I’ll write something more about Fannie and Freddie at a later time. Things have worked out there largely as I expected.
What I did not expect is that the market would be up a lot on a day like today. I did expect that Treasuries would be down. After all, there are more claims on the Treasury now than before.
Why should the market be up?
- The possibility of lower mortgage rates, which will help those that can put money down on a new home, and those that can refinance within conforming limits.
- Risk is shifted off the balance sheets of lending institutions that held the senior debt of the GSEs.
- A big uncertainty is resolved. (And the next uncertainty has not arrived… yet.)
Now, as for me, I am probably having my best relative outperformance day ever, and it is due to one stock in my portfolio: Gehl. As the AP says, “Construction and farm equipment maker Gehl Corp. said Monday it is being purchased by its largest shareholder Manitou BF SA for $450 million, or $30 per share.” 120% premium to the Friday close. I can live with that. 🙂
I don’t play for takeovers, particularly not in this environment where financing is scarce. But in value investing, if you have reasonable financed assets trading at a discount to their value, takeovers will sometimes come, though rarely at premiums like this deal. Wow.
There’s one more thing I would like to point out here. I sometimes get a little criticism for not having an automatic sell rule. My first purchase of GEHL was around $20. I averaged down twice. Each time I reviewed the position, and concluded financing was adequate, though short-term earnings did not look promising. I concluded that over a 2-3 year timeframe, I would probably be rewarded, or not lose much. If I had used a mechanical sell rule, I would not have gotten the good side of Gehl. (And, for those that keep score, this gain almost pays for the loss in Deerfield.)
That’s how it goes. I could not predict this incident, and I have enough bad things that happen that I also can’t predict. But in a well-diversified portfolio of cheap, well-financed stocks, there can be room for good surprises. I just happened to get a big one today. (And, it puts me in the plus column for YTD performance. What a tough year for the market.)
Full disclosure: Flat GEHL — my limit orders got lifted as I wrote this…