Hi,
Here is an investment idea – would like to see if this has been thought of before and if anyone has any opinion about it.
In this hypothetical example, lets say I invest $20 million. I buy 40 homes from various home builders. I put the 40 homes that I bought for sale, gradually bringing down the market. Say, I lose $5 million over the next 6 months and am able to bring down the market by 30%. At the same time, I also short $50 million worth of stocks of the home builder and lenders operating in that area. I am betting that the stock price of these companies go down by 30% due to lost profits over the next year, due to me bringing down the market.
I make a profit of 15 million minus expenses.
Total expenses = 5 million + 1 million (interest @ 10% on 20 million for 6 months )+ 5 million ( broker interest @ 10% on 50 million) = 11 million
So net profit = 4 million on an investment of 20 million = 25% return.
Obviously the rate of return and the risk is depenedent on expected decline of value of the stock prices due to “pull down” of the market.
Your basic assumption is that be dropping $11M, you’ll be adding enough information content to the market to bring the builder storck down by $300M (assuming $1B of market capitalization).
Many think the market is irrational, but I see no way you add that kind of information content by selling a few houses. People are starting to see what’s going on already.
Its possible….but ONLY if your dealing in hundreds of billions of dollars….
Now who do we know that can do that ?…Think some VERY large hedge funds in cooperation with large trading houses who get refueled by the fed…….but I doubt it could happen as a planned event, but it doesn't mean that it WONT happen….just not by a coordinated plan anyway…In fact, that exact same scenario is already slowly occurring….look at builder stocks and try to figure out "why" they haven't crashed yet…Home builder stock bears are getting creamed over this and theyre heads are spinning as to why…..Timing, as in everything in life, is SUPER critical
The ‘big hedge fund conspiracy’ theory might have some merit if these things weren’t blowing up left and right. Heck, even Simon’s got dinged by 7% this year and he is about the best in the game.
I agree that there is too much risk involved in this plan to make it worthwhile. I think you would make more money just putting all your cash into shorting the builders anyway.
.
