Dear Mr. Berko: My 84-year-old dad is not well and was a very avid reader of your column until he got sick. He would send your columns to me every week with comments. Two years ago, he had a stroke. According to his brokerage statement, he owns two stocks: 400 shares of Citigroup and 3,000 shares of MGIC Investment Corp. In January 2009, he bought 4,000 shares of Citigroup as a gamble at $1.20 per share. It’s now selling for $73 a share. But for some reason, Dad’s 4,000-share investment is now 400 shares. A new stockbroker at his brokerage told me that he has no record of Dad’s selling Citigroup and mumbled something about a “revised split” that was unintelligible. Dad’s notes say you told him that big banks — such as the Bank of New York Mellon, Bank of America, Citigroup and JPMorgan Chase — were too big to go bankrupt and that the Federal Reserve would step in to do anything necessary to save all the major banks.
In the fall of 2012, on your recommendation, Dad bought 3,000 shares of MGIC Investment Corp. at 90 cents a share. His notes say you said that MGIC was on its way to a recovery and that the stock would sell at $15 a share in the future. Well, MGIC did recover, and it’s now trading at $12.20. I’ve never seen this rate of profit before, so please tell me what to do. I know nothing about stocks. — AD, Detroit
Dear AD: Unfortunately, you have me confused with somebody else. There are thousands of brokers in this country, and I think 12 of them are named Malcolm. Perhaps one of those Malcolms could be the “somebody else.” I’ve never recommended MGIC, and I don’t recall anyone ever asking me about this stock. And I’ve never recommended Citigroup. I’ve never liked the stock. In the past, I’ve commented negatively about both Citigroup and Bank of America because I believe that their management stinks and their board members are a clique of wealthy toadies who’d barely qualify for board positions at a roach paste factory.
Citigroup didn’t have a “revised” split. I think that new broker needs to be vaccinated for stupidity. However, about two years after your dad bought Citigroup, its board of directors declared a 1-for-10 “reverse” split to put some oomph in the stock price. So every 1,000 shares of C your dad owned became 100 shares. His 4,000 shares of C, which were trading at $1.20 ($4,800) when he bought them, became 400 shares trading at $12 a share, still valued at $4,800. Today C is $73, and his 400 shares are worth $29,200. Your dad has a smart profit of $24,400. Keep C.
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MGIC Investment Corp. (MTG-$12.20) is among the largest providers of private mortgage insurance (primarily for residential first mortgages), which protects lenders against default on loans with low or no down payments. MGIC also provides various related services, including claims administration and contract underwriting. After losing over $8 billion between 2007 and 2014 — and as the housing market improved — MGIC began putting its house in order, and profits started rolling in.
This year, management expects to earn $1.75 a share on $1.1 billion in revenues, and Wall Street is looking for sustainable forward growth, as buyer incomes, home sales and values still appear strong. MGIC’s business seems to be on an upward trajectory, supported by a favorable economic background and low interest rates. Though MTG doesn’t pay a dividend and won’t for a while, the Street expects the stock price to double in three to four years. But I completely disagree with the Street! Your dad has a gain of $11.30 per share on 3,000 shares, or $33,900, and that’s a dandy profit. Sell the stock.
Those are two excellent trades that I would never have recommended. Kudos to the old broker for his excellent perspicacity and swell advice.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.