Looking Back: Soros on Mortgage Investment Corp. (NYSE: MTG)
Yesterday, I brought up the topic of competitive advantage as it relates to investors and I promised that I would divulge what I thought were my competitive advantages in this area. However, because I’m not sure if anyone is reading my blog and that may not be of any interest to anyone, I’ve decided to write about something else. If anyone is actually interested in my competitive advantages, drop me a comment or message and I will put up a blog post to explain them.
Instead, I’d like to speak about another ‘nugget’ that I found during my vacation, as I took the opportunity to read Soros’s excellent Soros on Soros Staying Ahead of the Curve. In one section, he mentions that Quantum Fund made a lot of money on Mortgage Investment Corp. (NYSE: MTG):
One is the Mortgage Guaranty Insurance Company […]. When the California residential home market collapsed, the market thought the company might go broke, but it survived the test and we made a fortune.
The dramatic concern about the state of the housing market and the rise in defaults/ foreclosures has absolutely battered MGIC, which is a mortgage insurer. If you take a look at MGIC’s chart, it’s pretty frightening – the stock is down over 50% year-to-date. My general sense with this type of stock is that it belongs in the “too hard” pile – the type of risk it is subject to and the opacity of its financials mean it’s difficult to class this situation as anything other than an informed speculation at best. A loss of principal (perhaps a significant one) cannot be ruled out. Still, if you recognize this, there’s no question that situations such as these can present tremendous opportunity. However, it’s best to read Soros to the end; in the next sentence, he writes:
That is when I made the rule that one should own stocks when they have successfully passed a difficult test, but one should avoid them during the test – something that is easier said than done.
May all your speculations end profitably!
Total: 335 words
Time: 12 minutes (you can’t silence George Soros!)
*** The above text was written in ten minutes. As a result, some of it may not stand up to rational scrutiny. I apologize preemptively for any errors, omissions and misrepresentations. ***