end of the second quarter." Link to comment Share on other sites More sharing options...
Smazz Posted August 8, 2011 Share Posted August 8, 2011 Its so easy a child could do it ;D warning for some bleeped out language... http://www.youtube.com/watch?v=N6oNJHvExBI&feature=feedu Link to comment Share on other sites More sharing options...
coc Posted August 8, 2011 Share Posted August 8, 2011 I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now. Ericopoly, what do you think AIG is worth? More than its book value of $50 bucks a share? I bought a very small position today. I haven't had the time to study the company because of work (hence the little position), but I thought if Berkowitz is willing to pay in the 40s, what the heck. Most of AIG's stated book value is not tangible. Barrons explained it last week: "The $58 billion of AIG shareholder equity includes more than $42 billion in preferred stock issued under the Troubled Asset Relief Program (TARP). That preferred, owned by Uncle Sam, is senior to AIG common. Take it out, and AIG's common equity falls to about $15 billion, or $21.80 a share. The $21.80 figure is buried in a footnote in the second-quarter financial supplement as "book value per share assuming adjustment to AIG's shareholders' equity for U.S. Treasury equity investments." Then there are some intangible assets, including $6.4 billion of goodwill and about $14 billion of a "prepaid commitment asset" linked to the government financial backstop for AIG. This will be written down by $5 billion in the current quarter as AIG reduces its $44.8 billion of Fed borrowings by giving the Fed equity stakes worth $25 billion in its two big international life-insurance operations. Strip out these two items and AIG would have had negative tangible common shareholder equity of $7 per share at the end of the second quarter." Careful. The article you referenced is from September 2009 and its points no longer apply. Here is a link: http://www.smartmoney.com/invest/stocks/aig-still-no-port-in-this-storm/ Link to comment Share on other sites More sharing options...
DCG Posted August 8, 2011 Share Posted August 8, 2011 damn...thanks for pointing that out. I saw that referenced somewhere else today and didn't check the source. Sorry about that. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 8, 2011 Share Posted August 8, 2011 I was going to sarcastically reply that the positive earning must be an infinite return on that negative tangible equity! Link to comment Share on other sites More sharing options...
farnamstreet Posted August 8, 2011 Share Posted August 8, 2011 slide 11 details AIG's capital structure as of q2-2011 http://www.aigcorporate.com/investors/2011_August/2Q11_EarningsPresentation.pdf Link to comment Share on other sites More sharing options...
Munger Posted August 8, 2011 Share Posted August 8, 2011 with AIG, BAC, JOE etc imploding -- how does Berkowitz survive...what do his redemption requests look like when he shows up in the office tom morning Link to comment Share on other sites More sharing options...
Parsad Posted August 8, 2011 Author Share Posted August 8, 2011 with AIG, BAC, JOE etc imploding -- how does Berkowitz survive...what do his redemption requests look like when he shows up in the office tom morning Probably not pretty. And of course as soon as he's sold and filled the requests, the stock market will move up 800 points. Cheers! Link to comment Share on other sites More sharing options...
Uccmal Posted August 8, 2011 Share Posted August 8, 2011 Not pretty. He really miscalculated this. It goes to show you that no matter how thorough one may be things can go against you all at once, especially when you are undiversified. When you offer funds without redemption restrictions you are really behind the 8-ball at times. Berkowitz is likely right about the long term prospects of most of his holdings. He just wont have very big positions when they are realized. More evidence of the investing genius of Buffett and Fairfax. No one is pressuring them to sell their stocks and there is no need. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 8, 2011 Share Posted August 8, 2011 Ericopoly, what do you think AIG is worth? More than its book value of $50 bucks a share? I guess $50 is a reasonable number if they can grow book at 8% as they are doing now. Later perhaps it's worth more if interest rates go higher -- you can't make a lot from float with low rates. Doubling the book value in 10 years looks pretty doable. Warrants ended around $7 so you need like $115 for a 10x return. That would be like a 1.15x multiple to book. There are lesser outcomes that would still be quite acceptable -- and of course they might do much better. Maybe people go bananas about a hard market in a couple of years and the stock is at $85 all of a sudden? Could that be like a 7x return in just two years possibly? Then if you could triple it over the next 8 years you'd have a 21x return. Stranger things have happened. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 9, 2011 Share Posted August 9, 2011 Eric/Txlaw/others, Wondering why you bought the BAC call options today, rather than the underlying? On a day of panic where implied vol. has spiked to 62%, the option price is over two times the price at a normalized vol. of say 42%. I think the stock will be at least as high as $17 by expiration of those 2013 calls. Nearly 7x returns. I didn't go "all in" on the calls, if it blow up 100% I've only destroyed 5% of my fingers -- which I would expect to recover from the warrants. I have the same number of warrants in AIG as I do in BAC. I hope AIG gets their $10b back! That gain in book value alone would repay me for the cost of my BAC warrants. Link to comment Share on other sites More sharing options...
enoch01 Posted August 9, 2011 Share Posted August 9, 2011 Eric/Txlaw/others, Wondering why you bought the BAC call options today, rather than the underlying? On a day of panic where implied vol. has spiked to 62%, the option price is over two times the price at a normalized vol. of say 42%. Right, good point. To clarify, I actually bought the common and the calls today, partly for that reason. Link to comment Share on other sites More sharing options...
onyx1 Posted August 9, 2011 Share Posted August 9, 2011 Eric/Txlaw/others, Wondering why you bought the BAC call options today, rather than the underlying? On a day of panic where implied vol. has spiked to 62%, the option price is over two times the price at a normalized vol. of say 42%. I think the stock will be at least as high as $17 by expiration of those 2013 calls. Nearly 7x returns. I didn't go "all in" on the calls, if it blow up 100% I've only destroyed 5% of my fingers -- which I would expect to recover from the warrants. I have the same number of warrants in AIG as I do in BAC. I hope AIG gets their $10b back! That gain in book value alone would repay me for the cost of my BAC warrants. I follow your price objective and your desire for leverage with limited downside. But with the chance of sustaining the current panic levels of implied volatility for the next 500 days being almost zero, you are assured a better entry point in the future. For example, with the underlying at $8.5 and volatility equal to historical levels, the Jan 2013 10X LEAP would be $1.06 (roughly the same price as today). My rule of thumb is to sell volatility on days like these and buy it when waters are calm. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 17, 2011 Share Posted August 17, 2011 The BAC calls are back down to $1.18 again today, so you were right. Link to comment Share on other sites More sharing options...
Liberty Posted August 18, 2011 Share Posted August 18, 2011 Looks like today could be another "lovely fricking day"... Link to comment Share on other sites More sharing options...
cwericb Posted August 18, 2011 Share Posted August 18, 2011 Who makes Tums and Rolaids? Its starting to look like potential for a lot of growth there. I have a some at home, in the car, at work, in my gym bag... If this market keeps going like this I think I'll open an anti-acid stand on Wall Street and sell shares. Link to comment Share on other sites More sharing options...
Parsad Posted August 18, 2011 Author Share Posted August 18, 2011 Who makes Tums and Rolaids? Its starting to look like potential for a lot of growth there. I have a some at home, in the car, at work, in my gym bag... If this market keeps going like this I think I'll open an anti-acid stand on Wall Street and sell shares. Best cure for upset stomach...don't watch the markets. Go watch a movie or something if you aren't working today. S&P500 today is nearly the exact same level it was 13 years ago in 1998...13 years ago! It was overvalued then and it is undervalued today. All this volatility is simply preparation for the next bull market which is 1, 2, 5 years away...who knows. But you are buying hamburgers today and you will buy hamburgers next year, and the year after, etc. Cheers! Link to comment Share on other sites More sharing options...
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