Monday, January 3, 2011

Grubb & Ellis (GBE) Rally Made No Sense

Over a two day period between December 20 and 21, 2010, shares of Grubb & Ellis (GBE) leaped 20% on no news.

A bit of investigation uncovered that daytraders had seized on it as a momentum plaything. The way to find this out is to look at any web service that aggregates inane daytrader "tweets" and other coordinating messages, for example the Yahoo! "Market Pulse" page for GBE.

Check out some of the stunning analysis from those two days.

  • $gbe huge vol spike next stop 1.37 then blue skies
  • long $GBE swing 1.20. other crappy REITs ($GKK, $RAS, for starters) have already gone in last week or 2
Yes. Other crappy REITs have rallied - why wouldn't this vaguely related one rally too? Obviously, a stock isn't worth the present value of its future cash flows. Instead, it should just have the same "relative strength" / "momentum" as a basket of equally crappy stocks.

As I mentioned in one of my original posts on GBE, " I actually have not heard of anyone who is bullish on GBE for sensible, fundamental reasons. The marginal buyer seems to be a momentum or retail idiot buyer."

In my view, the common shareholders of GBE were basically wiped out in 2009 when the company issued the $90 million in outstanding 12% cumulative participating perpetual convertible stock in order to pay down debt. The preferred is the fulcrum security and I would not want to own anything below it in the capital structure.

I added to my shorts on the second day of the jump. It is so weird to trade against people that absolutely do not care what a stock is worth. To them, it's just bars on a chart.

I do have complete confidence that, over time, my strategy of cash flow and business model analysis with outperform a "buy any dip" or "momentum" investing strategy.

1 comment:

Taylor Conant said...


You sound like the guy playing "tight-aggressive" hold'em against the clueless, reckless cash-laden gambler idiot.

I know what you're feeling right now and in the end it is kind of an odds thing that you're on the right side of. But volatility is a real mean bitch along the way!