Making Money Before Housing Crumbles

In response to the Master Kass on our sister Web site, Street Insight, I feel compelled to update readers on my outlook for homebuilders and the housing market.

I am not bullish on the housing market. I think one can get rich shorting New York City condos. I was not bullish last summer when I recommended KB Homes (KBH Quote), which is up 100% since. I fully expected the housing market to decline modestly in units for a few years.

However, the shares were down, and cheap when I purchased them. They have been monster stocks since, short wreckers if you will. I liked the stocks, even with my negative outlook for housing.

For sophisticated investors, the concept is called discounting. The builders were discounting a collapse in the housing market. Anything less negative, like a stronger market, would drive the shares higher. And that is exactly what happened. ...