Thoughts On Washington Mutual WMIH Corp.
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T11 Capital thoughts on WMIH - WMIH outperformed a majority of small-cap names in 2015 with a gain of 26%. This comes in the midst of a Russell 2000 that lost nearly 6% during the year. That 6% loss, however, does not properly frame the scope of losses faced by most who are invested in small-cap names, especially of the special situation/event driven type.
In 2015 investors used the lack of visibility that special situation names offer as an excuse to sell shares. The fact that WMIH did not succumb to this path of least resistance in small-cap names is a positive in and of itself, especially when you consider that most investors expected 2015 to be the year an operating entity would be folded into the shell. An M&A event to unlock the value of company did not occur despite best efforts by management as announced in the recently released 8k regarding expenses relating to an acquisition attempt.
Over the past three and a half years I have written over 100 pages of research on WMIH disseminated via monthly performance updates, private emails and presentations made to various investors. I have looked at nearly every significant NOL shell that has been capitalized since Congress changed the carry-forward rules from three years to fifteen in 1981. In essence, when stripping away all the jargon, modeling and regulations governing their use, investing in a company with tax attributes is simply a bet that intelligent, skilled capital allocators will compound capital at a greater rate without being hindered by corporate income taxes. The taxes that a skilled management team saves can be put to use in further growth opportunities which creates a spiraling up effect for earnings that markets very simply can't properly estimate. This in turn leads to what is effectively a gravity beam from high up above being held over the share price during a period of years, as the company grows. This remains an early stage opportunity that will provide a tremendous platform for future growth as I'm confident management will make a series of beneficial decisions in the coming years.