NEW YORK - Two top fund managers from the last few years leave a lot to be desired in terms of their investments in the current year. These investors include Bruce Berkowitz and John Paulson two investors which had extraordinary performance over the last few years but have struggled this year.
A look at John Paulson who made his fortune by betting against the housing market and famously was involved in a Goldman Sachs lawsuit since investors flatteringly demanded that Goldman should have disclosed Paulson was part of housing transactions where they lost billions.
This year, John Paulson lost a fortune on his investment in Sino Forest which declined to close to zero and it is possible to give him a free pass on a missing a catastrophic fraud when the auditors missed it for 15 years. Some of Paulson's other holdings leave a lot to be desired. His Hewlett Packard investment in the $40's can't be considered very smart at any point in time. The company was undergoing a big transformation and many of their products lacked growth so it did not make much sense. An investment which made less sense was in MGM. Paulson has owned this stock for more than a year and it has moved nowhere. We here at The Markets Are Open feel MGM is overvalued as is all casino stocks. We feel people like to own casino stocks because they are investments people love to say they own. At the same time MGM is the worst of the lot and is not worth a lot when you look at the fundamentals and their losses.
Bruce Berkowitz also has a string of investments we consider un-optimal. The fund owns 18% of its assets in AIG. An investment which we deem to be undervalued but has a large amount of risk. $50 billion of its assets are being held for sale which means that its values can fluctuate wildly. Second it has already said it would plan another capital raise which would dilute holders. Lastly the government is involved in the company. Given its collapse and the government rescue the company has risk of government involvement or worse some sort of sanctions against the firm. AIG would be a good investment if the S&P 500 was at 1500 and an investor had to be creative. But little work can be done to find an insurer such as Prudential or Metlife selling at 2/3 book and having no problems and are currently capitalizing on AIG's sold businesses. HIG a Paulson owned company is selling at half its tangible book like AIG. It just does not seem to make sense to own AIG when premium insurers sell at similar prices. (Note HIG is not considered a premium insurer)
Regions Financial can only be described as a terrible investment. It is as if Berkowitz does not research his stocks at all. It makes almost no sense whatsoever to own any Regions shares given the fact it is the only major 10 U.S. Bank to still owe TARP money. It will likely dilute shareholders substantially. Investors of Regions should also know that as the stock goes lower it means that Regions will need to issue more shares when they do payback TARP. Which causes the stock to go even lower. Hence a perpetual cycle of doom. It also has little opportunity to be bought out due to current draconian laws by the U.S. Government which penalizes healthy banks for buying less healthy ones. All in all Regions will likely be reporting break even or losses for years and badly needs to be bought out.
A second purchase which makes no sense is MBIA. MBIA is a re-insurer of municipal bonds. The problem with the company and likely Berkowitz's analysis is that he missed the company uses its own default risk in calculating the fair value of its liabilities. The company has liabilities 5 to 6 billion dollars greater than it shows on its balance sheet and due to some dumb accounting rule it does not show it. Mr. Berkowitz says he hopes for MBIA to win some legal cases. What is funny is that he also owns BAC, so if he wins he also loses. Either way there is no way Berkowitz is being compensated for holding the risk of MBIA.
Sears is also a poor investment. Given its struggles and how cheap other retailers are which are better it makes little sense to hold the risk of this company.
We believe these fund managers investments are worse than their performance.
No comments:
Post a Comment