Reminiscences of a Stockblogger

Oct 6

My Nam Tai Story

Sometimes it is easier to develop an idea in your head than it is to write about it. That is because while you can make a decision to buy a stock on an idea that makes sense, you really can’t write well about it without understanding the story.

My Nam Tai story goes back to a fellow who follows the blog and posts by the moniker DTEJD1997 on the Yahoo! Finance boards and on SeekingAlpha. While I know his real name, he asked that I only refer to him as DTEJD1997 here, so that’s what I will do. Anyways, DTEJD1997 has a nose for finding overlooked value. He was the fellow who also got me onto the idea of Rurban Financial. Obviously that idea worked out extremely well.

DTEJD1997 recommended Nam Tai to me months ago when the stock was $5 but I didn’t get in at the time and it moved from to $10. I didn’t get in because I didn’t really look closely at the story and so I didn’t understand the impact of what he told me.

I didn’t look closely because Nam Tai is a contract manufacturer in China. I worked for a contract manufacturer for a while and so I know its an ugly, low margin business. I was less than enthused to jump into that industry. It’s the old Donald Coxe adage that those who know it best love it least. Read more

Oct 3

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Further investigation into Impac Mortgage Part I: Non-recourse trusts

I did more research into Impac Mortgage (IMH) over the weekend, and I plan to share my findings in a series of 3 posts.

In this first post I want to focus on the trust assets. While the trusts are somewhat peripheral to my investment thesis in Impac, an explanation of how they work is central to the following posts I plan to write about earnings, and understanding the trusts helps quantify what potential they might hold for Impac if the housing market recovery becomes robust.

Impac Mortgage was a $250 stock in 2004 (I am including the 10:1 share consolidation that took place). Obviously it has been a long way down. The fall in the stock price from then to now has been entirely because of the mortgage market collapse. This is something to keep in mind while I step through the next few paragraphs.

As I have explained in previous posts, I bought Impac Mortgage because of the growth I anticipate from their origination business. But while the current business model centers around mortgage origination, it hasn’t always been that way. Prior to 2008, in addition to originating mortgages Impac created and ran a number of off-balance sheet trusts. These trusts would buy mortgages, mostly one’s originated by Impac, and pay for those mortgages by selling securitized mortgage obligations to investors. The trusts would pay interest on their obligations from the cash collected on the mortgages. Read more

Oct 1

Week 65: Doing the work

Portfolio Performance

The turn in housing

– Michael Burry – Scion Capital

The housing market has turned.

Being that it is a huge, lumbering tanker, it takes a long time to slow down and redirect. The changes happen slowly enough that you can miss them if you are focused on the wrong details (price increases and to a lessor degree sales increases) and not enough on the right one’s (inventory). All that matters is that prices are cheap, rates are low, and inventory has come down to levels that leave many cities firmly entrenched as sellers markets. Once buyers stop seeing themselves in the drivers seat, their attitude changes from one of waiting for a better buy to that of getting in before its too late. The vicious circle is replaced by a virtuous one, and sales and price increases will follow. Nothing lasts forever, and the US housing collapse didn’t either.

Falling inventories had to lead the housing turnaround, and that is what we are seeing now. Nationwide in August housing inventories fell from 8.2 months of supply a year ago to 6.1 last month.

Sep 29

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Out of Arcan

I sold out of the rest of my Arcan position this week. I took the rest off at $1.18. This was after I had sold the majority of my position a couple weeks ago (September 11th) at $1.25.

I had difficulty making up my mind on the stock. The company could, get taken over any day for a premium, and if that happens I will be kicking myself. But I could also be sitting around for a long time waiting for that day.

I bought Arcan at $1.50 in July. Thus, I’m taking a loss of about 20% on the sale.

The deciding factor for me was this chart, from a BMO research note on the company released two weeks ago.