Wednesday, April 2, 2014

Betting Against Headlines

We have reached just a momentous milestone. Yesterday was the deadline for Obamacare's individual mandate. As it stands, Obamacare enrollment met its 7 million original goal, despite a lot of heckling from its detractors. And possible more will be tallied in the coming weeks. However, it isn't clear to me what these numbers mean. It could consist of a lot people who lost their existing insurance plans and who turned to Obamacare. In any case, it looks like Obamacare is here to stay.

WLP, my largest holding, has invested more than any other MCO in Obamacare. WLP shares have broken over the $100 barrier recently. That is a 20% rise from just 2 months ago at least in part because Obamacare has turned out reasonably well at this critical juncture,

As I have said before. Obamacare is huge and unprecedented, so it is almost impossible to predict. And I don't try. I just took the bet for WLP and Obamacare because I felt the market was overreacting. Every little glitch or complaint seemed to be magnified by the media. If I was wrong I don't think I would lose much. But if I turned out right like it now appears, I could make some good money. This is an asymmetric bet.

Also, Obamacare became law because Obama shoved his plan down the Republican's throats — not a single Republican voted for it in Congress. He needs all the cooperation from the people and the MCOs. I don't think of insurance companies under Obamacare as a traditional regulated industry. Obamacare is asking the MCO's to take on the risks but the government will backstop the MCO losses. Each MCO can freely enter the market in whichever state it chooses. US healthcare cannot work well if the MCOs are hobbled by the government.

As I described in 2012 when WLP was low, every year or two some crisis appears in the headlines that takes some stock to attractive lows. That's when I try to be brave and buy. This year the headline victim is Russia. As we all know, Ukraine had some political turmoil that forced out a pro-Russian leader. Russia's Putin then used the situation as a pretext for annexing the Crimea, which before the crisis was a part of Ukraine, but which 60 years ago was part of Russia.

I then read that the crisis has caused the entire Russia stock market to trade at about 5 times earnings! So I decided, based on my best estimate of the geopolitical situations and Putin's intentions, to make a bet on Russia. I bought some ERUS, the iShares' Russian ETF. As it has so far turned out, the situation has calmed down and it appears Putin has no more territorial ambitions. It also appears that the West is going to let Russia get away with it. I hope that the Russian market will return to the highs of 2013. If that happens I can make a 40% profit. I don't expect this to happen overnight. I expect it to take a year or two if it happens.

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