Wednesday, May 29, 2013

Fanniewoods and the Fredhegan Sun

When I was overseas in 2011, something dawned on me in an early-morning hour.  The Big Revelation was that Fannie and Freddie were STILL backstopping millions of mortgages across the U.S., and I could scoop up FNMA and FMCC shares for pennies apiece.  Yes, there was no guarantee they would ever be worth anything more, and yes, there's a reason sane people advise other sane people to stay away from de-listed stocks.

Still, I scooped up a few thousand shares and just sort of sat on them.  I watched the temporary fluctuations and realized that if they ever somehow regained even a fraction of their initial value, my life could become very, very different.  

But I would see them do a "run-up" and flirt with the $1.00 mark, only to run back down.  I saw it time and again.  Last week, I did something impulsive.

I sold the entire pile.

When they were around $1.40, I just cashed the heck out.  I figured the common shares were about to take another dip down, because they were hitting the peak heights from March.  Now was the time to pull my chips off the felt, take a few free mortgage payments out of it, and call it good. 

Last I checked, they're flirting with five bucks.  Each.  If I were still holding that entire pile, I could NOW cash it it in and never make another car payment.  If they were to double again, and I were still holding, I could pay off my entire Stafford Loan, too.  Two more doublings -- still holding -- and I could send Wells Fargo a check.  For my entire mortgage.  

No, I'm not joking, and please don't call me Shirley!  

I feel like the casino analogy is appropriate, because unless someone knows something I'm not privy to, there's simply no guarantee that Fannie and Freddie profits will return to common shareholders.  This is not the same thing as a BAC, C, or AIG investment back in 2009.  

I realize I didn't really *lose* anything.  

But the lesson I'll take is to exercise some discipline when selling into a rally.  Hindsight has that special Splendid Splinter sort of visual clarity, but I woulda could shoulda done something like this:  Dump 500 shares at $1.50.  Dump 500 more at $2.00.  Dump another 500 at $2.50.  And so on.  That would've meant nice piles o'cheddar along the way without missing out on all the upside of the roulette wheel that just keeps hitting someone's lucky number.  Had I shown some discipline, and  done this, I'd still be holding shares, and progressively ticking off the bills I wouldn't be paying again. 


kad barma said...

It's extremely hard to eliminate emotion from investment decisions, and harder still to maintain focus on the intrinsic value (which was or should have been the basis of the original investment decision) through months and years of market flutterings. Hardest of all is walking away from a decision once it has been made, and never thinking about it again so that it doesn't disrupt your digestion or your sleep. (They say, after all, about investing, that you have to decide up front if your preference is to eat well or sleep well).

If the original decision to invest was based on a possible outcome that remains possible, then the best question is not when to sell, but whether or not to have bought. You can kill yourself worrying about liquidation timing, but the real advantage would be to learn something about your next possible investment decision. (The past one, and the consequent sale, being water under the bridge).

I buy index funds for retirement, and decline to speculate otherwise because I have learned that being wealthy isn't the important goal, relative to working towards having enough. Everyone's situation is different, and relief from a car payment can sometimes make the difference between misery and security. But if you're buying flyers on anything other than their entertainment value, you're putting eggs into an emotionally fragile basket, and history shows most human beings are particularly maladapted towards managing investments under those circumstances.

Buy and hold. Everything else is rigged for the big banks anyway.

The New Englander said...

Good advice and sound points all-around. Funnily enough, the moment I posted that, I checked FNMA and it had hit $5.08. Then, as if on cue, it began its descent (now back to $2.08).

The "investment" was admittedly built on a house of cards (the pun there was awkwardly hard to avoid).

Agreed that passive indexing is awesome.

As a friend told me in an e-mail yesterday, it makes WAY, WAY, WAY more sense for me to be focused on growing my business and maximizing my earnings income -- not depending on some numbers on a board to carry me after graduation.