I have been in the market too long and I just know a homebuilder bankruptcy is coming soon.
Here is what I wrote back in February and the meat is below:
Homebuilders – The NEW Value Trap
Five years from now when the homebuilding stocks are 20-30 percent lower and marking time, small investors will all own shares in what the institutions have distributed to them since mid 2006. The companies are not crap and they won’t be in 5 years, but the stocks will be value traps. Victims of a badly ended trend where the stocks were overowned and overhyped.
It is no one person’s fault, it is just the way Wall Street works. They are just not real growth stocks. Nothing was different this time and no particular CEO or management team will be totally immune. The industry will continue to go out of favor with Mutual Funds. That does not mean you should sell your home or get bearish on the world. hundreds of new trends have been emerging since the homebuilders peaked last spring.
Do not overthink it and get sucked into buying value. That’s for Warren Buffett and a select few, great value managers.
There is all kinds of juicy goodness going on. Real juicy. I have been writing about the trends for months.
Even I did not think the stocks would drop 70 percent from already crashed prices. In fact I traded a few for a nice loss. Value traps suck you in. Lesson learned.
In hindsight, it is freaking unbelievable to me how poorly managed these homebuilders really were. I mean, unlike internet companies in the bubble, these things had cash flow.
Wall Street has done what it does best once again. Distribute shares from the few to the many. Nasty, but predictable.
“In hindsight, it is freaking unbelievable to me how poorly managed these homebuilders really were. I mean, unlike internet companies in the bubble, these things had cash flow.”
Greed! That’s why they failed to prepare, they were busy counting their profits in an inflated market. Of all the big time builders, only NVR prepared for the down turn (and only slightly).
Schrute bucks is imminent.
Possibly the management teams primarily consist of marketing types— not construction types, architect types, finance types, etc.
And it’s all other people’s money to them. They just rake in bonuses and stock options and the subsequent bust is on everyone else— they can weather a few years of just ordinarily high base pay until the next cycle.