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

WaMu today announced widely anticipated dividend cut, operations restructuring and a convertible preferred share offering to infuse about 2.5B in capital. These are much needed actions to bring WaMu balance sheet to sustainable levels and should help WaMu position itself for the future recovery

Atleast the dividend cut has been widely aniticipated, maybe not 73%, and is mostly priced in

In another news, there are some who believe that the housing market is possibly bottoming now

Looks like a good time to bottom fish

New fed plan to slow foreclosures will be announced tomorrow. It is reported that the deal has already been reached between the feds and the mortgage industry. I view this as a net positive for the mortgage industry

The worst situation a lender finds itself in is to foreclose on a loan. It is much better for the lender and the lendee to compromise and continue the loan even if it means the lender loses revenue in terms of a reset mortgage. A lender like Countrywide can do this adjustment on their own (and many have been doing it) but the fed intervention provides a real guideline on what can be done. It is also a strong signal that the feds are not going to let the sub prime fiasco affect other parts of the economy and they will do all they can to bring the liquidity back in the market

As I sit here today I feel more comfortable about my position in CFC and WM that I took a few days ago. When the industry rebounds, these companies will come back stronger with greater market share (as many weak players have fallen). Also the feds injecting some calm/stability in these markets should help bring in some industry consolidation

Any further rate cuts at the upcoming fed meeting would just be another support for the industry and should help the stocks of the lenders

I am happy to wait out on these positions for long term

Just a quick update for the readers …

Today CFC was too good to pass up and I bought. This is truly a contrarian/value judgment and goes with my conviction that the stock is severely undervalued

Here is another opinion that lays out a case for investing in Countrywide from good friends at The Tycoon Report

I also bought WaMU (WM) in the last week and I added to my position at BAC

With my holdings in LPX I am now well positioned for the eventual housing turn around

Whenever that happens

I am patient