WCI

All posts tagged WCI

I just found out from The Declining Market that Florida luxury Condo builder, WCI Communities filed Chapter 11.

Over a year ago I shorted the stock at $17. Then that jackass Carl Icahn went and put in a bid to buy the company at $22.50 a share, in order to “unlock the hidden value” of WCI’s assets. That’s when I closed my position at a loss. Apparently, there is no hidden value in the assets and WCI’s stock is now completely worthless!

Sadly, I didn’t have the fortitude or the conviction to hold my position and I cried uncle at the first sign of trouble. That same scenario was repeated when I shorted Countrywide last April. The stock went up 10% and I closed my short position. Then it went straight down!

Right now, I’m short Capital One Financial (COF). But instead of entering my position fully, I decided to venture in slowly and buy more if it goes up. I’ve entered a 50% position so far and I’m hoping it goes higher so I can short at a higher price.

I’m convinced that if people can’t pay their mortgages, then they’re sure not going to be paying the credit cards. However, there’s a chance I might be early, so I should be willing to set a wider stop-loss and be willing to hold my position for 6 months.

On my short positions, I usually set a 10% stop loss, because there is an inherent bullishness to stock prices. This bullishness does not come from my expectation of a continued rise the profitability of stocks, but rather due to inflation. Inflation causes price increases, which leads to slightly higher profits, which leads to slightly higher stocks prices!

One lesson we should all take from WCI’s bankruptcy is that even rich people make mistakes. Carl Icahn was wrong about WCI – there simply wasn’t an value to be had from its assets. Billionaire Jerry Lewis also made a mistake in buying a large chunk of Bear Stearns early this year at nearly $80/share. I was soon sold for only a couple of bucks a share to J P Morgan.

Don’t blindly buy a stock just because some famous investor is buying it!

This post is a follow-up from a previous post about Going Long The Dollar. There were some valid arguments for being bullish on the dollar, however, based on yesterday’s economic news, they no longer sound very convincing.

The jobless claims came out and the national unemployment rate is now at 5.5% (and this is after the bogus birth-death model numbers that are used to under-represent the actual unemployment figures).

Oil prices shot up 8.4% to $139/barrrel, marking the highest ever one day gain for oil prices. This occurred after the U.S. dollar nosedived on speculation that the European Central Bank would raise its key lending rate and on worries that a bigger-than-expected spike in unemployment meant the U.S. economy was far weaker than feared.

I actually had taken a small position in RYBSX, but I closed it for a small loss after hearing Friday’s news.

It’s much easier to predict long term trends rather than short-term trends. In the long term, I still think the Dollar is going down, so there’s no point buying RYBSX – might as well just stick to my Australian Currency shares ETF that has done so well for me. I continue to believe that we’re going to see stagflation and have been investing accordingly. I think it commodities like gold and foreign currencies will continue to do well.

I also think it’s much easier to make money on sure things like Countrywide(CFC) and WCI Communities (WCI) going bankrupt. (Disclaimer: even though my direction for the CFC and WCI trades was correct, I was just a few weeks early and still lost money!). I’ve been harboring suspcions about Fannie Mae(FNM) and Freddie Mac(FRE) going bankrupt. Not wanting to get in to early, I’ve missed the major decline in both stocks, but there seems like theres still a bit of downward movement. Let’s see how that pans out.