Visión sobre la compañía de un Broyhill
FANNIE & FREDDIE
We exited our investments in Fannie and Freddie (discussed in our annual letter) in March. Like our investment in AGN, these event-driven invsetments offered the potential for attractive returns with minimal correlation to (normal) market movemenets. But also like AGN, our underlying assumptions here changed rapidly as the crisis progressed during the quarter.
Our initial probability tree had three branches: 1) we believed there was a small probability that a deal would be reached prior to the election; 2) we assumed a very high probability of a deal being reached after the election should Trump win; and 3) at worst, we considered a Trump loss, continued uncertainty, and perhaps a full privatization on both companies. In short, with all branches of government 100% focused on the current crisis, the odds of a deal getting done this year are near zero. Meanwhile, we believe the odds of a Trump win have declined significantly in the wake of this crisis. After adjusting our estimates for this shift in potential outcomes, the risk/reward on this position was not nearly as attractive as it was at year-end. Our investment ultimately cost of a little more than 1% during the quarter.