I own:

1000 shares of Fannie Mae @ $2.47 purchased on the 24th October 2013

1000 shares of Freddie Mac @ $2.38 purchased on the 28th November 2014

Total Position value @ purchase: $4,850

Total % of Investing Account:

10%

These are two mortgages giants in the US, and which had to be bailed out in 2008 by the US government after their existence was threaten from the financial crisis.  Since 2008 all profits from fannie and freddie have been taken the US treasury, with repeated threats by the current government to wind the two companies down. There isnt really much to say about either fannie or freddy regarding their valuations.  Since the shareholders dont receive any benefit from the owning shares in the two companies, the stock price is very cheap.  As a result the biggest determinant in their future value is what the United States government decides to do with the two companies not much else matters. Im making a bet that both the companies wont disappear, I think they are too big and too important for them to just vanish and the low price of both means that I can take a very small position, that could have huge upside.  If you are truly interested on the inner workings of both companies then I suggest you look up Bill Ackmans presentation, or Bruce Berkowitz. It is of course a coin toss, but one where the pay off is huge and the loss can be easily projected.  I consider the position to mimic a call option, if the companies are not released then they are worth absolutely nothing to the retail investor and you would lose all of your investment but if they were released from conservatorship, and allowed to retain their earnings for the benefit of shareholders (rightly or wrongly) then one could reasonably expect to make x10 your initial investment at current prices (Current Price: FNMA: $2.39. FMCC $2.28).

Some quick Valuation: The two companies could earn around $200 billion over the next 10 years, this is backed up by governments estimates which estimate around $195 billion. Lets assume the government is correct, and taking both companies together assume that they earn $19.5 billion in earnings each year for the next 10 years with no growth reasonably close to last years earnings.  Applying a conservative Price to Earnings multiple of 8 then the two companies are worth roughly $156 billion.

I own FNMA @ 2.47, multiple that by the 1158 million out standing shares  = Market Cap of $2.86 billion at purchase

I own FMCC @2.38, multple 650 million out standing shares = Market Cap of $1.57 billion at purchase price

Combined market cap. at time of my purchases

$4.4 billion dollars.

The current $4.4 billion dollar market cap of the two companies taken together is at the time of my purchase is some 35 times less than the combined market cap of $156 billion when priced at a PE multiple of 8 which would put the value of the two companies at: FNMA: $86 dollars per share FMCC:$85 dollars per share However that is not the full story, as many of you know, the government has warrants relating to a 80% claim on the two entities.  It is thought that these warrants might never get exercised.  But lets assume they do, that would dilute the value of the company 5 fold for a retail investor.  Making the shares worth: FNMA: $17 per share FMCC: $17 per share

So I project shares are worth anywhere from $17-$86. This is a considerable difference in valuations, but importantly many multiples their purchase price, and really knowing what you are getting yourself into before your purchase is really all you need to know.

21st February 2015 edit Ive read another figure that said the government projects $150-160 billion over the next 10 years.  Our initial calculations were based on a projection of $195 billion.  If we adjust that value to reflect the $150 billions worth of earnings, which is only 77% of initial projection, our earnings per share falls between $13-$66.  Still significantly above current price.