When Investment Disasters Are a Good Thing

I spent today driving along one of my favorite highways. While not exactly beautiful to watch roll by, the New Jersey Turnpike is a wonderful road on which to make a few calls and catch up with the world. I did so Tuesday afternoon and spoke at great length, about 10 exits, with an old friend and very talented fund manager from Philadelphia.

As we spoke about life and markets, he let loose a sentence that I think describes investing and speculating at its very essence. "Tim, if we want to get rich(er) we have to figure out where the destruction lies and buy."

This is one of those great sentences that contain the secret of a lifetime. An individual who bought the stock market in the late 1970s compiled untold wealth over the next 20 years. Anyone who purchased utility preferred stocks yielding 15% or more trading at half of par has been paid handsomely for his adventures. The same holds true for those who bought into profitable technology stocks trading for less than net cash at the end of the Internet explosion. Disaster creates opportunity in financial and asset markets.

Where is the disaster today? It is not yet in stock prices, nor has it been at any time so far this year. The market is only down a little over 11%, hardly disaster or destruction. Clearly, there is destruction in real estate. The problem with real estate investing is that you give up liquidity and the carrying costs can be higher than most want to manage.

Fortunately, there are ways to play real estate that do not involve taking title to office buildings or condo complexes. Hotel companies that own the property, such as Hersha Hospitality Trust (HT Quote - Cramer on HT - Stock Picks) and Sunstone Hotel Investors (SHO Quote - Cramer on SHO - Stock Picks) have seen their stock prices drop sharply during the real estate and stock market downturn. They own the properties, have manageable debt levels and pay hefty dividends while you wait.

« Previous Page

1 2 3

Next Page »