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Author: TMFMillerTime Big red star, 1000 posts Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14780  
Subject: Re: home builders - bottom forming? Date: 10/7/2007 10:50 AM
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here's what I used to do when I wanted to find a "bottom" in an industry group. I used to trundle over to our local public library and ask the sweet librarians to help me find articles. I would look at a stock chart of two or three co's in the industry... let's say home builders... and I'd see that the last two market troughs were in winter 1999 and in fall/winter 1990. So... I'd ask for a list of articles on homebuilders from WSJ, Barron's, BusinessWeek, and Forbes from 8/1990 to 3/1991 and from 9/1999 to 3/2000. She'd come up with a list and then I'd request 4 or 5 articles that looked good from the titles... it would be something like HOMEBUILDERS ARE GODAWFUL STOCKS or WHY EVEN BOTHER WITH HOMEBUILDER STOCKS?. Then I'd read the articles and see what arguments were being made against homebuilders by pseudo-savvy media financial journalists who were talking to WallStreet types.

here's why...

the arguments against ownership of industry groups at trough valuations are always the same... that may be too strong... the arguments always have easily identified themes. Every industry has certain fundamental weaknesses and advantages that are always present. You can mark troughs by a migration of financial media birds to the polar end of the common recurring fundamental flaws of an industry... not just one article but a whole series of articles all in agreement that XYZ set of fundamental flaws in said industry make ownership useless... the article will be esp valuable if it argues that a LTBH strategy is a guarantee of loosing money over time.

With homebuilder type stocks I seem to recall there was a common theme back in the early 90's that a deep and abiding fundamental industry flaw had something to do with their need to constantly replace their land at higher and higher prices, raw materials who always squeeze out margins, etc, etc... such that they could never really make any money and that there could never be distributions to shareholders because the constant capital replacement requirements necessarily precluded any reasonable distributions to said shareholders... the only people who make money with home builder stocks are the manager/agents. Marginal shareholders are moron/suckers. Homebuilders have no business being publicly traded stocks ya yad yada

Anyway.... the only thing I see in the media right now is "have we reached bottom?" or "when do we get to make gobs of money with homebuilders again?".. crap like that. That ain't bottom talk. That's "I haven't learned my lesson yet" talk.

well, that's what I've learned over the years..
1- every industry has fundamental weaknesses and advantages as a group
2- troughs are marked by a uniform focus on fundamental weaknesses by financial media
3- you can likely identify the weakness arguments by doing article searches from prior industry trough valuations
4- don't buy in when you see the weakness arguments first appearing again, wait til said arguments seem to become general consensus
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