- This topic has 13 replies, 8 voices, and was last updated 18 years, 5 months ago by
privatebanker.
-
AuthorPosts
-
July 14, 2006 at 12:02 PM #6874July 14, 2006 at 12:28 PM #28358
VCJIM
ParticipantWow, I knew it was coming. If I was a savvy investor, I would have gone short on all the home builders. Scary business, though, and I’m too inexperienced.
It would be interesting if Horton revealed their employment number, if they are starting to lay people off like we believe will be the start of the “high unemployment” phase of the recession / market downturn (*crash*).
July 14, 2006 at 1:37 PM #28360Anonymous
GuestIt’s not too late to short homebuilders. They have a long way to fall still. You don’t need to be savvy to short, just gotta do it. You’ll all be saying the same thing in a couple years: “I knew the homebuider stocks were going to crash, why didn’t I short them when I had the chance?”. The only way to get experience is to get into the game, gotta start sometime.
July 14, 2006 at 1:43 PM #28361
barnaby33ParticipantThere are also technical hurdles. My broker TDWaterhouse makes shorting difficult. At least for me they have.
Josh
July 14, 2006 at 1:55 PM #28362powayseller
ParticipantShorting is for pros. You’ve got value investor like Bill Miller at Legg Mason who are buying up homebuilders, and all you need is one bounce to lose all your money. I posted a link the other day about all the people that lost money in GM puts due to a small bounce. I think it’s risky, although I know this stuff is going down big time, I can still lose it all shorting,by technicalities and big traders buying on a dip.
July 14, 2006 at 2:50 PM #28376GuestChris Johnston
If TD makes shorting difficult, get another broker. There is no reason why the actual trading short or long should be any different in terms of executing the orders. There is a goofy uptick rule, but that is moot on highly capitalized stocks.
I would say that in general, a safe short entry would just be some type of bear flag that forms against the downtrend that is in place in the homebuilders stocks. Keep in mind that after about 7 months or so, trading retracements against a trend gets more tricky.
This is of course if you have a very bearish long term view of these stocks. They are certainly in bad shape as a sector right now. As I have stated many times before, their ratios are just too good for me to short them. I have strict rules, and I stick by them come hell or high water. I want high price to sales and debt ratios for shorts, these all are very low in both presently.
This does not mean they will not go down, it just means I am not shorting them. Maybe I will feature an analysis of this sector in my blog next week.
July 14, 2006 at 3:13 PM #28380GuestChris is right, if TD is making it difficult then change brokers. Procedurally shorts are just as easy as buying longs.
Shorts are not just for pros, but for any inverstors who expect the market (or specific stocks) are on their way down. It is no more risky than a long position as long as you have a stop loss in place.
July 14, 2006 at 3:41 PM #28383ParticipantThere are value investors, like Bill Miller, who think they are underpriced becaue they sit on so much cash. If he buys 20% of the builder you shorted, you’ll get a short squeeze. I think it’s risky. I will post this question to Bill Fleckenstein, bec. I subscribe to his service, and he answers all the questions. Will let you all know next week…
July 14, 2006 at 4:18 PM #28386GuestPS,
stock price manipulation by institutional investors affects both directions. But you make a good point for diversification. I recommend shorting XHB, which is a homebuilding ETF. With XHB you are shorting the industry, an industry that most of us believe will continue to crash. At the same time limit the risk that a single stock poses.
July 14, 2006 at 4:28 PM #28387ybc
ParticipantI’d rather buy put than short. Just limit your total % of puts to an amount that you think you can afford to lose. In another word, not too much. My experience with puts is that sometimes you lose 100% (just like Powayseller said), and sometimes you make more than 100%. If you have more hits than misses, then you are OK. So the discipline is to limit your total exposure if you use puts. Also, think in terms of portfolios, not a single stock (or option). It’s a hedge.
The problem with shorting (I’ve never shorted) is that you have to continuously put up margin if the stock goes up, and you may get squeezed out before you are proven right. The problem with buying puts is that your initial price incorporates time value, and that time value keeps going down.
Either way, shorting or buying puts are not easy. If you experiment, play with a small sum of money. If you’re initially successful, then don’t get too carried away.
July 14, 2006 at 4:42 PM #28388North County Jim
ParticipantPS,
Do you know which homebuilders Bill Miller has been buying? Some of them have seen serious erosion in their cash positions as a result of stock buybacks and land acquisition.
Centex, for example, has gone from over $500 million in cash on hand to just over $47 million from March 2005 to March 2006. Centex is also the only four-star rated home builder by S&P.
MDC Holdings has seen their cash position cut in half. Standard Pacific went from $151 million to $29 million.
Of course that doesn’t mean all of the homebuilders have frittered away their cash.
Personally, the homebuilders are a battleground I’d rather avoid. With shrinking earnings, those small P/E’s aren’t going to look so small a couple of quarters down the road. There’s probably also going to be some balance sheet writedowns as land prices decrease. On the short side, it looks pretty crowded.
July 14, 2006 at 9:36 PM #28393GuestChris Johnston
Actually shorting is more risky than longs in one type of situation. If you short a stock that is lacking in liquidity a short squeeze is always a possibility. Stops are not elected in these types of situations. I would recommend not shorting anything that trades under a million shares a day.
There are some infamous stories of squeezes, and I have seen them happen to fellow traders who have lost everything they own when caught in them. As long as you stay in liquid stocks this will never happen. Most of the major home builders have plenty of liquidity to not be subject to this.
July 14, 2006 at 11:15 PM #28396ParticipantI don’t remember what Bill Miller bought, or what his plans are to buy more, or who else is bullish enough on housing to buy more. There are plenty of guys like murray out there (10% drop, plateau, and then take off again…). Plus, I don’t short stocks. That’s for the pros.
Here’s a Bill Fleckenstein post from today:
Bill
In your opinion, what lenders have the most negative exposure to the declining housing market
• I don’t have a list, maybe someone else does… but I htink FNM, NEW, MTG, and TGIC will have plenty of trouble… there are lots and lots of names like CORS whidch maybe more direct hits but the first 4 I mentioned are ones that I am involved in currently though I plan to expand the list.July 15, 2006 at 8:07 AM #28403privatebanker
ParticipantThe homebuilders forecasts are all looking scary. The HGX dropped below 200 marking a new 52 week low. One of their (HBs) problems besides earnings is their stock’s book values are decreasing due to large holdings of land that is losing value.
-
AuthorPosts
- You must be logged in to reply to this topic.