Report WMIH (October) from T11 Capital:
WMIH saw some extreme volatility during the month of October as the army of retail
investors involved in the name have been exiting the stock. I watched the trading in WMIH very closely during October, as I was on the bid for the first half of the month from 2.30 on down to 2 even. I noticed a couple of things that I thought would be interesting to share.
First, the shares I was able to pick up were always in small portions. I did not once get a large order filled, without it being chipped away at throughout the day, often times 1000-4000 shares at a time. It was rare that I got anything close to 10,000 shares, which is confirmation that not just some, but nearly all of the selling taking place here is retail. Those large investors that picked up in excess of what I would guess is 20 million shares between the time of the KKR announcement in December and the high for the stock in March are sitting tight.
Those who are selling are impatient retail investors who are under the assumption that management of public corporations have the duty to hold their hand through every twist and turn of the negotiation process in order to pacify their fears. The only responsibility of management in the case of WMIH is to find the best deal possible for investors. This takes
time. My only responsibility during this period is to take advantage of the impatience of others to increase our position, as I have been doing during October. I don't like the drawdown we have faced as a result of WMIH since September. However, the opportunity being presented here is tremendous in nature, once again. These prices are temporary.
I contend that another risk/reward proposition of this caliber does not exist in the market today. Lastly, models exist for the type of transaction that WMIH is participating in going back decades. In fact, if you look up Sam Zell and Itel Corporation (an NOL shell coming out of BK in 1983) going back to the early 80s, you can see the power of this type of restructuring in terms of profit growth and eventual share price.
Most investors cannot handle this reality, making the decision to liquidate far ahead of what is the most opportune time to do so. After all, in a market of 10,000 stocks, your attention can easily be persuaded by a prettier girl who seems to embody everything your current girlfriend does not.
Nothing with respect to material fundamental developments have taken place within our portfolio holdings. Additionally, nothing with respect to material technical developments have taken place within our portfolio holdings. We have simply been burdened by the temporary reality of investor disinterest.
The only decision to be made is whether to fall in line with convention, in the form of following its “wisdom” into a place of fear and skepticism. Or to directly defy convention by using fear and skepticism as an opportunity.
Regards,
Ali Meshkati
