TMFJake (60.86)

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CAPS Roundtable: CheckList34 Strategy Review

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October 19, 2009 – Comments (5)

In this Roundtable article, I focus on CheckList34's strategy to invest in companies that were suffering from mark-to-market trauma (insurers, business development companies, and certain banks) despite having relatively healthy balance sheets:

http://www.fool.com/investing/general/2009/10/19/caps-strategy-review-how-you-can-profit-from-mark-.aspx

Let me know what you think and if you have any requests for a future Roundtable article.

5 Comments – Post Your Own

#1) On October 19, 2009 at 3:37 PM, jstegma (29.96) wrote:

It sounds like a game from kindergarten - "Let's pretend..."

"Let's pretend these assets are still worth something." That part is fairly easy.

The game gets harder when you get to "Let's pretend that we didn't lose all our money investing in insolvent banks."

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#2) On October 20, 2009 at 2:24 AM, checklist34 (99.80) wrote:

stegma, i don't recommend banks in teh commentary mentioned above and neither does Jake. Myprimary recommendation in March was insurers and BDCs if you read the blog(s). Insurers generally invest in debt (mortgage, government, corporate), and BDCs do as well (but generally in private ocmpanies in the $20-500M revenue range).

I do own some banks in real life including USB, WFC, BOFL, GRNB, and BAC. BAC is by far and away the largest position taken from ~$10 average.

Your comment... misses the basic point of my strategy (which, BTW, honestly has me up 4x or 300% from the march bottoms): these assets ARE worth something.

mortgage backed securities aren't worthless, corporate bonds sure as heck aren't worthless (although insurers recored immense, vast, epic, GAAP losses as the corporate bond market crashed). Even if a mortgage defaults, it isn't worthless. Collateral exists. The total losses from mortgages and MBSs can't exceed (loan amount - (paid amount + collateral value)), and frankly alot of those securities were trading below that for a time. Insurers took a loss as a result, their balance sheets have begun marking up as markets stabilize.

The result in share price has been dramatic. Several insurers are 10 baggers from their bottom. Many more are multi-baggers.

The strategy worked, thats undeniable. Jake tries to take into perspective whether it will continue to work or not. Everything comes to an end, and at some point the mark-up phase of mark to market will end again. Theq uesiton is,.... is itQ3 2009 or will it continue from here? Many of these companies will report higher book value at the end of Q3 than Q2. Some of them may report markedly or even dramatically higher value.

I'm sticking with it for a while. The assets ARE worth something. The market will ultimately gravitate towards that value. For now it continues to believe they are worht more than they were priced at 3 motnhs ago.

good luck

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#3) On October 20, 2009 at 9:32 AM, TMFJake (60.86) wrote:

Yes, the let's pretend the banks are worth something strategy is a gambler's bet. What I like about Checklist34's approach is it is based on fundamentals... Fool On!

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#4) On October 20, 2009 at 10:32 PM, MattH42004 (86.89) wrote: