MU: Okay, maybe the reward/risk might be 5:1. There's some unknown probability that Klarman might lose 1/2 his bet (stock could fall back to $10 from current $20 and maybe stay there for a long time. Another probability that his investment might go up say 2.5 times (from $20 to $50). I can't put probability numbers on those outcomes or other outcomes, and I don't know at what price Klarman bought. If he bet only $1B on MU, that would only be a $500M drop if he were wrong or sold if stock dropped to $10.
Is the margin of safety there for that size bet? ( $1B bet is still a large bet.) Maybe... if you include your margin of safety to be the size of your portfolio ($1B risked on $28B). Versus having a margin-of-safety just on the valuation and prospects of the stock alone. I myself use position size as a form of margin-of-safety, i.e. making only small bets when my confidence or knowledge is weak about a particular stock or event affecting the stock.
From your post here are two items wherein I wouldn't know enough to ensure margin-of-safety with the stock or event:
...the oligopolies are also solidifying their positions and supply is expected to contract tweaking the process chain for Elpida which if successful
If the argument is that the numbers of suppliers has decreased and this will lead to rational pricing and better profits for the few players still in the game, okay, I can see that. And I have bet on it several times in some of the sectors Speculatius has mentioned --rental cars, airlines, also newspaper inserts. It hasn't meant though that price wars did not break out among the duopolies or oligopolies. Imo, dealing with Samsung here, they could be very vicious competitors (just a guess). Maybe not wanting to raise the ire of regulators by driving competitors out of business, but instead, driving them down to where they are very, very weak competitors.
In summary, I'd consider MU for the consolidation argument, if the stock already had not moved up so much so quickly on the expectation of good things happening. At this point what I am doing is continuing to bet on Korea and Samsung. Samsung a little less than previously -- I'm selling some heavily-Samsung-weighted EWY and buying some of the hedged DXKW. forbes.com |
