Saturday, August 11, 2012

Why I'm hanging on to Chimera (CIM)

One of my stocks, chimera (CIM) is a real estate investment trust holding both agency and non-agency (not backed by the government) mortgage backed securities.  The non agency portion poses a lot of risk, and with interest rates so low plus a poor housing market, its tough to make a lot of money on such speculative investments.  Further, this particular REIT has failed to report results since the third quarter of last year, which has caused investors to become nervous and sell.

How has this affected me?  Well, I purchased CIM at $4.02 a share back in 2009, and at the time, it was paying a dividend of 11 cents a share per quarter.  Now, its trading at $2.38 and paying 9 cents a quarter.  Most dividend investors probably would have cut bait on this stock when the dividend cut, but I decided to stay the course.  Why?

Well, a few reasons.  Lets look at the fact that until earlier this week, CIM had failed to report results for almost a year.  I felt like the stock was oversold based on this results reporting, and it looks like I was right:  what they reported this week wasn't pretty - net income fell by 695 million in the past year, yet the stock went up 8.3% just due to the fact that the report was filed.  This tells me that there was certainly a "wall of worry" phenomena going on with this stock.

But simply reporting results does not make a good stock (obviously).  So what keeps me on board?  Well, I still have faith in the management.  CIM is owned by another mREIT, Annaly (NLY), which is one of the older, more successful REITs.  Secondly, the housing market cant stay down forever.  I honestly feel that with the help of decent politicians, we will finally get back to the old mantra of "if you can't afford a house, you can't buy one."  Not everyone needs to own a home, it shouldn't be a dream of our politicians!  I feel as we slowly get back to this line of thinking, less and less "bad loans" will be made to purchase homes, and companies that make money from these loans will recover.  Finally, its not like I'm talking about a lot of money here, the initial investment was only $6K.  I acknowledge its a risk, but certainly not one that can wreck my portfolio.  Trust me, if I took my portfolio to have it analyzed by an "advisor" they'd have far more problems with it than my investment in CIM.

What do you think?  Would you have sold before now, right now, or hang on like me?  

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