With WMIH up 100% just last week after KKR made an announcement of a financing deal that will allow the company grow substantially from here, it would seem that the cat is out of the bag. I have certain ideas of how this partnership with KKR will work out. KKR has many companies under its umbrella that 1) could certainly use the tax efficient structure WMIH can provide 2) can use WMIH as a reverse IPO to gain a lubricated route to listing on a major exchange 3) can use WMIH's existing reinsurance business (WMMRC) to gain entry into this lucrative segment of insurance.
In any case, the potential here remains what I thought it was when WMIH was simply a shell with an all-star board of directors and Blackstone as an adviser. In the last paragraph of the research report from July 25, 2012 with WMIH at .50 cents I said:
In the meantime, my time horizon for this investment is not several months, but years. I think this type of mentality towards WMIH as an investment is what will yield the greatest results without the burden of unrealistic expectations for magic to happen at the snap of two fingers. Given the upside potential (1000% +) I am willing to give it the time it needs to answer all the questions that investors have in a favorable and profitable manner.
The investment of KKR provided a lot of answers to questions of risks going forward. The downside risk barring unforeseen catastrophe has been mitigated substantially. I said on Twitter a couple hours after news was announced on Monday that the upside potential was impossible to assess, however, with KKR involved the downside risk had been capped.
In any case, I have very specific ideas of where this will end and believe the companies that will consummate the first stage of WMIH as a "real" financial company have already been chosen. I have gone into some details with my investors and will likely put out an addendum to the first research report at some point in the near future.
As of the close Friday, portfolios are at roughly 90% invested of capital. Current holdings: WMIH, BFCF, CIDM, EVOL, KCG. Concentrated, high conviction, well understood investments that, for the most part, continue to exhibit highly favorable risk/reward profiles.
My capacity for deep understanding of a company is limited to 6 companies ideally, with a maximum capacity of 8. Those who decide to fill their portfolio with dozens of names are either a) much smarter than I am or b) don't have a deep, "under the hood" type understanding of the companies they have allocated capital into. I have never understood why a competent investor would allocate away from his or her best 5 or 6 ideas. It is as big a mystery to me as to why dogs become the center of conversation at coffee shops on Saturday mornings. It could be that coffee forces conversation and a dog is the simplest commonality that two people will share. In any case, the conversations surrounding dogs are nonsensical and often take place in a high pitched voice using various adjectives that are a softer derivative of grunts. Maybe it is just a Southern California thing, but it is an annoyingly fascinating aspect of social behavior that isn't looked at nearly enough.
I'll end with this: Diversification is not a means of controlling risk. Diversification is only a means of transferring the responsibility of controlling risk from the investor to the market. Another Wall Street meme that has been embedded in the souls of investors without questioning the quality of its results.
