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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (15971)	12/27/2002 7:54:27 PM
From: TimbaBear	Read Replies (2) \| Respond to of 78648

Don Well, I can say you certainly are a challenge and I'll keep addressing your issues for now, not out of the hope of changing your mind, because I don't believe that your mind is open to change. However, I'll keep addressing the issues because it helps me think through more clearly some things that I perhaps only gave glancing attention to on my first dozen readings of the financials and reorg plans. Your point that leaps don't go out that far, is at least in part the point I was trying to make. There isn't a market for contracts that go out that far, and the reason being there's a break point where it stops making sense to purchase options at a price that becomes a large percentage of purchasing the stock outright. So what, you're saying there isn't a market for 30 year bonds, because they go out too far until pay-off? Or are you saying that your analogy of 7 year warrants as options falls apart because I pointed out there are no 7 year options, so you'll declare "no market" for the warrants? Neither argument has substance, so I'll move on. Option play is tricky enough without throwing a bunch of variables into the equation... You mean like calling something an option that isn't one? There probably won't be a market for the warrants, so the only way to realize a profit is to be able to exercise the contracts at a price at least $3 above the strike. Are you saying that there isn't a market for any warrants or just Armstrong's? If you'll look in the WSJ, you'll find plenty of warrants being traded, so it must be something I missed about Armstrong that would prevent there being a market in their warrants? This is America, there's a market for everything! Whatever formula you end up using has to justify a trading range above your strike for the trade to make sense. Why? If the current stock is under-priced due to market over-reaction, all it has to do is come back to conservative fair value of the cash flow for me to have a double from here. ...let's say your strike is the 125% number you've been using, of the $30 price included in the filings, that gives your strike at $37.50, plus the $3 you paid for the contracts, or a $40.50 market price as your break even point. With all due respect, I don't think you're going to be able to justify why Armstrong without a Q is the bargain of a lifetime at that level, even with 7 years to play with. I never claimed it to be "the bargain of a lifetime". I claimed it to be a puzzle and possibly a reasonable value play. Just for giggles, I went back through the stock prices for Armstrong to 1995 and here are my findings from then until the final quarter of 2000 when they filed Chapter 11 due to asbestos litigations: Year High Price Low Price 2000 36.81 .75 1999 64.31 29.00 1998 90.00 46 15/16 1997 75 3/8 61 1/2 1996 75 1/4 51 7/8 1995 64 1/8 38 3/8 This chart tells me several things: 1). the price point you say the stock has to get to is not unusual territory for this stock; 2). there is enough volatility in this stock for trading ranges; and 3). The price has been to these levels within the last 3 years even with the overhang of asbestos liability, so without it, who knows? Surely there will be selling pressure on the New Common stock as it is distributed to the litigants and they sell it for whatever reasons. But I look at that pressure not starting immediately, so I'll have some opportunity, perhaps to capture a nice profit early in the trading of the new warrants (provided of course that there's a market). And I look for most of that selling pressure to be over within 3 years as I believe there are time constraints imposed for timely settling of affairs by the trust. I'm not sure how much of the early selling pressure will be abated by the buying of pension funds and mutual funds, but since this will be a world-class company again after emergence, I suspect there will be some interest on the part of those entities. Keep swinging away, Don! You help get my blood moving, but I know you are not directing it at me, just the idea. (At least, I hope I have at least that much right!) Timba