when will the housing long be played out? as you mentioned, it was a while back when the whole world was down on housing - but it never went down...
sooner or later, bulls will have to take profits - what would you look for?
you dont think its too late to get in on the long side?
Pradeep Bonde said...
In my understanding of the market there are basically three types of investors growth, clueless and value. Each one has a different perspective and time horizon. The homebuilders are shifting hands, the value funds are buying them. They hold it for long time. There is huge amount of capital invested in value strategy.
The other thing is there will be private equity groups willing to buy out homebuilders if they go down further. Warren Buffets kind of investors would step in to buy them if they go down further. So essentially the value types will put a ceiling on any down ward moves.
So the home builders will probably spend 2-3 years stuck in range around these price levels.
Some of them will go down. Some will be bought, some will merge.
The clueless are the shorts who think homebilders are like dot com companies. Some are still short. With all due respect to Doug Kass, he has pounded the table on housing stocks short for third time. Previous two times he did it, the stocks went up. Selecting shorts is never an easy task even for the pros.
There might be a short trade possibly developing in some of them as some will probably revisit the bottom of the range.
Frankly I think there are better risk reward shorts than homebuilders in this market. But that's just my opinion.
agree - why short them now? the big gains to be had are gone...
thanks - shorting comes easier to me, so i look for shorts regardless of the overall market... that being said, i need to be reminded, from time to time, about the market mechanisms like value investing, etc.
Pradeep Bonde said...
In my experience so far, to pick good shorts , you have to pick the sweet spot between growth and value.
Growth stocks sour and the growth crowd starts dumping them. The value crowd waits for it to reach their target valuation zone as they want to buy dollars worth of assets for few pennies. There is significantly higher asset allocation to value than growth.
The growth crowd chases the new , new thing while the value guys believe in holding for eternity.Growth crowd looks at 52 week high, value crowd looks at 52 week low as buying opportunity.
Easy money on short side is made shorting when you can catch some part of this transition.
But like in long it ultimately boils down to equity selection. Rest is all tactics..
Look at USG, to understand how this growth and value game works. Warren Buffet is increasing his stake in USG. It is near 52 week low. Prospects for home building suppliers are supposed to be bad. Now what does he know that housing bears do not know. What is wrong with him. He should read The Apprenticed Investor series.
Probably he is drunk. I think he drinks too much Cherry Coke!!!
USG Corporation (the Corporation), through its subsidiaries, is a manufacturer and distributor of building materials, producing a range of products for use in residential, non-residential, and repair and remodel construction, as well as products used in certain industrial processes. United States Gypsum Company (U.S. Gypsum) is a wholly owned subsidiary of the Corporation. The Company's operations are organized into three operating segments: North American Gypsum, Worldwide Ceilings and Building Products Distribution. Net sales for the respective segments accounted for approximately 54%, 12% and 34% during the year ended December 31, 2005