Archive for April, 2006

TMA vs AHM: 2 REITs compared

Friday, April 14th, 2006

American Home Mortgage Investment Corp (AHM) is a mortgage REIT engaged in the investment, origination, resale and servicing of residential mortgages in the U.S. Morningstar gives it 3 stars and a 12 month target of 30 (basically where it is now). Dividend yield is just over 11%.

Thornburg Mortgage TMA is a single-family residential mortgage lender focused principally on the jumbo segment of the mortgage market. Morningstar gives it 4 stars and a 12 month target of 28 (currently around 26). Dividend yield is 10.2%.

The high dividends fit nicely into my investment strategy: I like my non-IRA investments to generate income without the need to trade (tax time is miserable if I’ve been an active trader). I can’t help but notice that TMA has a dividend coming up while AHM has just passed a dividend payout. S&P thinks AHM has a sustainable dividend, but I do think that the TMA dividend may be more stable and am leaning in that direction. Comments and advice welcome!

Blog from people starting a real estate investment business

Wednesday, April 12th, 2006

Some of you may remember me posting about Las Vegas and know about my obsession with real estate (either actual property or REITs). Today I combine both topics by blogging about this real estate investment blog.

It’s run by a company that buys Las Vegas houses from people on the verge of foreclosure. This company “buys fixer upper houses (ugly houses) from people that need to sell their house fast.” The idea is to repair and sell the homes they buy fast. Their blog invites people to “follow along and laugh or learn from our mistakes.”

So there are some interesting articles on this blog including one that answers the question, Can you buy real estate with no money down? Presumably, this is how their company prefers to work although if they buy from people who need cash, probably their only options would be to finance it themselves or take out a loan. They actually discuss that when they talk about leveraging, helocs, and hard money loans (heloc stands for Home Equity Line of Credit).

Since the premise of their business is flipping (buying and then quicly reselling) it’s fitting that they have information on bad flips. It basically has tips for any homebuyer.

Personally, I think it’ll be fun to follow this blog and see how the real estate business is in Las Vegas.

Good news from Alcoa, bad news everywhere else

Tuesday, April 11th, 2006

Strong earnings from Alcoa couldn’t push the broader market up as the aluminum producer sareported 69 cents a share versus 30 cents a year ago. Analysts surveyed by Thomson Financial thought it would earn 51 cents per share and Alcoa is up $1.84 to $34.67, more than 6 percent.

The boader market, however, is in decline thanks to more geopolitical uncertainty. The Iranian president claims that Iran will soon have nuclear technology. Oil threatening to reach 70.00/barrel didn’t help either.

Not all companies can blame Iran and oil for their stock prices; some declines come from bad news. Merck is down $0.37 to $34.05 because a jury awarded 9 million dollars to a man who had a heart attack after taking Vioxx. The jury said Merck deliberately misrepresented the dangers of its painkiller Vioxx. I originally mentioned Vioxx in 2004 and it also relates to my complaints about US laws on class action lawsuits.

Another decliner with an obvious cause is Bausch & Lomb (down $9.73 to $47.71 – 17 percent). They are no longer shipping ReNu contact lens solution because some users suffered serious eye infections.

Stocks of companies led by founder-CEOs outperform the market

Monday, April 10th, 2006

I thought this article from CNN/Fortune on how companies outperform if their CEO is also their founder. The article has this to say regarding companies with founder-CEOs in the Fortune 500:

The stocks of these 26 companies (plus Liberty Media, whose founder John C. Malone stepped down as CEO March 1, but remains chairman) returned an average of 18.5 percent annually from year-end 1995 through 2005, which is seven percentage points better than the FORTUNE 500’s average return over the same period. Their profit growth has been superior, too, increasing at an average rate of 19.6 percent a year from 1995 to 2005, vs. 11.7 percent for the FORTUNE 500.

In the end what you may be most interested in are the companies that have had the best returns over the past 10 years – percentages are average annual stock returns:

1. Whole Foods Market 36.6%
2. Kinder Morgan 31.6%
3. Capital One Financial 27.4%
4. EchoStar Communications 24.9%
5. Apple Computer 24.6%

In the end, what I love about this article is that it offers some concrete advice regarding management. Everyone always says to examine the corporate leaders when choosing an investment, but most of us are short on specifics. Here’s one direction – founder-CEOs.

Creative stock blog

Sunday, April 9th, 2006

I found another stock blog that you may be interested in, far different from mine. Deep Market is a blog that focuses on advanced stock market anlalysis and its categories include Analysis, Artificial Intelligence, Creativity, Data Mining, Distributed Computing, Machine Learning, Markets, Parallel Processing, Psychology/Sentiment, Stock Market, Stocks, Technical Analysis, and Trading.

One point of emphasis seems to be the head and shoulders pattern, while I don’t look for patterns when I examine charts (other than the very general upward or downward trends I suppose). I never really talk about charts here. Patterns in stock charts is the focus of a good, long article over at Deep Market.

There’s also some information on correlation, for example stocks that correlate with Microsoft. Actually, this is one great use for charts. After all, I’m always saying that I need to invest in gold because of its negative correlation with the stock market. A chart comparison will tell you that.

All in all, this a welcome addition to the world of stock blogs, but with 8 months worth of archives to browse through it’s not so new that there won’t be some interesting information for most investors.

You must buy health insurance in Massachusetts

Wednesday, April 5th, 2006

Bloomberg.com tells us that Massachusetts’ legislature has approved the bill requiring all residents to have health insurance. Governor Mitt Romney said he will sign.

Under the bill, “Residents who can afford insurance and don’t purchase it would face income tax penalties after July 2007.”

Well I’ve blogged about planning for medical disaster and health insurance and saving for health insurance once or twice before, and I think health insurance is necessary. I am concerned that low-income people not considered poor by the state will suffer. I remember being a poor college graduate with only a part-time job and no health insurance. Of course, I had money for a car, dates, etc. But not health insurance. I guess making it a priority isn’t a bad diea.

Real estate site

Monday, April 3rd, 2006

Continuing with the real estate theme of the past couple of days, I wanted to mention this site for real estate listings. I like how they do a lot but not too much. It would be easy to make a general US real estate site impossibly massive and hard to use, but this one is easy to navigate. Obares.com mission is to “help you find the right real estate agent, your dream home and even the finest deal on your mortgage loan.”

They have lists of US real estate agents, information on school districts, libraries, churches, etc. For example, go to the Brooklyn real estate page and you see information on real estate agents, apartments, and links to information on schools and libraries.

The information on buying a home is a general overview with questions like “What type of Home Should You Buy?” You would want another source of information before you really start shopping. If you’re selling, you can put your home up for sale by owner at Obares.com.

All in all, this is a good site to visit for an overview of real estate and real estate agents in a certain area.

Buying hotel rooms: condo hotel investing

Sunday, April 2nd, 2006

I found this article on Yahoo Finance about condo hotel investing. Some of the advantages are said to be:

1. Initial capital outlays tend to be modest, since you can invest early in yet-to-be-built hotels. For example:

In 2003 he put down a $10,000 deposit to reserve a small condo hotel room overlooking Lake Michigan in Chicago’s Trump International Hotel & Tower. Over the next year, he put down an additional $79,000, or 15 percent of the nominal purchase price of $517,000. When the hotel building is completed, scheduled for 2007, he’ll take out a mortgage.

Today, based on the value of comparable units, Kim’s Chicago studio is worth about $1 million. “The beauty of condo hotels is there’s no mortgage to pay until it’s done,” Kim explains. “You get in early and sit on it while it appreciates.”

2. There’s no upkeep for the finished room.

3. Owners can stay in their rooms whenever they want.

4. Owners can make money by leasing out the units to others.

The major risk comes from the following, for which buying properties run by highly acclaimed hoteliers is the best defense:

1. Four years or more may pass between the initial investment and the completion of a property.

However, Business Week shows us a less one-sided picture of condo hotels. Where the Elizabeth Esfahani article on Yahoo Finance says that owners get a healthy percentage when the room is rented out, Business Week tells us that it’s more like 50%. And just like a regular condo, there will be maintenance fees. And you may have to pay when you do decide to stay; these are called housekeeping fees and might be 30.00/day or more.

“Most of these deals are not priced in a way that they’ll provide an immediate return on investment,” says James Butler, a real estate attorney in Los Angeles. “You’re buying a lifestyle and a long-term capital gain.”

If owning a room in a condo hotel is supposed to be a cheaper way of owning a vacation home (since the unit might bring in some cash when you’re not using it), the most important thing is to find a good location. It has to be somewhere you and other people want to vacation.

Some major hotel operators still harbor doubts about the concept, fearing that the money pouring in from individual investors is causing projects to be launched that would not be built otherwise. Hilton Hotels has a handful of condo-hotel projects, mostly under its Conrad luxury brand, but the company is treading with care.

“We’re very selective,” says Matthew Hart, Hilton’s president. “You have to be very careful that the project is viable as a hotel.”

Already, some condo-hotel projects in the red-hot Las Vegas market have been scuttled. “Make sure the developer has a track record in the business and is not just looking to make a quick buck,” advises John Burnett, president of Kor Hotel Group, which is building a $175 million condo hotel in Anguilla.

So here we have an “investment” that doesn’t generate income. You actually have a better chance of generating income by investing in a commercial hotel property rather than a resort. Since resorts see seasonal demand, they are unlikely to keep your unit booked year-round. However, if you plan to spend a lot of time at the vacation spot, 30.00/day is better than 300.00/day (assuming your investment is gaining value, rather than losing value).

Fun investments that return better than stocks

Sunday, April 2nd, 2006

This great article from Yahoo Finance lists in some detail 10 great ways to get rich. From buying classic cars to buying real estate in Prague, these ideas really are fun. Plus they have been extremely profitable in the past:

A flat near the centre of Prague, a 15-minute walk from the castle.

What was it worth 10 years ago?
Between Kc18,000 (US $754) and Kc25,000 (US $1,048) per square metre.

What’s it worth now?
Between Kc50,000 (US $2,095) and Kc60,000 (US $2,515) per square metre.

One stock does get a mention, Niko Resources, a Canadian oil and gas exploration company. was worth C$0.34 (US $0.29) a share 10 years ago. It’s now at C$49.50 (US $42.22) a share.

Real estate in Prague sounds like the most fun to me.