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Re: Mohnish Pabrai, Berkowitzand AlexG ouch!
Posted by: buffetteer17 (IP Logged)
Date: May 6, 2009 09:08AM

I was avoiding it due to uncertainty. I decided the potential reward justifies a high degree of risk for a fairly small bet. I bought 20 contracts of .VWMAE, Jan 2011 $25 calls, at the open today for $5.30. Playing the lottery here.


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Re: Mohnish Pabrai, Berkowitzand AlexG ouch!
Posted by: viksingh01 (IP Logged)
Date: May 6, 2009 09:38AM

The recent decision has changed the risk reward profile of this stock. Even after the 18% run up yesterday this stock is probably cheaper then what it was 2 days ago as the range of possible outcomes has eliminated stock going to zero in heartbeat scenario.

I agree that the future revenues may decline, therefore I assumed slightly lower sales and net margins levels.

I believe with the history of the management, this company may be put on an the sales block. I just hope that the management agrees to a sane offer not just to one that is above current price.

Berkowitz buy price is in Mid 30s and he considered that as a steal. I believe >$80 is what the IV is at.


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Re: Mohnish Pabrai, Berkowitzand AlexG ouch!
Posted by: batbeer2 (IP Logged)
Date: May 6, 2009 05:23PM

this stock is probably cheaper then what it was 2 days ago as the range of possible outcomes has eliminated stock going to zero in heartbeat scenario.

I respectfully disagree. That zero outcome was never realistic. Any stock can go to zero tomorrow, but the chances are very slim. The chances of WCG going to zero were a say ~50 times greater than the chances of BRS, LVB or SHLD going to zero tomorrow. Still leaving that chance well under 5%.

1) Had they setteld by paying back ALL 2007 florida revenue - ridiculous, unlikely, unfair and a loose/loose situation for all, not a likely outcome if it had gone to a judge and therefore a settlement that would just not have happened..... - . The stock would still have been worth substantially more than zero.

2) The state needs them and continued to sign new contracts with them in 2008. Now that would be irrational and inexplicable to policy holders, taxpayers, stockholders, judges and voters... if at the same time the state was working on a deal that would kill the company.

3) It is not in the interest of the state of Florida to kill WCG. It would have created big problems for the state..... and other states... Just imagine..... unthinkable. Invert.

The zero in a heartbeat outcome was an irrational fear. All the facts where there. Rember, WCG provides an essential service. This is not GM or for that matter FNM or Enron. I don't understand why investors think KO is unkillable and SHLD is a dead stock walking. I guess it's a pschological thing. If bad things happen to KO you can allways say it was a black swan event.... you made no mistake; it could have happened to anyone. Even the best investors held KO. If you hold SHLD and bad things happen, a lot of poeple will come out to tell you were an idiot and you should have seen it coming.

IMO this pschological effect is the costliest mistake in investing.

Lets me put it the way Graham put it. Had you had the option of buying the rights to the settlement.... You would pay the state an X ammount and take over negotiations with WCG from there. What would that have been worth to you. 100 M ? 500 M ? 1000 M ? 50 M ?

No way would a reasonable investor have been willing to pay 500 M for the right to collect on any settlement or fine. Why then would those investors subtract >> 1B from the price of the company ?

Now I could not have predicted when and for how much they would settle but I think it was very reasonable last week to beleive they would settle for substantially less than 500M.

Having said all that.....I was expecting a greater reward for my contrarian view. I think the risk has been reduced by a multiple (like say from 4% to 1%.....) while the price has not (yet) gone up accordingly. This is now a bigger buy than it was. I agree on that point.

Just my 2 cts.

================================================
Take calculated risks. That is quite different from being rash. - George S. Patton


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Re: Mohnish Pabrai, Berkowitzand AlexG ouch!
Posted by: viksingh01 (IP Logged)
Date: May 6, 2009 07:35PM

batbeer2,

Thanks for the insights. I am already aware of the points and have been heavily invested at a much higher prices than at present. I recently bought more. Given their cash position and competitive positioning I considered them safe even in a liquidation scenario.

I am quite confident that they will get bought out, just hope at not too low a price.




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Re: Mohnish Pabrai, Berkowitzand AlexG ouch!
Posted by: batbeer2 (IP Logged)
Date: May 7, 2009 12:37PM

I am quite confident that they will get bought out.

I think that's likely. I'm holding on till december or till they are taken out. Whichever happens first.

================================================
Take calculated risks. That is quite different from being rash. - George S. Patton


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