Horrific Lessons in value investing- DFC files for bankruptcy

Discussion in 'Trading' started by HedgefundTrader2, Dec 8, 2007.

  1. Investing in down trending and troubled stocks could mean a complete blow out. Those last puff cigar businesses are not only dangerous but outright risky. In his book Dhando Investor Mohnish Pabrai talks about fighting the Chakavu in the last chapters. Its a battle formation from which no soldier escapes alive.

    According to Nasdaq information site Mohinsh Pabrai was the owner of 4.66 million shares of Delta financial, a struggling mortgage related company. He perhaps bought it cheap, low multiples, hard to tell what he paid for. But assuming when he owned it prior to most recent filings of 9/30/2007 the stock was trading at around $ 4.82 or less. So estimating his investment of $ 23,000,000 was at risk. Here is the link to his portfolio:


    DFC filed for bankruptcy last week and the shares are trading at 0.19 cents. Its seems like they cannot sustain their on going operation any longer. Thats is it for them.

    What happened to the $23 million invested is anybody guess. May be they were able to nimble their way out at ridiculous prices as the stock started sliding who knows. May they did not do anything. Anyway you look at it you dont want to be investing in a company thats about to close its door and leave you worthless paper to hold. That is why those company's are cheap!

    You will not hear this in the media, nor those carefully written articles. But DFC was real cheap, low multiples, and very attractive to value investors back than. It was a much touted stock with amazing stories of recovery potential. All that hype and nonsense was being circle jerked around for quite some time.

    Had that $23 million were invested in buying lets say a sound company like AAPL at 153 on 9/30/2007 with 150,000 shares it would have yielded at today's prices roughly $194 -153= $41 x 150, 000 shares = 6,163,398 or nearly $ 6 millions in profits. Not counting all those juicy covered calls that would have been written on apple stock for another $1 million dollars with it.

    And that is not the end, AAPL stock has still ways to go from here and those gains would keep on adding to your account month after month and perhaps year after years..

    But what happened to those $23 million dollars and Mohnish Pabrai and others is a wild guess. Certainly not good if your stock stops trading and grinds to a halt.

    My hats off to value investors! You certainly amaze me with your brilliant doggy puke.
  2. Daal


    some of these same guys are flocking over freedie mac right now because it's so 'cheap', they think they are doing value investing when they are in fact doing a highly dubious macro speculation,same thing for etrade
  3. isn't lampert ...a value investor. :)

  4. There is a whole school of these idiots who want to imitate Warren Buffet. This is a rampant bull market, no need to pick down and out businesses and housing related stocks like CFC, FRE, FNM, CTX, HOV, TOL, PMI and others.

    It sickens me to lose money yet these value investors lose money since they are on shaky grounds to start with.
  5. Eddie Lampert is a value investor. He is also a fool.

    He bough SEARS and KMART for the real estate values when real estate was knocking on heavens door! Looks what happend to SHLD stock now. He is lashing out in anger these days
  7. piezoe


    This is NOT Value investing guys. It's distress sale investing. They are entirely different.
  8. neke


    Those kinds of distress investing is more like buying call options: we know they could go worthless (which is more likely) but they could also deliver stellar returns.

    Post 9/11 AMR went as low at $2 in Mar 2003. Now at $20, it looks like a 10-bagger. Same with FWLT, which right now is acting like a momentum stock. It was sub $10 in Mar 2001 after collapsing from a split-adjusted price of $700 in Aug 1997. Now it is $165, up more than 16-fold. Along the way many similar stories ended worthless.

    It would of course be silly for a fund to commit all their money to such, and I think on the whole it's probably not worth the risk.

  9. Mohinsh Pabrai is a value investor mimicking Warren Buffet. He owned 4.6 million shares of DFC according to the Nasdaq.com website where you can view all these Guru's portfolios for free.

    We donot know what price he bought that stock but assuming its price on 9/30/2007 we can extrapolate a guess that he dashed $23,000,0000 if he didn't exit quickly enough. What is more important to note is the decision to buy such a struggling stock in the first place and label it value investing.
  10. Yeah tell it to me. I was so hyped into this value investing and Warren Buffet bullcrap that I bought into HOME DEPOT duriing the summer when Warren Buffet was backing up the truck on the stock.

    I was a bit smarter than Mr. Warren though.

    Instead of outright purchase, I wrote naked puts on HOME DEPOT at $40 and I was immediately assigned the stock. Than it fell some more I wrote a second batch of naked puts on HD and was immediately assigned! Since than HD has done nothing but draw down my account value. Its a value investing stock with low multiples, a big moat , unique kind of business and all that fluff.

    My only consolation, I get to keep the premiums when I sold those naked puts. I am still in the Chakravu as per Mohnish Pabrai book Dhando Investor, wondering if I will be able to escape.
    #10     Dec 8, 2007