Mr. Market is one interesting fellow indeed. While the headlines remain pessimistic on housing and the consumer, Mr. Market seems to be ignoring the noise -- the housing industry is actually one of the best-performing industries so far in 2008. (Imagine that.)
Consider the following chart:
|
Company |
Price 1/1/08 |
Price 2/27/08 |
Change |
|---|---|---|---|
|
Hovnanian (NYSE: HOV) |
$7.16 |
$10.83 |
51.0% |
|
NVR (NYSE: NVR) |
$515.27 |
$588.00 |
14.0% |
|
Toll Brothers (NYSE: TOL) |
$20.02 |
$23.83 |
19.0% |
|
Pulte Homes (NYSE: PHM) |
$10.50 |
$15.91 |
51.0% |
|
Centex (NYSE: CTX) |
$25.27 |
$26.17 |
3.6% |
Two months is an awfully short period of time to derive any meaningful data, but the numbers do provide an example of why to stay business-focused. The overall state of an industry plays an important role in your investments, but if you wait until the newspapers are giving you good news before investing, you are likely to miss out on some very meaningful gains.
The market remains the same
This price movement in the homebuilders should come as no surprise to investors in the sense that at some point any "functioning" business that has been languishing for some time will once again rise. In the case of the homebuilders, this two-month performance could be nothing more than your typically short-term market bounce back.
But personally, I haven't found much joy in this industry yet-- save for NVR, which I simply think is a superbly run company. Yet housing is a necessity, and at some point the industry will come back. It may be many years before some of these businesses reach share prices of old. But if you bought Hovnanian at $7 or $8 and sell at $16, well short of the 52-week high of $32, in a couple of years, you'll produce some fantastic results.
Yet the signs are starting to appear more positive than negative. Finally, homebuilders are realizing that current inventory needs to be worked down before adding new inventory. This is certainly a positive step for an ailing industry.
Be patient and courageous
The two most important qualities that a successful long-term investor needs are, I think, patience and the ability to invest when everyone else is running for the exits. With everyone ready to massacre any and all homebuilders, the industry might offer fertile hunting ground for the patient, disciplined investor.
The conviction to make investments during points of maximum pessimism is very tough to do. Yet, if you want to hit home runs, you're going to have to be able to zig when the market zags. But you have to be careful. Simply buying a stock "trading" at a 52-week low is utter foolishness (with a lowercase 'f'). Your efforts should be focused on buying a cheap business and not a cheap stock. The difference between the two is profound.
Let the market serve you and then sit still
I can't think of anyone who perfected the art of market timing, not even Warren Buffett. Rather than attempting to time buys and sells, your time is better spent learning about and understanding companies. The short term only matters when it offers the opportunity to buy a good business cheap or sell a good business at or above fair value. Once you've located a good business at an attractive valuation, just sit back, relax, exercise a little patience, and let the profits accumulate.
Foolishness for any market:
