Tuesday, October 7, 2008

Dumb things I did not do for real

I wrote out a model portfolio for a hedge fund in January this year.  I also wrote a draft note explaining every position - part of a due diligence package if you will.  

The longs did awful (eg GE), the shorts did really awful (Bear and Lehman) - but the portfolio would still be down as there were more longs than shorts.

The "model portfolio" had a very small position (minus 1 percent) short Fortis.  I wrote a small note on the stock:


This is a place-holder position.  But they paid way too much for ABN Amro and got the worst end of the deal (RBS got the better stuff!). 

They also have an undisclosed amount of subprime in the insurance company on which they have refused to take charges because they are “going to hold the assets to maturity”.  [This is an exact quote.]

They are capital constrained from the ABN Amro deal and refuse to take losses because (at best) they require a large capital raising.  

There are rumours about them needing to lean on the European Central Bank.

They are not particularly cheap and my experience of individual operations is that they are poorly run.

This however is not a sufficient case for a large position. 

Further work

Plenty.  Main thing is to work out the size of the raising and whether it is doable.  With work it might wind up as a core position.

Anyway - this little note - which I dug up again yesterday - looks fantastic now. 

Pity though - I did not do the further work and I never put the position on for myself.  

Execution is everything John and don't forget it.

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