I agree with your idea to play for a long real estate recovery - the problem is that there are few values left . REIT's seem expensive and trade mostly above NAV. I did find some opportunities in illiquid stocks, where I was able to put ~12% of my portfolio in.
I also buy crummy little banks located in crummy place. Those are very illiquid (meaning they don't trade every day). I look for banks that are profitable (even if marginally so), price to tangible book <0.5x and a Texas ratio of <50% (the latter should guarantee that they don't get in trouble with the regulators. So far, I have only found one, but even that one has been running away from me before I could build up a major position (1% right now)
I also look for some better managed banks in crummy places. With these banks, I look for healthy balance sheets and deposit growth. I am hoping that loan growth will follow and improve the NIM, which is compressing, due to the fact that putting deposits in the default MBS right now isn't really yielding much interest margins. The margins between deposit and self originated RE loans is much better, but growth in the loan book is hard to come by right now. At some point that should change, either when QE ends or in fact commercial loan demand picks up.
As far as position size is concerned, I don't really like to do research on something where I put only put 1%of my portfolio in. Sure it, may turn out like that, if the price runs away from my, but my intend is always to get at least 2% in it, if not more. I have limited time available to me, with my full time job and an 8 year old and family, so I feel like I need to make the most out of the ideas I generate. |
