AAMC update Aug 2015

I previously described AAMC as a “royalty on yield chasing“.  AAMC’s economics can potentially be extremely attractive because asset managers can generate extremely high returns on capital.  Currently, the stock is trading at very depressed levels.  Two explanations for the share price:

  1. Luxor capital and other major shareholders may be liquidating.  Luxor suffered a lot of losses on the Bill Erbey family of stocks.
  2. AAMC generated close to no fees in the past quarter.  Either you think that management screwed up or that there is a temporary hiccup in revenue recognition.  Rental revenue, selling the home/mortgage, and marking the asset to BPO value all generate GAAP profits.  There is a time period after a BPO (broker price opinion) and before a home is rented out (or sold) where the home will not generate any GAAP profits, which can result in less fees for AAMC.

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My approach to diversified shorting

The investing strategy I understand the best and feel most comfortable with is diversified shorting- taking a large number of very small positions in common shares of crappy stocks.  I mainly short stock promotions and pump and dumps, where I think I have a sizable edge over other market participants.  The performance of my strategy backtests to ~15% from May 2014 to August 2015.

The key to making this strategy work is being able to quickly find a large number of awful stocks.  This is possible because stock fraud is an industry.  Scumbags network and share knowledge with each other.  Fortunately for me, this makes them really easy to find.

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