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…
Congratulations!
Well, indeed I am curious what you think of the buyout.
Well done david! It’s nice to have a victory once in a while.
I thought some of the big banks were holding a lot of the Fannie and Freddie preferreds that got whacked today. Isn’t that a big writedown to come? The share prices didn’t seem to care today.
Also, I’m a little surprised that there was absolutely no haircut for the subordinated debt. Do you know if there were a lot of CDS tied to the subordinated and maybe the government wanted to eliminate losses for the CDS receivers here?
Pretty nice! I am a long time GEHL shareholder and customer and will be sorry to loose this from my portfolio. I’ll keep the tractor though.
Are you going to replace GEHL with another name in the farm/comstruction industry?