≡ Menu

Stopped Out AmTrust Financial (AFSI)

Honoring a stop loss.

music selection:  “Them Bones” — Alice In Chains

Back on 24APR2017, I bought AmTrust Financial Services (AFSI) for 17.50 a share via options assignment.  I had high hopes for this property and casualty insurer because it has a history of strong underwriting discipline.  I was impressed with its long history of growing book value for share at a rate that outpaces the S&P 500.

Shortly after opening the trade, the company was hit with an accounting scandal.  They were accused of pulling forward revenue from future quarters with improper accruals.  The accusation was limited to a non core part of the business (a call center for processing auto claims) and management quickly vowed to resolve the problem by selling the rogue unit.

I was satisfied the situation was contained and expected book value creation to resume.  The company has had a great deal of difficulty in selling the target unit and just lowered guidance for its final price for a third time.  Also, results in the primary business is faltering.  This has combined to drive the share price down even further.  Last night, AFSI closed below my 25% trailing stop loss.

I am disappointed to have to let this one go but I learned my lesson the hard way about honoring trailing stops.  Warren Buffet’s first rule of investing is “never lose money”.  Attentive raptors will recognize his second rule is “never forget rule number one.”  I intend to live to devour prey another day.

I sold this morning for 10.53 a share.  The trade was in force 200 days and books a painful 4,182 short term capital loss.  The annualized yield is -72.69% if you want to rub it in.

Devour your prey raptors!

{ 2 comments… add one }
  • Joseph Bleaux November 13, 2017, 3:11 pm

    What are your thoughts on AFLAC (AFL) ? Their underwriting ratio is 0.96, they keep raising dividends, and the stock brings steady returns, maybe something akin to your Big Cheap Tech idea?

    • The Lizard King November 13, 2017, 3:26 pm

      AFL is a long time holding of mine in my tIRA account. I rarely trade options around it. It is a solid wealth compounder just by holding the underlying. I also like that they provide Japan exposure as more than half of their revenue is sourced from Japan. (The Japanese love the duck!)

Leave a Comment

CAPTCHA
*