TomFoolNC (33.14)

Being Early

March 14, 2007 – Comments (1)

My major strategy when I started CAPS, was that I believed there was a housing bubble, and that many people got subprime loans they cound not afford Housing stocks had already gotten hit so I decided to underperform many of the lenders. I tried to focus on ones I thought were the most vurnerable.

 I made 2 mistakes - 

 I got in early in this, and then lost patience to see it transfold. I got tied of seeing my lenders inch up from here I had them underperform, and then when they finally inched back into being a positive pick I closed them. The other is that even though I did a lot of research and tried to pick out the best candidates, I did not do a good job of identifying many of the weaker or more vurnerable ones.

 Examples: NEW - on 9/16 I said underperform at $40.80. On 1/28 I closed it at $29.98, as 37% CAPS gain. Today it is at 70 cents.

 I also picked WM and CFC at the time and they have stayed steady. I did not pick many of the other ones like LEND, which has fallen from 40 to 5 in this timeframe.

 I picked Realogy Corp (H)  assuming that real estate commissions would fall on fewer home sale, which was correct, but they got bought out for an underperform loss for me. Another pick WCI communities, that I figured would get killed by the oversupply of condos in FL has also gotten a buy out offer, again another underperform loss for me.

Part of what made this difficult is that some of the better managed lenders were able to use financial instruments to limit their losses, which was exptremely hard to figure out from the public financial information that was available.

 From this I take the following lessons:

1. Have patience, let the strategy play itself out.

2. Do a better job of research. The weaker players will get hurt the worst. Buying a number of stocks is a good idea some will get bought out etc, don't want to have all you eggs in one basket for this kind of play.

 (ps. Buffett got into Wells Fargo origionally when their stock got hammered during a housing bubble in CA. The market thought they would be more vurnerable than they turned ou to be. Obviously Buffet is much better this than I am :-)