Words of Caution
There's one thing many of the current top ten in CAPS have in common - and that's being very bearish on homebuilders, morgtage lenders, banks, REITS, and pretty much anything and everything related to the downturn in the housing market.
It's a trend that this Fool has largely steered clear of. Actually, I picked a few homebuilders to outperform some months ago, so while everyone who'd been trying to catch me has been gaining a whole lot of points in the downdraft, I've been losing them.
But I have no complaints.
Sure, looking back, if I were smart and looking to preserve my lead in CAPS, I'd have jumped on that bandwagon too, and it's not hindsight that's making me say that. The reason I should have from a pure 'game' perspective is that's what everyone who was trying to catch me was doing. Ever watch a sailing race? A yacht in the lead will always try to match the moves of those who are trailing. The reason is that the leader doesn't want to allow the trailer to get a more favorable wind. By matching the movements of the trailer, the leader helps ensure that they have the same wind, regardless of how good or bad that wind is, so that the lead is preserved.
But I didn't do that, and there's a reason. I called outperform on a basket of homebuilders (albeit a bit early, perhaps a great deal early if the current trend continues) because despite all the gloom and doom prognostications there is something very, very real supporting the industry. We all need places to live, and the population keeps growing, steadily. This doesn't mean that there can't be pain in the sector, but unlike tulip bulbs in the late 16th century or the more recent dotcom crash where the 'new paradigm' was more self-delusion than reality, there is some very real support to housing prices, and there will be an ever continuing need for new homes due to population expansion.
Those that are betting against this 'bubble' are, in my mind, perhaps playing a dangerous game. It's one thing to bet against pure fluff and hype. It's quite another to bet against an entire industry that will, absolutely and without doubt, turn back around.
Maybe some who are betting against this sector in such a big way are far better market timers than I'll ever hope to be (not that I really ever try). Maybe they're right, and I'm wrong (as our relative CAPS performances of late would lead one to believe). Again, though, when making a big bet against a big sector, I, personally, would want to steer clear of betting against a sector which produces something we cannot live without, and something that we need more and more of every single year.