AIG Saga

There are professionals and there are amateurs. There are people that make money and there are people that want to make money. I always believed that we should study from the best. So I read the biography of Warren Buffet by Roger Lowenstein. I think this book can put you ahead of many professionals in the financial industry. But as they say: the devil is in the details. One of the things that I learned from that book is that insurance business is one of the best there is. If run properly ... There is always "if". Up until this day one of the richest man on earth Warren Buffet makes about half of his money from insurance and reinsurance. One of his holdings auto insurance company "Geico" was on the verge of bankruptcy when he helped to save it. American Express was also close to bankruptcy btw when he helped to save it. Buffet also operates his own insurance company. So when I heard about AIG on the verge of bankruptcy I thought here is my chance. Greed is terrible thing, it makes you blind. I knew that Warren Buffet warned everybody about dangers of derivates which he called "weapons of mass destruction". I also knew that he ordered all his insurance companies not to touch any of it. Allan Greenspan btw was arguing with him about derivatives, saying that direvatives help to spread out the risk. He was right they distribute the risk across the entire financial system, so that financial system can systemtically collapse ... And this is what we observed lately. So back in September when I heard the news about AIG I realized what a buncruptcy of such giant could do. And I knew that there is no way it will be allowed by the US government. And I broke the rules I just learned. One of the rules is never speculate (unless you are George Soros). The only thing that works and this is what made Buffet the richest person on the planet is long term value investment. How to select what to invest into is another long story. In any case I knew the bankruptcy won't be allowed so I bought right on the peak of fear, day before the rescue by the US government was announced. The problem was that probably I wasn't the only one thinking this way. And on my way from the office to Scotiabank to deposit the draft into my trading account the stock shoot up from 1.5 to 4.5. It happened in a matter of 1 hour. So I bought at 4.5... Only to see it going down to $2 next day. Then I could have exited at around $5. Greed stopped me again. Then I saw it going down all the way below one dollar. And I did another scary thing. I averaged down and bought about the same ammount of shares I bought first time for 3 times less money. It was a smart move which allowed me to exit again few weeks ago with relatively small loss on my total investment. But I didn't ... As of today the damn thing is trading at $13.61 after 1:20 reverse split. Which is equal to 0.68 cents before the split. The market capitalization is 1.86 billion while shareholder equity is about 55 billion. Still seems like great value but the fear has to go away for the stock to recover. It doesn't seem that it will in the near future. Looks like it will post loss in Q2 and possible Q3. May be we will see some improvement in Q4. Stupid or not, now there is no choice but to hold ... It is an expensive lesson but definetely valuable one. Until I sell it technically I'm not loosing any money.