Wednesday, November 28, 2007

We are not alone

The regulatory statements by institutional investors for third quarter '07 have been filed and they show that even many investors with the best track records did not foresee the extent of the market declines in stocks impacted by the subprime mortgage issues and all of the related knock on effects. Here are a few examples:
---Countrywide Financial(CFC) had a 52 week high of $43. During the third quarter it traded within a range of $36 to $20. At that lower level it could look like a bargain and here are three of the firms that added to their positions: Capital Research, the powerful manager of the American Funds, bought 47 million shares in the quarter; Brandes Investments, the successful value investor, purchased 46mm shares; and UBS, the giant Swiss global asset manager added 21mm shares. Today CFC closed at $8.72. For Capital and Brandes that's a loss of at least $500mm in the last several months on their third quarter investment. Not small potatoes.
---Indymac Bank(IMB) had a 52 week high of $46. The third quarter range was $29 to $24. At those seemingly distressed prices, here a few buyers: Second Curve Capital, a hedge fund specializing in financials and run by well known securities analyst Tom Brown, tripled its position by adding 2mm shares; Legg Mason, the huge Baltimore based home of Bill Miller, added 2.8mm shares; and Maverick Capital, a trailblazing New York hedge fund run by a Tiger cub, purchased 3mm shares. IMB closed today at $7.65. These top investors have already lost around 70% of their third quarter investment.
---WaMu(WM) had a 52 week high of $46. Range in 3Q was $43 to $36, holding up rather well. At that level these are a few of the buyers: Dreman Value Management, 10mm shares; Alliance Bernstein, 6mm shares; and poor Brandes again, 12mm shares. WM closed today at $18.31. Do the math.
---Centex(CTX) is a real estate developer(the above are of course financial institutions with significant mortgage lending exposure) that has both a relatively large commercial real estate portfolio not directly related to housing and a residential portfolio. It had a 52 week high of $71. Third quarter range was $40 to $29. Way below its high for the year these firms added: Fidelity Investments, 9mm shares; Lazard Asset Management, 4mm shares; and Oppenheimer Capital, 3mm shares. CTX's closing price today was $19.44. Ugh.

Anyone who looked at the falling prices of many firms directly related to or dependent on residential real estate and decided to be "opportunistic" in the third quarter has some incredibly good company. Somehow that's not reassuring. Then again, with these big guys already in and presumably with some good reason, is now the time to join them. Throw them bones.


Anonymous Anonymous said...

A friend called and asked about my experience with these stocks. Here's the story:
---I've never owned CFC.
---I bought IMB in April '07 at $32 thinking that it was being overly sold, but gave up and sold it in July at $30.
---I thought WM might be a bargain at $30 and bought it on October 18 this year, but got cold feet and sold it almost immediately at $29 on October 23.
---There's a longer history with CTX. I bought it at $24 in 2002 and sold it in 2005 at $68. I then bought it in March '07 at $42, tripled that position in late August at $26, and then gave up and sold the whole position at $25 in mid-October.

One of the few advantages of being a small investor is that you can exit easily.

10:35 AM  
Anonymous Anonymous said...

Interesting. In steady state the market perhaps can be analyzable, but in times like now it is not. I can decide to head to the tables or stay home, and staying home is probably best when even the high rollers are taking it.

1:16 PM  
Anonymous Anonymous said...

To take issue with homebound, "throwing them bones" yesterday was the move. CFC and IMB up 20% today and CTX and WM up 10%!!!

1:23 PM  

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