Homebuilders, Making a Few Distinctions: A Technical Appendix to FB's Newest Post
For those of you who don't know who floridabuilder is, he has been a dominant Caps player for years, but most importantly his blog posts on the home building industry are the stuff of legend (well, I don't know if they can technically be called a "legend" since you can go back a re-read all of them, but let's just say they are legendary and held in very high esteem by many :) ) He was one of my earliest favorites in my binv271828 portfolio.
As the title of this post says, it is an appendix to FB's post: Break Time - NVR - If your going to be a bear, try not to look like a jacka$$. It is a fantastic read, and a prerequisite to understanding this post
First, let me say I am a bear (My friend Mark910 sums up my thoughts pretty well My name is Mark and I am a Bear......My 12 step recovery plan.). But let me add more nuance to this statement. Like I say at the top of my blog - "I analyze macroeconomic issues from a fundamental and technical perspective". So when I look at the long term fundamentals and technicals, from a macroeconomic perspective, I am bearish on US equities as a general asset class for the next 5-10 years (which means that I think equities will have nominal losses, but more importantly hugely underperform other asset classes). Here is my spiel as to why I think this: binve's long term view. But I am not a bear for the sake of being a bear, I would much rather be long US equities and I think over the long term, after we complete a needed correction, US equities will be another huge true bull market. Please read the comments in blue at the end of this post: Thoughts on the Dow/Gold Ratio
And notice my wording --- I am bearish on US equities as a general asset class. This is the main reason why I focus on the broad market indicies (SPX, INDU, RUT, COMPQ, and NDX) when I do most of my analysis. Because this is the best representation of how the market interprets the broader economy. But that's the thing about general asset classes, you can apply your analysis to them only generally. Some will outperform the average while some will underperform the average.
And so lets get into homebuilders. I too am bearish on homebuilders as a sector for the long term, but there will be outperformers and underperformers here too.
Which goes exactly to FB's point, the importance of being able to make distinctions. Here is an excerpt from his post:
"... What cheeses me off to know end are people that can't make distinctions
Everything sucks, there are no jobs, all real estate is worthless, blah blah blah..............
You know why? Because they are masters of the obvious. Look at my distinction tree, no pun intended. The more distinctions you can make on any subject in the world the more wealth you will make within the boundaries of that subject. Who makes more money? A professional cook that is highly trained in French cuisine, with an unmatched pedigree who lives and breathes his subject matter? Or the CPA MBA who gets bored with numbers, because it is all the same day after day crunching numbers............ Who is paid more money? Who is more sought after?
It doesn't matter what your field of expertise is, except for this, the more of a subject matter expert you are the more money you make and the more you will be taken seriously. Seriously.
You become rich by understanding distinctions that other people can't see. You become rich by investing your time (your job and investments) in those areas. Life really is that easy. ..."
And this is an exceptionally good and valid point. FB has proven his ability to consistently find outperformers and underperformers in the Homebuilding sector. His analysis of these companies and how the supporting industries (mainly financials) affect HB performance is unmatched.
So, normally if I looked at a sector, as a macro guy, I would look at the average sector behavior (through a good index / benchmark) both fundamentally and technically. But for this post, I am going to look at some individual issues and see if there is some wheat that is separable from the chaff. And of course, there is. Not because of anything that I will show you, but because FB had done all the fundamental analysis and has shown us this is the case.
Let's look at some charts.
... Continued in the comments section (so you can see all my damn charts) - right Paxtor? :) ...
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