A 1-in-100 Investor

Presidents are often measured by what they achieve during their first 100 days in office. Schools have parties for students on the 100th day of the school year. When Jerry Yang returned to Yahoo! last summer, he gave himself 100 days to effect change at the online portal.

Around here at Motley Fool CAPS, we keep an eye on the 100-day mark, too. Some of our best investors -- we call them All-Stars -- have achieved top player ratings after garnering a score of 100 in their first 100 days on CAPS. Analysis has shown that the top-rated stocks have had the best performance over the past year, so might we assume that when the best players rate the best stocks, there is a correlation there, as well?

Our highest-rated CAPS investor is SpecBear, who sports a perfect 100.00 player rating. A player since September 2006, SpecBear currently has 163 active picks on CAPS out of more than 440 stock picks made. Achieving better than 80% accuracy, SpecBear has also attracted more than 1,700 "groupies," CAPS players who've listed this leading investor as one of their favorites.

As you might assume from the screen name, SpecBear has been in a bearish mode. Here are a few of his most recent stock selections and how they were rated.

It probably shouldn't be surprising that the financial and housing markets still dredge up negative feelings in investors, and SpecBear's picks are dotted with such companies. The Federal Reserve's bailout maneuvers in recent days couldn't have been predicted, though, which would account for some of SpecBear's underperformance on a number of these picks.

The quality of Annaly
Yet it's been just such interventions that have actually worked to the benefit of SpecBear's best-performing pick, Annaly Capital. The conservatively run REIT that manages a portfolio of mortgage-backed securities makes money on the yield spread when long-term treasuries exceed those of short-term notes. When there is an inverted yield curve, the company still makes money -- only not as much, which is what happened back in 2005 when Annaly was forced to cut its dividend. The Fed, though, has been pouring money into the markets, and the yield curve is now at its steepest level in years, providing Annaly with the opportunity to profit.

The quality of Annaly's paper as well as its management is what attracts many investors to this Motley Fool Income Investor pick. As CAPS player cobjector65 says, there's no exposure to subprime mortgages. And with Fannie Mae as a prime backer, there's little cause for concern, though the stock has been taken down (along with all such companies) in recent weeks. cobjector65 says:

What distinguishes Annaly (NLY) from its out-of-favor Wall Street peers is the fact that it doesn't take credit risk, only interest-rate risk. It buys mortgage-backed securities issued by government-sponsored enterprises like Fannie Mae and Freddie Mac; in other words, it has no exposure to subprime mortgages.

CAPS All-Star TMFDocs, with a 95.39 player rating, thinks the only thing missing from what's being tossed overboard is the kitchen sink:

Bathwater, baby, bar of soap, rubber ducky. Check. It's all in there.

They seem to have managed their portfolio and financing pretty well, but any company using leverage to buy mortgage securities should be a thrill ride in the near future.

I'm heartened by the recent dividend increase. With the recent price plunge, the yield is roughly 11%.

Yet the reliance upon Fannie Mae also could also imperil Annaly, should the new spending authority it has been given cause it to implode, which CAPS player mandrake66 thinks may happen:

Annaly seems like a great company. Unfortunately [Fannie Mae] is not one also, and Annaly sinks or swims on the backs of the GSEs [government sponsored enterprises]. When [Fannie Mae] craters, the margin calls will take [Annaly] down too.

A 1-in-100 opportunity
Some of the best and smartest players in the CAPS investor-intelligence community have deposited their opinion on Annaly Capital, but we haven't yet heard from you. As hockey great Wayne Gretzky once noted, "You miss 100% of the shots you never take." At Motley Fool CAPS, every investor's opinion counts -- and since it's free to sign up, why not use this opportunity to take your best shot?