I continued to short in 2001 and made money as things were going down well before 9/11. On the long side, I was holding First Philippine Fund, Asia-Pacific Fund (APB) and a Japanese small-cap fund (JOF). These didn’t work out. I was able to make a little money buying into Conseco on news of Gary Wendt’s moving there from GE Capital. I bought the common and also the preferred, which were yielding 20-25%. Gary Wendt turned out to be not the best justification. At first things seemed to be turning around, but then began to founder. He provided some theatrics by publicly announcing he would buy $1 million in Conseco stock, but this seemed a small commitment for a very rich man who had received $35 million to sign on as CEO. Luckily, I had cashed out well before this.
On the last trading day of 2001, I began to branch out from AHR, which was a solid performer in 2001, to other companies related to mortgages. The stocks I bought were another mortgage REIT called AXM and IMH, a mortgage originator. Like AHR they had heady yields. Though I didn’t know the businesses very well, they were getting recommendations from a poster on the AHR board who seemed to know what he was talking about. One of the arguments I liked in the post-Enron world was that dividends don’t lie. A company which has to pay out every quarter probably has less lattitude fudge the book. Also these stocks were still recovering from LTCM. As it turned out, the poster knew what he was talking about, and this area of the market would become the driver of my wealth over the next three and a half years.
Starting 2002, I also had a lot more money to play with, having just sold my Manhattan coop. It looked like an astute move at the time, as there were fears that the market crash would lead to a real-estate slowdown, but this did not happen. The financial community on which the New York economy is so dependent slowed down and got a few slaps on the wrist courtesy of Eliot Spitzer, but it didn’t collapse. And unlike the 1980s, there hadn’t been a huge buildup of inventory. If I had had better supply and demand data, I might have made a different decision. For such a big decision, I should have paid to get this.
The beginning of 2002 saw me long M-REITS, Asia and short internet/technology. My big shorts included BRCM, BRCD, PMCS, VRSN, MXIM, YHOO, and EBAY. I even branched out to International Paper (IP) and KKD (Krispy Kreme), but it didn’t really matter €“ the first 9 ½ months were pretty dismal for most of the market and particularly the technology hi-fliers. It was not dismal for the MREITS, however. As the housing boom gained steam, so did they. In addition to collecting 15% dividends I was seeing substantial capital appreciation.
