Batman, Robin and Joel Greenblatt

I know this was talked about before, but I always like to track and see what investments our dear author Joel Greenblatt has his money invested in. You can check the SEC filings for Gotham Capital - but it trails by 6 weeks.

Right away - you have to like the name - Gotham Capital. Not sure what his reason was for the name was, but I always think of Batman. And since we are investing according to his theory, that makes us Robin.

There are a couple of funds listed under the name and I am going to spare you the details - but the core investments boil down to 2 stocks. That fact alone is quite unbelievable - they have all their money invested in only 2 stocks !!!! Even if it is not your own money - or maybe that makes it even more gutsy - you have to have a lot of conviction to limit your investments to 2 stocks. So much for spreading your portfolio and limiting your risk.

The companies are Wal-Mart and American Express -- that does not sound so exciting. I thought Batman was a superhero and he would pull out some crazy company that builds "batmobiles" or something like that ??

If you look further - you see that they mostly bought call options for both companies -- OPTIONS !! Options ???? They must be really convinced - on the other hand - how can you return some 40% by buying regular shares of Walmart. Well was enough info for me to take a closer look -- I tracked to see the timing of the purchases by checking the quarterly statements and then I checked the price levels of both stocks in that time period. I did this for both - but for some reason I concentrated on Wal-Mart and only remember the numbers for them. The options were bought in Q1 of 2006 - the stock was in the 44 - 46 range and they bought A LOT OF THEM. I am actually not certain about the value of the options they have to report to the SEC. It seems that they have to report the number of underlying shares and the value of the shares - but not the actual value of the options. Which actually means that although the listed investment value of the fund is over a $1 billion - the actual market value may be much lower -- please somebody correct me on this one.
Keeping going - it's not easy to buy that many options even for a stock like Wal-Mart. They have options for about 15 million shares -- meaning about 150,000 options contracts. I think looking at the volume of Wal-Mart options and the outstanding contracts it's easy to assume that a large number of these options (probably all) are Jan 2008 $40 calls.
Well - since I invested so much money in the MFI stocks - I thought I might as well follow this one as well and I bought 5 of the Jan 08 $40 contracts about 4 months ago. Sure enough - after slight gains for the the first 3 month, Walmart just announced good earnings and went up 3.6%. That is of course a small gain compared to many other companies - but in world of options, you always have to use the great multiplier - in this case it's about 4-5.
Looks like Batman is still may favourite superhero - although it's a lot easier to write about a success than admitting a failure.