One of the themes I have been mentioning lately is the mainstream press clamor for how this must be the bottom for the financials because the 'smart money' is in... by smart money they mean mostly people sitting on eons of dead dinosaurs. I actually make the argument that the more money you have the more risk you can take, because heck, if you blow a few billion here or there - well there are more dead dinosaurs producing petrodollars tomorrow, and the next day, and the next. As for China, well that trade surplus is not going anywhere soon... so if you blow a few billion, US consumers will send you a few more billion next week. So in fact 'smart money' doesn't have to nail bottoms or tops very accurately. It is people with limited capital that actually have to be a lot more careful.
I was also asking "where was Buffet?" if things were so rosy in financials? Well, he was telling us...
Buffet certainly is not finding any value in financials.
Berkshire Hathaway Inc. Chairman Warren Buffett said Wednesday that he rebuffed financial firms that have approached him recently about buying stakes in their companies.
Now in an interesting twist it appears we have smart US money selling to smart foreign money as hedge fund king Eddie Lampert was selling a third of his stake of Citigroup (at a severe loss), most likely at nearly the exact same time the foreigners began piling in. So which smart money do you follow? ;) What is interesting about the Lampert move is one of the conventional wisdom themes that I do believe in... cut your losses. Eddie was buying in mid $40s to mid $50s and was selling large stakes somewhere in the $30s. Citigroup today? mid $20s. So in the short run it at least saved him from some more losses, even if he locked in some very bad results. One thing you always hear is "it is not a loss until you sell it". That's pure baloney. Go ask investors in JDS Uniphase (JDSU) who are down about 98% from peak stock price in '00. Or Cisco, or Yahoo, or Microsoft, or (name that tech stock). Now, if we are talking a 3 week swoon that is one thing, but structural stock retreats over time, are losses - no matter what the financial press tries to feed you. A common mistake we all make is to sit in a position awaiting than "much anticipated rebound" just so we can "break even". Ask anyone who invested in homebuilders, retailers, or financials from summer 2006 to summer 2007 how that is working out, even WITH the huge bounces they've achieved in the past month. Still substantial losses over time.
But back to Citigroup and the financials, is if an imminent rebound is coming by "2nd half 2008" why would Lampert not sit and wait out for the return of the roaring good times everyone is talking about by this summer/fall? Food for thought. Lampert has had a bad time of things lately but since the late 80s he has been one of the best in the business, so I'll still take his mind over those who benefit from sitting on dead dinosaurs or huge trade surpluses. And Buffet is not buying anything but stocks he has already been in, Wells Fargo (WF) and USB. I don't see any picking of carcasses there either. Strange considering we are going to be booming by 2nd half 2008.
- Hedge fund manager Ed Lampert is cutting his losses on Citi (C). Lampert is best known for providing his investors with 20 percent-plus annualized returns since 1988, and for his efforts to turn around retailer Sears (SHLD) through a 2005 merger with Kmart. But 2007 wasn’t a good year for him - as shown by the action in Citi, where Lampert appears to have spent the year buying high and selling low.
- Lampert cut his stake in Citi by 31 percent in the fourth quarter ended Dec. 31, according to a Securities and Exchange Commission filing. He held 19.1 million shares in the financial giant at year-end, down from 27.8 million shares in September. What’s more, Lampert made his sales during a quarter in which Citi’s shares were falling sharply, spending most of the period below the prices at which Lampert made his earlier purchases.
- Before the latest quarter’s stock sales, Lampert had spent more than a year accumulating shares of Citi. He began buying the stock back in 2006, when Citi shares traded between $44 and $57, and continued his purchases through the first three quarters of last year, when Citi ranged between $44 and $56. During the summer of 2007, before the subprime mortgage crisis hammered stocks across the financial sector, Lampert’s stake was worth as much as $1.3 billion. Given Lampert’s track record, it’s no surprise that his foray into Citi had some observers applauding his prescience.
- But Citi shares lost more than a third of their value during the fourth quarter alone, as CEO Chuck Prince departed after Citi admitted it would have to take a multibillion-dollar writedown of mortgage-related securities. The shares fell to just over $29 in December from $45 earlier in the quarter. By year-end, Lampert’s Citi scaled-down holdings were worth just $561 million, filings show - a fraction of their peak worth.
