I was still in short mode in 2003, and in early February the market appeared headed down for what I expected to be its final dip. I managed to catch the lows, which is not really what you want to be doing when short selling. By the end of May I felt pretty sure I was wrong (I was) and took my losses on AMZN, BRCM, KLAC and others. Smaller short forays later in the year, including Whole Foods (WFMI), went equally badly.
Still 2003 turned out to be my best year ever as I increased my NFI and IMH positions. NFI went from the low 30s to 70, splitting and ending the year near 40 (post-split). Along the way it had paid almost $5 in (split-adjusted) dividends. I held through a nasty decline in July which turned out to be a speed bump. Low interest rates and the continued housing boom were the perfect environment for these companies. Dividends kept rising and the stock prices followed.
In September I entered Columbia’s Math of Finance program. We mainly studied options and I began buying them. I bought some calls on the usual suspects €“ NFI and IMH €“ and sold these for a large profit. I also bought some SEBL puts with mixed results.
I started 2004 in a bit of a daze from an intense semester at school. This was partially mitigated by the run-up in my wealth. I started the year HIGHLY concentrated in NFI and IMH. By the end of January, these two position, including calls, equaled about 90% of my account’s net worth, or about 65% of total long positions held as I was leveraged by about 20%. If you add New Century Financial (NCEN and later NEW), another subprime lender, and Friedman Billing Ramsey (FBR), an MREIT/investment bank, I had over 100% of my net worth in positions related to the housing market.
While it lasted, it was a quite profitable strategy (and crazy). NFI and IMH went parabolic and by the end of March my portfolio was approaching $1 million. Since quitting work, my total net worth (on an unrealized basis) was up almost 60% even after New York City living expenses, a couple of bike trips, tuition and taxes on realized gains. And I had also just been accepted to several good economics PhD programs, proving that I wasn’t simply some money-grubbing narrow-minded simpleton 
. I was feeling pretty smug.
My mood had subtlety changed though. The run-up in NFI’s stock was actually causing me some anxiety. Of course I wanted it to go up, but a little more slowly and steadily. I didn’t want to have to say goodbye too soon — in short, I had fallen in love. I had this feeling like once this was gone I’d never have another such opportunity. I was also getting used to my new net worth quickly. I decided I wanted to maintain my not quite attained 7-figures of wealth and on an after-tax basis of course which meant I needed NFI to reach an even higher level. When my very profitable NFI calls came due in March, instead of selling as previously, I exercised.
I wasn’t completely blind. Near the end of March I sold some FBR and IMH. But I bought the IMH back at higher prices over the next couple days as I felt my wealth fantasy slipping away. I also wasn’t completely oblivious to the need to have some target selling price. I told myself I’d sell when the yield reached 8%. Where did I get this number? It seemed reasonable for a solid company which was spinning money, and conveniently it fit in with my wealth fantasy requirements.
On March 23rd, NFI hit an intraday high of 70. I remember remarking to a school friend that maybe I should buy some puts. But near the money prices seemed €œhigh€?. I briefly considered spending the small amounts for 1 to 2 month out puts at 50, but figured it would never go that low. NFI closed that day at 62.06, well down from the intraday high and the open, but a couple of cents above the new high it had set three days earlier. It would meander up to an all-time closing high of 66.05 on April Fool’s Day. Then all hell would break loose.
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Mortgage Madness (My trading history Pt. 6)
I was still in short mode in 2003, and in early February the market appeared headed down for what I expected to be its final dip. I managed to catch the lows, which is not really what you want to be doing when short selling. By the end of May I felt pretty sure I was wrong (I was) and took my losses on AMZN, BRCM, KLAC and others. Smaller short forays later in the year, including Whole Foods (WFMI), went equally badly.
Still 2003 turned out to be my best year ever as I increased my NFI and IMH positions. NFI went from the low 30s to 70, splitting and ending the year near 40 (post-split). Along the way it had paid almost $5 in (split-adjusted) dividends. I held through a nasty decline in July which turned out to be a speed bump. Low interest rates and the continued housing boom were the perfect environment for these companies. Dividends kept rising and the stock prices followed.
In September I entered Columbia’s Math of Finance program. We mainly studied options and I began buying them. I bought some calls on the usual suspects €“ NFI and IMH €“ and sold these for a large profit. I also bought some SEBL puts with mixed results.
I started 2004 in a bit of a daze from an intense semester at school. This was partially mitigated by the run-up in my wealth. I started the year HIGHLY concentrated in NFI and IMH. By the end of January, these two position, including calls, equaled about 90% of my account’s net worth, or about 65% of total long positions held as I was leveraged by about 20%. If you add New Century Financial (NCEN and later NEW), another subprime lender, and Friedman Billing Ramsey (FBR), an MREIT/investment bank, I had over 100% of my net worth in positions related to the housing market.
While it lasted, it was a quite profitable strategy (and crazy). NFI and IMH went parabolic and by the end of March my portfolio was approaching $1 million. Since quitting work, my total net worth (on an unrealized basis) was up almost 60% even after New York City living expenses, a couple of bike trips, tuition and taxes on realized gains. And I had also just been accepted to several good economics PhD programs, proving that I wasn’t simply some money-grubbing narrow-minded simpleton
. I was feeling pretty smug.
My mood had subtlety changed though. The run-up in NFI’s stock was actually causing me some anxiety. Of course I wanted it to go up, but a little more slowly and steadily. I didn’t want to have to say goodbye too soon — in short, I had fallen in love. I had this feeling like once this was gone I’d never have another such opportunity. I was also getting used to my new net worth quickly. I decided I wanted to maintain my not quite attained 7-figures of wealth and on an after-tax basis of course which meant I needed NFI to reach an even higher level. When my very profitable NFI calls came due in March, instead of selling as previously, I exercised.
I wasn’t completely blind. Near the end of March I sold some FBR and IMH. But I bought the IMH back at higher prices over the next couple days as I felt my wealth fantasy slipping away. I also wasn’t completely oblivious to the need to have some target selling price. I told myself I’d sell when the yield reached 8%. Where did I get this number? It seemed reasonable for a solid company which was spinning money, and conveniently it fit in with my wealth fantasy requirements.
On March 23rd, NFI hit an intraday high of 70. I remember remarking to a school friend that maybe I should buy some puts. But near the money prices seemed €œhigh€?. I briefly considered spending the small amounts for 1 to 2 month out puts at 50, but figured it would never go that low. NFI closed that day at 62.06, well down from the intraday high and the open, but a couple of cents above the new high it had set three days earlier. It would meander up to an all-time closing high of 66.05 on April Fool’s Day. Then all hell would break loose.
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