Tuesday, November 08, 2005

When to sell

To many observers, the end to the rapid rise in housing prices – frequently referred to as a bubble – has been just around the corner. While I have been early on the timing, this earliness raises one of the most fundamental investment questions: ‘When to sell?’ Here are two such sell indicators:
  • Sell when the company puts its name on a sports stadium
  • Sell when the company is featured on the cover of a major magazine or newspaper

The Enron stadium in Houston is no more, Boston’s Fleet Center passed from existence after its merger with Bank of America, and Foxborough, MA’s Gillette Stadium will soon be changing its name in the wake of its merger with P&G.

But today’s focus is the second of these sell signals. In the case of housing, a major sell signal was flashed with the October 16 publication of a long article, Chasing Ground, in the
New York Times Magazine about Toll Brothers. This article was an ode to the voracious appetite of Robert Toll, this luxury housing developers’ founder, for buying land and developing it into houses.

Today, a mere three weeks after the publication of this article,
Toll Brothers announced that it saw the end of the housing boom. If an investor had sold short Toll Brothers stock and covered after today’s announcement, the investor would have secured a 12% return.

Not bad for a 3-week bet; nor one I would close off just yet


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