Arohan’s investing life

A quick note regarding several investments that were recommended (and the author took a personal stake at the time of recommendation).

WSCI: WSI Industries was recommended as a growing metal working company with excellent prospects. I took a position in the company in the $4-$5 range several months ago. In the last one month, I have liquidated my entire position in the company in the $9-$10 range for close to a double. Very satisfying return for a few months work. The stock today is trading close to $14. If I had held for another month, I could be looking at a triple instead of a double. But I have no regrets. The company is approaching 40 PE and is getting quite frothy at these levels even if you take into account their projected growth for the next few years.

CFC:I am still holding Countrywide. If you recall, the play here was to buy Countrywide as a cheaper way of getting into Bank of America. The risk is that the Bank of America acquisition of Countrywide may not close. I am still comfortable in my position and will continue to hold

WM: I am still holding Washington Mutual and am currently underwater. However I am willing to wait out the current crisis of confidence as I think the company is taking the right steps to ensure that it survives
C: I have since my last writing on Citigroup increased my position in the company. The company is very quiet on what they are doing to improve their capital structure. However, they recently entered in an agreement to liquidate a part of their debt portfolio (to private equity) for about 10% discount. I think the company will correct course and come out stronger than many expect and in 3-5 years time should reward a patient investor handsomely

Additional notes: I have also increased my stake in BAM (Brookfield Asset Management), MKL (Markel), ACAS (American Capital Strategies), LUK (Leucadia), SLT (Sterlite Industries) and added positions in BRKB (Berkshire Hathaway B shares) and EPI (Wisdomtree India ETF)

Please note that if you choose to act on any of the recommendations/ideas outlined above, make sure that you conduct your own due diligence and understand the risks you are taking. I am not a financial advisor

Can the gloom surrounding Citigroup be any darker?

The stock as of this writing is trading at a 9 year low. Goldman and Merrill Lynch have reduced their profit forecasts for 2008 for Citi and Merrill also believes that there is additional 18B in asset writedowns looming.

Then there is news that Dubai International Capital professing a belief that Citi needs another capital infusion to survive. This is after Abu Dhabi Investment Authority, Kuwait Investment Authority and Prince Alwaleed of Saudi Arabia bought or raised their stakes in Citigroup recently

And Vikram Pandit, the new Citi CEO, has not yet offered any clues to the plan he may be considering to right the Citi ship

One good news for any investor eyeing Citi as a potential investment is that the stock is now trading close to its proforma book value AFTER adjusting for another projected writedown in Q1

The decline in the stock price today brought Citi to my attention. Question as always, is whether the shares are cheap enough to purchase given that so much risk and uncertainity remains in the business? Citi stock today is trading at levels it has not traded since the LTCM debacle

I think the stock is now finally getting in the cheap territory. There is lot of risk and possibly no level of due diligence today can offer any insight into the current state of Citi business (apparently the company itself is trying to figure out what the current state is) and by the time the fog clears, the stock price would have moved (either up or down, I am sure of it! If I were playing options, I would have likely bought straddles). So buying the stock today is as close to a gamble that one can find.

I took the gamble and bought a small stake today. A lot of it is guts but Citi is also one financial company that has built a strong franchise over the years and is a globally recognized brand that any investor would love to own. I expect more capital infusion to come in to stabilize Citi and eventually turn it around.

I will let the time be the judge whether this was a good decision or a rotten one …

What do you think?