ERICOPOLY Posted August 6, 2011 Share Posted August 6, 2011 The $45 strike 2013 call (just under book value) last went for 70 cents. That like 64x leverage at book value. I guess you could make 25x your money on that if the stock just goes back to 52 week high. I don't have a lot of certainty for an outcome like that, but it's interesting that for 1% of your money at risk pre-tax you have the chance of boosting your wealth by 25% pre-tax. I get that people are terrified of losing money, but if the other 99% is tied up in super safe govt bonds yielding more than 1% over that time then your chance of loss is actually zero. Or the $40 strike has an "ask" of $1.11. 21x your money at 52 week high. Link to comment Share on other sites More sharing options...
stahleyp Posted August 6, 2011 Share Posted August 6, 2011 It looks like there are two options for each strike for the 2013s. Does one option include warrant and one doesn't? Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 6, 2011 Share Posted August 6, 2011 At $8 for the warrant, you need $125 to make 10x your money. And actually sounds quite attainable. Twice what the common purchased for $25 would return for the same $125 price. Incredible tax-deferral of gains. No taxes for 10 years. I am coming around to the warrants now -- love the fact that expiration is not really a concern for a heck of a long time. Can take a 10 yr vacation from trading anything at all, yet still have blisteringly good results. Link to comment Share on other sites More sharing options...
Parsad Posted August 6, 2011 Share Posted August 6, 2011 At $8 for the warrant, you need $125 to make 10x your money. And actually sounds quite attainable. Twice what the common purchased for $25 would return for the same $125 price. Incredible tax-deferral of gains. No taxes for 10 years. I am coming around to the warrants now -- love the fact that expiration is not really a concern for a heck of a long time. Can take a 10 yr vacation from trading anything at all, yet still have blisteringly good results. There is risk. If the company is acquired for the strike price or less, then your warrants are worthless. We've bought the government warrants for various institutions, but make sure no one goes crazy on them. Stranger things have happened, especially when executive bonuses are on the line. Cheers! Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 6, 2011 Share Posted August 6, 2011 Good point. Link to comment Share on other sites More sharing options...
Cardboard Posted August 7, 2011 Share Posted August 7, 2011 21 times, 25 times, 10 times your money... Sounds to me like Ericopoly is feeling nostalgic 5 years after entering a heck of an option trade! ;) Cardboard Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 7, 2011 Share Posted August 7, 2011 21 times, 25 times, 10 times your money... Sounds to me like Ericopoly is feeling nostalgic 5 years after entering a heck of an option trade! ;) Cardboard That's what I was thinking about when I ran the numbers and saw it's 64x leverage at roughly book value. I think the FFH $140 strike got to $2.05 on the morning of June 23, 2006, and that's about 68x leverage of book value. Unfortunately AIG isn't a crowded short -- it's the opposite with the govt selling. Link to comment Share on other sites More sharing options...
txlaw Posted August 7, 2011 Share Posted August 7, 2011 1. Current book value of $49 per share. We also have $13 per share of Deferred Tax Assets. Just taking the current book value at face value using Berkowitz's thesis of intense regulatory scrutiny as a result of bailout, AIG currently sells at 1/2 of book value. Any reserve deficiencies should be more than offset by the deferred tax assets (although not carried on books). 2. CEO's sworn testimony to congressional panel stating $6 billion to $8 billion normalized operating earnings or about $3-4 per share. I think we can take this a little more seriously than the regular investor presentations. 3. AIG has an aspirational goal of about $4-$5B of incremental pre-tax operating income by 2015 compared to its normalized pre-tax income for 2010. Thoughts? Vinod I would just add that those normalized operating earnings don't include the other valuable assets that AIG owns that could distributed to shareholders or sold and redeployed into the operating companies. This sucker is cheap -- real cheap. But I don't expect it to do anything for a while. Plenty of time to get in after your other positions work out, I think. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 7, 2011 Share Posted August 7, 2011 This sucker is cheap -- real cheap. But I don't expect it to do anything for a while. Plenty of time to get in after your other positions work out, I think. I believe this is why the stock is so low and why the options are so crazy cheap. People aren't expecting it to rally until the govt shares are sold, which will be a while. Thus the speculative traders don't want any piece of it. You have to be a marshmallow 'A+' student to want this one. But I want in. I will go with the warrants. They won't be spinning off any cash producing assets to shareholders for a while -- those assets provide a cushion to the rest of the unit. Takeover price won't be for less than 1.1x book, which provides a cushion for the warrants. I like it all the way around. Link to comment Share on other sites More sharing options...
stahleyp Posted August 7, 2011 Share Posted August 7, 2011 If there is a spin off, would the warrants be adjusted for that? Link to comment Share on other sites More sharing options...
ShahKhezri Posted August 7, 2011 Share Posted August 7, 2011 I don't disagree with the math, I do think about the too big to succeed nature of an insurance company with a potential $200 BN market cap to achieve the big gains. You really have to do dig deep, if you think there will be potential spinoff's of non-core insurance businesses, the common might make more sense. Management has not articulated their intentions yet as last week, ILFC made a purchase, albeit small. I guess the question is, do you take position in MKL/WRB and some of the other premier company's at book (not to far fetched if we get another 5-10% hit) or do you buy the dog with fleas. The $200 BN market cap is a big turnoff. Having worked at Travelers as an underwriter, and basically being a premium grower, I think about the level of risk written to maintain premium levels, YOY. If Singleton were running AIG, at this price it would be a no-brainer. A good jockey in this industry is a big plus. However, with the government watching your every move and compensation (limited), pretty hard. Why can't FFH/Ross/Flowers/? take a large position here and unlock value? Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 7, 2011 Share Posted August 7, 2011 I need to start solving this for a lower risk way without the warrants. Yes, going 2x long the stock today and sitting on it for 9.5 years will get you 10x your money at stock price of $125 -- and that's what the warrants do for you as well. However, you don't need to take a 2x long position immediately in order to match the warrants. Maybe instead you only take a 1.x long position in the common and maintain that constant leverage level (buy more common) as the stock rises. I need to figure this out today and then compare. Maybe it's only 1.3x or something similarly reasonable, which can be done relatively safely with the aid protective puts. EDIT: Okay, unfortunately it's as high as 1.52x leverage (constant leverage) in the common in order to match the gains of the warrant. The warrant is far simpler unless management does something to damage the value of the warrant vs the common. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted August 7, 2011 Share Posted August 7, 2011 Here is a filing that explains the anti-dilutive provisions of the AIG warrants: http://www.sec.gov/Archives/edgar/data/5272/000095012311003847/y89089e424b2.htm#605 Good reading. For example: However, if the transaction that gives rise to an adjustment pursuant to this paragraph (3) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a subsidiary or other business unit (i.e., a spin-off) that are, or, when issued, will be, traded on a U.S. securities exchange, then the exercise price will instead be adjusted based on the following formula: If AIG makes a cash distribution to all holders of Common Stock, excluding (a) any cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock does not exceed $0.675 per share of Common Stock in the aggregate in any twelve-month period (the “Dividend Threshold Amount”) , (b) any cash that is distributed as part of a distribution referred to in paragraph (3) above, and © any consideration payable in connection with a tender offer referred to in paragraph (5) below, then the exercise price will be adjusted based on the following formula: Link to comment Share on other sites More sharing options...
SharperDingaan Posted August 7, 2011 Share Posted August 7, 2011 You might want to consider how the time line changes if 2 or 3 bidders make a direct joint offer for most of the government position. Corporates with record cash levels are allready feeling 'pressure', & this would cure a lot of issues. SD Link to comment Share on other sites More sharing options...
stahleyp Posted August 7, 2011 Share Posted August 7, 2011 Ahhh, thanks Eric. I appreciate it! :) Link to comment Share on other sites More sharing options...
Shane Posted August 23, 2011 Share Posted August 23, 2011 I've got some serious concerns with this investment, was hoping someone could let me in on their thinking that is an owner. This seems highly speculative - Can anyone answer why this company shows the ability to compound? Chartis - has had a big drop in profitability, and they are not a low-cost operation SunAmerica - Not an especially attractive company also with a drop in profitability AIA is the only thing keeping this company afloat and they are at risk of losing their 33% stake. What is the bull case for AIG? I get that the risk/reward ratio is way out of whack... max you lose is what you put in but potentially there is a ton to be made... I just don't see a lot of positives for AIG! The tax advantages will help, but the core businesses are far from being profitable as far as I can tell. I know several fund managers here in florida who have met Berkowitz, they do not think highly of him. In general they thought his analysts (Which started GOODX) were the key to his success and he himself is not doing his homework like he used to. These guys have no personal issues with Berkowitz and I trust them very much, he strongly urged me not to put faith in the fact that berkowitz liked the stock. Any opinions? I bought some of the warrants and am not reconsidering my investment. Link to comment Share on other sites More sharing options...
Rabbitisrich Posted August 23, 2011 Share Posted August 23, 2011 Shane Smith, interesting anecdote about Berkowitz. Did your friends provide any specifics? Chartis' expense ratio hovers around 30%, which is pretty decent for its size and scope. My problem with AIG is that the opportunity costs are fairly high with the best insurance companies in the world offering nice deals. A steady eddie like Traveler's (although maybe ShahKezri can offer dissenting opinion) is trading under book with a low expense ratio and shareholder friendly policies. They have repurchased 50 M + shares over the last year! Link to comment Share on other sites More sharing options...
coc Posted August 23, 2011 Share Posted August 23, 2011 I've got some serious concerns with this investment, was hoping someone could let me in on their thinking that is an owner. This seems highly speculative - Can anyone answer why this company shows the ability to compound? Chartis - has had a big drop in profitability, and they are not a low-cost operation SunAmerica - Not an especially attractive company also with a drop in profitability AIA is the only thing keeping this company afloat and they are at risk of losing their 33% stake. What is the bull case for AIG? I get that the risk/reward ratio is way out of whack... max you lose is what you put in but potentially there is a ton to be made... I just don't see a lot of positives for AIG! The tax advantages will help, but the core businesses are far from being profitable as far as I can tell. I know several fund managers here in florida who have met Berkowitz, they do not think highly of him. In general they thought his analysts (Which started GOODX) were the key to his success and he himself is not doing his homework like he used to. These guys have no personal issues with Berkowitz and I trust them very much, he strongly urged me not to put faith in the fact that berkowitz liked the stock. Any opinions? I bought some of the warrants and am not reconsidering my investment. I'm not going to comment on AIG itself but I think that characterization of Berkowitz is way off. He had no analysts for the first 20 years of his investing career and he did wonderfully well (see his OID features dating back to 1992 when he was at Lehman) as an investment advisor. He made his name owning large concentrated positions in financial stocks in the 80's and 90's - Fireman's Fund, Berkshire, Freddie Mac, Wells Fargo, MBIA, Salomon Brothers, Leucadia (when it was basically an insurance and banking company), Household Int'l, etc.. It's almost all pubicly documented. And if you read those features and some of his more recent stuff, it suggests to me a very detailed researcher who uncovers what most gloss over. Then, this same guy who made his career in financials manages to avoid the one period when it was a terrible idea to own them - an almost incomparable feat. And now that he's back in his area of specialty, he's lost his mojo and he doesn't do his homework anymore? He may end up being wrong, investing is risk, but the idea that it's because he doesn't know what he's doing or his success is due to a few analysts...I find it very hard to believe. Remember that he's got hundreds of millions tied up in the same stocks as his clients. His money, unlike most, is where his mouth is. Link to comment Share on other sites More sharing options...
Parsad Posted August 23, 2011 Share Posted August 23, 2011 I'm not going to comment on AIG itself but I think that characterization of Berkowitz is way off. He had no analysts for the first 20 years of his investing career and he did wonderfully well (see his OID features dating back to 1992 when he was at Lehman) as an investment advisor. He made his name owning large concentrated positions in financial stocks in the 80's and 90's - Fireman's Fund, Berkshire, Freddie Mac, Wells Fargo, MBIA, Salomon Brothers, Leucadia (when it was basically an insurance and banking company), Household Int'l, etc.. It's almost all pubicly documented. And if you read those features and some of his more recent stuff, it suggests to me a very detailed researcher who uncovers what most gloss over. Then, this same guy who made his career in financials manages to avoid the one period when it was a terrible idea to own them - an almost incomparable feat. And now that he's back in his area of specialty, he's lost his mojo and he doesn't do his homework anymore? He may end up being wrong, investing is risk, but the idea that it's because he doesn't know what he's doing or his success is due to a few analysts...I find it very hard to believe. Remember that he's got hundreds of millions tied up in the same stocks as his clients. His money, unlike most, is where his mouth is. I think the negative stories always come up when things are challenging for a manager. Nobody says anything bad about the guy when he's manager of the decade. But if he makes a ballsy bet, then it's his analysts who get the credit for the past, while he gets the blame for the present. These guys don't suddenly become stupid! If you are a Buffett acolyte, you tend to make heavy, concentrated bets. That will cost you sometimes, but it works the other 90 percent of times. Look at Mohnish. He was shooting the lights out, and then that concentrated focus cost him big through 2008 and early 2009, but then the framework eventually worked its way out of that drop. That's what is so hard about the business and investing in general. You pay dearly to be right, and you have to endure looking like an idiot until that day comes! Cheers! Link to comment Share on other sites More sharing options...
txlaw Posted August 23, 2011 Share Posted August 23, 2011 I've got some serious concerns with this investment, was hoping someone could let me in on their thinking that is an owner. This seems highly speculative - Can anyone answer why this company shows the ability to compound? Chartis - has had a big drop in profitability, and they are not a low-cost operation SunAmerica - Not an especially attractive company also with a drop in profitability AIA is the only thing keeping this company afloat and they are at risk of losing their 33% stake. What is the bull case for AIG? I get that the risk/reward ratio is way out of whack... max you lose is what you put in but potentially there is a ton to be made... I just don't see a lot of positives for AIG! The tax advantages will help, but the core businesses are far from being profitable as far as I can tell. I know several fund managers here in florida who have met Berkowitz, they do not think highly of him. In general they thought his analysts (Which started GOODX) were the key to his success and he himself is not doing his homework like he used to. These guys have no personal issues with Berkowitz and I trust them very much, he strongly urged me not to put faith in the fact that berkowitz liked the stock. Any opinions? I bought some of the warrants and am not reconsidering my investment. I would think you would want to know the bull case before buying any AIG warrants. Maybe read the last Fairholme conference call prior to the BAC call. Link to comment Share on other sites More sharing options...
Shane Posted August 23, 2011 Share Posted August 23, 2011 txlaw - thanks for the reference. Basically Berkowitz and the individual I know met a company together and he was amazed that he did not know certain things about the company, he said it changed his opinion of him. I can't really discuss the specifics. Link to comment Share on other sites More sharing options...
stahleyp Posted August 24, 2011 Share Posted August 24, 2011 Shane, Can you give any more details at all? It sounds really intriguing. If not, that's understandable. Thanks! Link to comment Share on other sites More sharing options...
goldfinger Posted August 24, 2011 Share Posted August 24, 2011 Benmoshe seems to agree with Berkowitz. He has been buying AIG stock by the millions sometimes at prices way way higher than now. And he keeps on buying more regularly. I have heard he is a competent kind of guy... Link to comment Share on other sites More sharing options...
Shane Posted August 24, 2011 Share Posted August 24, 2011 Stahleyp - Sometimes I regret using my real name for a website that shows up easily on a google search! I should probably change it. He would probably much prefer I not discuss his investments on a website. He deals with a lot of short selling & illiquid stocks and is worried about competition for shares. Link to comment Share on other sites More sharing options...
biaggio Posted August 25, 2011 Share Posted August 25, 2011 "BB is one of those guys who are like icebergs. they only show you the "tip" of how smart they are." I like it. My experience has been that the most successful/smart people have been understated+ don't go out of their way to show everyone how smart or rich they are. It s probably a good tactic in business -giving the impression that you re not very smart or able , so that your competitors can underestimate you. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now