Wednesday, December 11, 2019

Momentum in equities when reputational risks are high

This blog originally was supposed to mostly be about investing tactics, but I got sidetracked when I discovered the housing issue that has ended up taking over.

Here is a post on the topic I used to dwell on - tactical investing for high returns by being insensitive to reputational risk. A recent example of this issue is Hovnanian Enterprises, a major homebuilder that is still so down on its luck as a result of the housing bust that as recently as July, it was being threatened with delisting from the NYSE.

All along, they have mostly just needed the market in new housing to recover.  They need revenue to fully regrow back into the financial and organizational framework that had developed under the Hovnanian name in 2005.  They have so much organizational and financial leverage that small increases in revenue will translate into large increases in market capitalization.  This will further be enhanced by knock-on effects of recapturing the value of tax assets and written down developments, and paying or refinancing debt at more favorable terms.

After the July delisting notice, Hovnanian released results of two quarters which have provided strong evidence that revenues will be growing and these positive developments will be coming.  Normally, efficient markets would internalize these developments immediately, and a firm's share price would immediately jump to a level reflecting the new expectations.  Financial research has shown a momentum effect.  In other words, a trend in share prices doesn't happen 100% at once.  It mostly happens at once, but there does appear to be some predictable serial correlation.  A recent trend shift or a recent positive or negative shock to a share price will tend to continue in the short term, to a certain extent.

But, in unusual positions where reputational risk has become acute, this momentum effect can become very large.  I am sure there were some institutional holders who were forced by their own rules to unload shares when Hovnanian received the delisting notice.  At some point, the reputational danger of having owned a stock or of recommending a stock, can overwhelm the objective value of it.  In these cases, the market for that equity becomes very tepid.  It's sort of like very thirsty wildebeests coming upon an oasis.  They very understandably approach it carefully at first, not sure if it is safe.  But, almost inevitably, the whole herd will be lined up at the shore, sucking up water vigorously.  To someone who happens to have been at that oasis when the herd showed up and recognizes already that there are no crocodiles, this process can seem excruciatingly slow.

Here is the Hovnanian stock chart from the past 6 months.  The positive shocks are noticeable after each quarterly announcement, but even those shocks took place over several days.  Following the initial quarterly shock, there was further upward drift for some time.  The more recent positive shock also took several days to play out.  It will be interesting to see if a positive drift follows this shock also.  If revenues do climb from here, the share value is likely many times the current market value.  Getting from here to there will reflect a combination of objective results, expectations, and changing reputational risks.  It is the implicit position on reputational risks that can provide very high returns over time, but it comes with the occasional risk of losses, and those losses will necessarily be devastating and embarrassing.

Source

31 comments:

  1. Great stuff. I think this one great way to pick stocks, and that is buying what is offscreen for institutions but may get back on.

    https://www.zacks.com/stock/chart/SHG/fundamental/pe-ratio-ttm

    Financial are down, Korea is off, the Sino-US trade issue is giving the jitters. This bank group seems way too cheap. I don't know enough yet....

    ReplyDelete
    Replies
    1. I think you're right. The individual positions have very fat tails, but there is potential for positive net returns.

      Delete
  2. https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1207341

    I don't know if you will be able to see this.

    The Hovnanian CDS spread is declining, reports Moody's. To 1,269 from 1,373 in one week.

    I guess that is a good sign. Bonds rated Caa3.

    ReplyDelete
    Replies
    1. I missed this when you posted it. Thanks for sharing.

      Delete
  3. Omg I Finally Got Helped  !! I'm so excited right now, I just have to share my testimony on this Forum.. The feeling of being loved takes away so much burden from our shoulders. I had all this but I made a big mistake when I cheated on my wife with another woman  and my wife left me for over 4 months after she found out..  I was lonely, sad and devastated. Luckily I was directed to a very powerful spell caster Dr Emu who helped me cast a spell of reconciliation on our Relationship and he brought back my wife and now she loves me far more than ever.. I'm so happy with life now. Thank you so much Dr Emu, kindly Contact  Dr Emu Today and get any kind of help you want.. Via Email emutemple@gmail.com or Call/WhatsApp +2347012841542

    ReplyDelete
  4. Wow, Really Nice Blog Thanks For Sharing. If you are searching for argumentative essay Topics then I hope these points can be useful to you, also just adhere to these points as the way of writing. The use of words and creativity is all in your hand. Homework help is also a way where you can learn how to go with an argumentative essay Topics. They are assignment helpers, who help students in their assignments and also provide various writing services, one of them also includes Good Argumentative Essay Topics I hope this can be informative for you all. Keep growing and writing.

    ReplyDelete
  5. Well, Now you need not to worry about your pending assignment writing.assignment help is one of the best assignment service provider in UK. We are here to give you best assignment help UK based service. Browse our services of assignment help London, Edinburgh, Manchester and Across UK.

    ReplyDelete
  6. To know more about Chief Dr Lucky you can visit his website (https://chiefdrluckyherbaltherapy.wordpress.com/)
     
     A friend that suffered from Herpes and was cure with the help of this great herbal doctor Chief Lucky so i decided to contact him for help in getting rid of my families genital herpes virus 1/2 which i did and all i was told to provide was just some useful information and some materials used in preparation of the natural cure and that i did and now i am the happiest person on earth because i am writing this testimony of mine with joy and happiness in my heart to the whole world to know that natural remedy is real because i am a living testimony of Chief Lucky traditional herbal cure and i want you all to contact Chief Lucky via his email: chiefdrlucky@gmail.com or WhatsApp him +2348132777335 am sure he will help you too.

    ReplyDelete
  7. I am here to explore blogs forum about the wonderful and most safe cure for HERPES SIMPLEX VIRUS . I was positive to the deadly Virus called HERPES and i lost hope completely because i was rejected even by my closet friends. i searched online to know and inquire about cure for HERPES and i saw Dr ERAYO testimony online on how he was cured so many persons from Herpes Disease. so i decided to contact the great herbalist because i know that nature has the power to heal everything. i contacted him to know how he can help me and he told me never to worry that he will help me with the natural herbs from God! after 2 days of contacting him, he told me that the cure has been ready and he sent it to me via FEDEX or DHL and it got to me after 4 days! i used the medicine as he instructed me (MORNING and EVENING) and i was cured! its really like a dream but i'm so happy! that's the reason i decided to also add more comment of Him so that more people can be saved just like me! and if you need his help, contact his Email: (drerayoherbalhome@gmail.com) you can contact him on whatsapp +2348151937428.
    He also cure the below listed sickness;
    (1) HERPES,
    (2) DIABETES,
    (3) HIV&AIDS,
    (4) URINARY TRACT INFECTION,
    (5) HEPATITIS B,
    (6) IMPOTENCE,
    (7) BARENESS/INFERTILITY
    (8) DIARRHEA
    (9) ASTHMA...
    https://alternativeherbs.weebly.com

    ReplyDelete
  8. I was a HIV-AIDS patient and I got it from cheating on my wife. It was sort of a payback but a week later I was told by a friend that the person who I cheated with had the HIV-AIDS virus and did not tell me. I was so stupid by not using a condom I thought since he was an old school friend he was trustworthy. But I was wrong. I cried and cried. Two days later, I got a phone call from my friend and he told me about a person who is known by another friend, who can help me. I could not let my wife know what I was going through. I finally got his email address: oseremenspelltemple@gmail.com and I emailed this man my story and he replied me immediately saying i should be calm and told me that everything will be OK. I could not come to terms with what I was hearing but then I concluded it did not matter because I was so broken I just needed help. I was going out of my mind literally. I was confused with what he was telling me, but I listened. He told me about some materials i need to buy that he needed to cast the spell and I said OK. I bought the materials to him, I sent down my picture to him and my positive result sheet and he replied me that i am going to be negative under 3days. I message Him every 2hours for 2day and I knew he thought that I was crazy but I did care I needed a shoulder. Behold, the third day he messaged me i should go for a test that i will be negative. My marriage could be broken because of a stupid mistake and my life was on the line. I remembered when I was going to get the results of my re-test I called him up again and told him that I was going to get my results today and his reply was “so" and that everything will be as he explained. I knew then that he was getting tired of me calling him, maybe I was wrong. Well I got my results and the first person I called was him - again. As he said hello I started to cry and cry. I could not believe it. I was given a second chance in life.This man is a great spiritual HIV/AIDS healer, his healing spell on aids healing is very powerful .please brothers and sister, contact Dr Ose oseremenspelltemple@gmail.com
    whatsapp +2348136482342www.facebook.com/Dr-odion-spell-temple-110513923938220

    ReplyDelete
  9. Good luck to anyone reading this true life story of mine, I Was Diagnosed With type 2 Herpes Virus Last year, And I Was Looking For Solution To Be Cured Luckily I Saw Testimonies On How Dr OYAGU Cure Herpes Virus I Decided To Contact Dr OYAGU I Contacted Him He Prepared A Herbal Medicine Portion And Sent It To Me, I Started The Herbal Medicine For My Health. He Gave Me Step By Step Instructions On How To Apply It, When I Applied It As Instructed, I Was Cured Of This Deadly Herpes Within 2 weeks, I Am Now Herpes Negative. My Brother And Sister I No That There Are So Many People That Have The Same Herpes Virus Please contact Dr OYAGU To Help You Too, And Help Me To Thank Dr OYAGU For Cure Me, I’m Cured By Dr. OYAGU Herbal Medicine, His Contact Email:oyaguherbalhome@gmail.com or visit his website https://oyaguspellcaster.wixsite.com/oyaguherbalhome Or Cell Whatsapp Number +2348101755322 thank you

    ReplyDelete
  10. Thank you for your fantastic, one-of-a-kind, and original article. I've tried several times to get clear information on this subject. hemp boxes

    ReplyDelete
  11. Custom Tags Wholesale | Retail Clothing Hang Tags With Logo
    Packhit offers high-end quality custom printed tags. We offers custom tags wholesale at fast turnaround time with no shipping charges. Get clothing hang tags!

    ReplyDelete
  12. I like it when people get together and share views. Great website 온라인카지노

    ReplyDelete
  13. We like to honor numerous other world wide web websites around the web, even though they aren’t linked to us, by linking to them. Beneath are some web pages really worth checking out. 카지노사이트존

    ReplyDelete
  14. Love this post. Thanks for sharing this post.
    Read more

    ReplyDelete
  15. For investment, it is necessary to ensure the potential of the industry in which you plan to invest. Then, proper market research is compulsory so that you have a better idea of the market that helps to understand the trending graph in the industry. For example, I am investing my money in the online business of dissertation writing services. I know the trending month of my business that helps me manage my investment to get the maximum return profit.

    ReplyDelete
  16. You have shared very informative news. I really loved your article. Please share more results. Now it's time to avail Inbound Call Center for more information.

    ReplyDelete
  17. I am happy to see your blog. when you research a market you have the best plan to invest. This information is very useful for us. Now it's time to get services shutters in birmingham for more information

    ReplyDelete
  18. I really appreciate your efforts. You have explained it very well that how, when and what amount to invest. Thanks for sharing this with us. Now it's time to avail airport chauffeur service for more information.

    ReplyDelete
  19. After seeing your post I decided to invest on herbals. This is very informative about herbs and healthy stuff. it's time to know about y2 mate for more details.

    ReplyDelete
  20. I am very happy to read this blog. You explained very well about invert. Its time to avail of the service of doctors-child-specialist-lahore,click Here .

    ReplyDelete
  21. Your post is really effective for diet conscious peoples. Your information about herbs is very attractive also. Thanks for sharing this with us. Now it's time to avail Ac services in Jumeirah Beach visit us for more services in Dubai

    ReplyDelete
  22. Great Blog
    Don't let academic stress get you down – get the help you need to succeed with Malta Assignment Help! We provide online assignment help in Malta that is second to none, with personalized support and affordable rates. Trust us to help you achieve your academic goals today!

    ReplyDelete
  23. This comment has been removed by the author.

    ReplyDelete
  24. Great Post
    Need someone to take your online exam in Singapore? My Assignment Help Singapore offers professional online exam help services to students across Singapore. Our team of experienced online exam helpers is proficient in various subjects and can help you ace your exams with ease. Whether it's an assignment or a test, we provide personalized assistance to ensure that you score high grades. So, why wait? Contact us now to avail of our take my online exam services in Singapore and achieve your academic goals with ease.

    ReplyDelete
  25. This post is really effective and highly knowledgeable.
    When you are facing tight deadlines and complex topics about essay writing assignment. Fortunately, assignmenthelper.my offers essay help in Malaysia that can alleviate the stress and pressure of essay writing. The team of professional writers is skilled in a variety of subject areas and can help you with any type of essay, from narrative to expository.

    ReplyDelete
  26. Great post
    "Experience Excellence in Translation with My Translation Services: Premier Language Solutions in the UK. Whether you need multilingual website localization or certified document translations, our skilled linguists are ready to assist you. With a commitment to linguistic accuracy and cultural understanding, we ensure your message resonates with diverse audiences. At My Translation Services, we combine cutting-edge technology with human expertise to deliver exceptional results. Explore our website today and discover why we are the preferred translation company in uk for businesses."

    ReplyDelete
  27. This comment has been removed by the author.

    ReplyDelete