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Bear Sterns – buying opportunity or not!
By fred | March 18, 2008
When you see what happened yesterday to Bear Sterns being purchased for just $2.00 a share – it gets me to thinking. Years ago I remember a doctor I was going to for something or other telling me about him buying thousands upon thousands of shares of Bank of America stock. There was a similiar crisis then and Bank of America was losing money like crazy, etc. etc. The stock was less than .50 cents a share. He said his wife was pissed because he was putting all their money in one stock, had several hundred thousand shares. This was back when I had a business in Solvang, California not far from Santa Barbara. He said that there was no way a bank that big would fail that the goverment had too big a stake, etc.
Fast forward a few years, I took Sally for dinner to a Santa Barbara restaurant and lo and behold at the next table was my doctor. I asked him what he was doing, he laughed an said he was retired. Now this guy was not even 50 years of age. He asked if I remembered our conversation about Bank of America stock. I said I did. He said “Do you know what it is a share now?” I said about $12.00. He said to multiply $12.00 times to over 250,000 share he paid less than a $1 a share for. I did, that comes to over 3 million. And to top it off the stock was on it’s way up going higher and higher. Doc was just selling off a bit here and there, retired and having a ball living the good life.
What I am trying to say, if you have some guts, a lot of guts, the time to look and to buy is when these once world leader stocks are in the toilet. Buy a few shares, if it goes down the tube you can write it off, BUT if they go back up like I think they will in a few years, your rewards will be multi, multi hundreds of percent in profits. Give it some thought – for the guy or gal with a lot of guts. What do you think?
Uncle Fred
Topics: In The Markets | 4 Comments »
March 29th, 2008 at 1:15 pm
Hi Fred,
Speaking of guts, I bought 1000 shares of LUM last summer at about $8 before it tanked down to about .30 due to the mortgage backed securities mess, plus I imagine insider manipulation by “White Kight” ARCO. So, in gutsy manner, when it reached .50, I averaged down by adding another 1000 shares at that price–only 500 more bucks. Now, LUM will be undergoing a reverse merger with a private company that will use LUM to “go public” without the usual hassle, and garner the lion’s share of the outstanding equity leaving former LUM shareholders with what may be equivalent to a reverse 1 for 3 split.
So it doesn’t always work out the way it did with BOA in your illustration. Still, since I have little more to lose at this point, I might as well hang in there and see what happens long term.
-Ola
March 29th, 2008 at 2:10 pm
Dear Ola, it would be interesting to have seen how many of the rules I have for buying a stock applied to your purchase. Were insiders buying the stock when you purchased? Was the company’s stock at or near the book value of the company? Were profits going up not down? It would take more research than I have the ability to provide to tell, still it would be interesting.
There is a reason I have these rules, over the years I have been screwed, glued, and tatooed also, so established these rule to protect myself.
But you are right, there is nothing perfect in this world or ours. Trouble is companies are run by people and folks screw up and/or outside factors that folks did not account for pop up and give em a screw over.
I do note that many of the big money boys, the long term investors are buying now, selected stocks in big hunks, placing their bets for big rewards.
The main problem with the average U. S. investor is no patience. They should spend far more time investigating their buys instead of buying on some lame brains tip. Then — if they do not wish to make money with Position Cost Averaging only want to buy and hold they should put the stock away and never look at is for a few years, instead they are looking at it daily, very dumb.
Does keep the blood flowing. Uncle Fred
March 29th, 2008 at 3:20 pm
Hi Fred,
Re: the first paragraph above, the below is in your words. Not that I blame you in any way–nobody has 20-20 foresight. But despite all the DD you did, LUM has dropping it’s REIT status, has not paid any of those expected fat dividends, and tumbled like a stone in value. No one saw this coming, not even an oracle like you.
All the research in the world could not have forseen the gathering storm that completely bolixed what seemed like bulletproof numbers. It turned into a completely different ballgame almost overnight. That’s life. I do view it as a valuable learning exerience, and I plan to hang in there for the long, long term, come what may.
On Apr. 4, 2007, Uncle Fred sez (and truly, please don’t feel bad about it):
Luminent Mortgage Capital, Inc. a real estate investment trust (REIT), invests primarily in the United States agency and other single-family, adjustable-rate, and fixed rate mortgage-backed securities. It also invests in residential mortgage loans.
The company has elected to be taxed as a REIT (Real-estate investment trust) under the Internal Revenue Code of 1986. As a REIT, it would not be subject to federal income tax purposes, provided that it distributes at least 90% of its REIT taxable income to its shareholders. Luminent Mortgage was founded in 2003 and is headquartered in San Francisco, California.
CORPORATE GOVERNANCE
Luminent Mortgage Capital Inc.’s comparison as of 1-Mar-07 is better than 68.8% of Russell 3000 companies and 54.9% of Real Estate companies.
52 – Week high/lows High $10.84 Low $7.58
P/E (Price to Earning ratio) 7.70
Shares outstanding 47.96 million
Book value: $9.86 share
Trailing dividend: Plus +13%
Enterprise value: $8.53 Billion
Insiders: Only one insider in the past three years sold 50,000 share and that was in December 2006. There have been numerous insiders buying over the past three years and until the current date, many individual buys are 75,000 shares and at price over and/or near the current prices.
Revenue doubled from 12/31/2005 to 12/31/2006. Shareholders equity increased almost $80,000,000 (eighty million) in the past year. This one may have a few ups and downs but looks solid, the insiders sure think so – as do I. Plus there is a healthy dividend that seems like it will be strong and hold for awhile.
March 29th, 2008 at 3:45 pm
I just got whipped and I deserved it. Trying to do too many things at once and I did not look at my own portfolios. Wow, did we take a licking. Ola you are absolutely correct, who in the heck could have forseen this baby dropping like a bomb.
God willing the “Dead shall raise again!”
Be good, Uncle