Following a mortgage guru to the dark sideAaron Pressman
Warren Buffett says he doesn't make investments if he can't understand the underlying business, but most of the rest of us aren't as smart as the Oracle of Omaha. What to do? Sit on the sidelines and watch the smart guys rake in the dough? That's one strategy. Another idea is to follow those in the know, who often have to reveal what they've bought on a quarterly basis. A study I wrote about back in October found investors could trounce the market by following Buffett's stock moves even after waiting for SEC filing delays. So which smart guys to glom onto now?
First you have Lew Ranieri in the mortgage market, a market he helped invent (as chronicled in Michael Lewis's Liar's Poker). Ranieri's firm just brought to market a real estate investment trust focused on the mortgage-backed securities market, called Crystal River Capital and trading under the symbol CRZ. The prospectus is here. There's also a cast of other managers and analysts who've all worked for years in the dark corners of MBS.
It seems like a terrible time to invest in residential mortgages but that's what makes going with a pioneer so intriguing. Invest when there's blood in the streets and everyone is running for the exits. But you don't just have to rely on Ranieri. Early investors in the trust who remain include hedge fund guru Leon Cooperman and one of value investor Marty Whitman's funds. Sounds like pretty good company.