Saturday, August 11, 2007

Glad my down payment savings are in cash/Some current investment ideas

The recent market turbulence has made me even happier that I keep the bulk of my down payment savings in an ING direct account. I currently have about $128,000 in deposits at ING Direct, the vast majority of which is in my Electric Orange account earning a 5.30% APY. Sure, this isn't a fantastic return, but this is money I am going to need within the next couple of years in order to make a down payment on a house, pay for moving expenses, new furniture, etc... When the market slides, I can be glad that no matter what, when I went to my account balance on August 11 (this morning), I would have about $180 in interest accrued to me. If I don't add to my balance, it goes up by about $500 a month due to interest earnings.

Of course, I do have a big chunk of my networth in the market, but this is mainly my retirement savings, which I think will do better in stocks over the next 30 years than it would do in a savings account or in fixed income instruments.

My thoughts on the recent market turmoil? I am not very worried. Markets fluctuate, sometimes dramatically. Don't turn into a lemming and follow the market off of the cliff (if that's where it ends up going). If you invest in individual stocks, however, let the gloom and doom work to your advantage. Get greedy when other people run scared. If you see a great company being unfairly punished, buy some stock or add to your position.

I think that over the next year or two, there is going to be a really good buying opportunity for some of the homebuilders such as Lennar, DR Horton, Pulte Homes etc... It could be right now, it could be next week, or it could be a year from now. I can't predict that with any certainty, however, I can definitely say that there is a considerable amount of uncertainty over these companies right now. I dipped my toe into the water by buying some long dated DR Horton options that are currently worth about 50% less than I paid for them a few months ago (allthough they do not expire for another couple of years, so they might turn out to be a smart purchase yet!) I was definitely early in buying those options, and as Bill Miller put it recently- being early is sometimes the same thing as being wrong.

If you're interested in looking into investing in homebuilders, I recommend you read this article about Bill Miller's early call on buying these stocks.

There are a few good quotes in there, notably:

Investing in an industry or company amid its worst performance in years or
decades can, though not always, prove quite profitable if the performance isn't
measured in days or months, Miller said.

"The headlines today are all about this being the worst housing market
since the early 1990s. Had you bought housing stocks during that previous period
of duress, you would have made many times your money and handily outperformed
the market over the subsequent decade," he said.

Another company I've had my eye on lately is Universal Technical Institute (NYSE:UTI), a small cap company (about $500m market cap) that runs automotive training schools and has a contract with NASCAR. The Motley Fool introduced me to this one. I haven't had a chance to look into it too much, but over the past week or so, the stock has taken a big hit that seems less related to the company's prospects than it does to the overall market decline. It's definitely worth further investigation.

2 comments:

Big Investor said...

Are you worried about ING direct being one of the banks that may fail?

-Big Investor

MoneyMan said...

I don't see major bank failures resulting from the subprime crisis. Banks are strictly regulated by the federal reserve and carry plenty of capital to insure against losses. In addition, my accounts at ING are protected by FDIC insurance.