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Redwood Trust, Inc. Message Board

  • thedimeguy thedimeguy Aug 7, 1998 10:51 PM Flag

    Limited downside?

    I am not an experienced REIT investor so I may be
    a bit off-base here. However, with RWT trading at
    approx. 75% of Book value, it seems to me that it would
    have limited downside in an otherwise volatile market.
    We may need to wait for the upside, but when the
    yield curve starts to curve again, I think we will see
    some movement. This stock seems to me very similar to
    the Oil stocks. Good value play - need to be patient
    and wait for the envirnoment to turn. Am I fooling
    myself or is there some logic here?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • I view the approval of a share buyback program as
      an admission that the company can neither find nor
      generate via conduit mortgage assets at attractive levels.
      The problem is common to the entire REIT industry
      right now. Too many players are chasing the same
      assets, particularly in the commercial area. These guys
      are not the only ones looking for cheap residential
      mortgage assets, not by a longshot. I agree that the lack
      of buying by insiders is significant. A share
      buyback is a purchase of shares with stockholder's
      equity, and does not send the same signal as management
      putting its own money where its mouth is.

      I always
      warn people who are ready to make decisions to buy
      these types of stocks based on their book value. Book
      value doesn't mean squat. It's a function of spreads
      that existed at the time of the purchase of the
      mortgage assets and some assumption about prepayment
      speeds. As we have seen, actual prepayments can be
      totally different from the assumption, and market spreads
      can change due to supply/demand and yield curve
      conditions. Both can lead to big restatements and
      write-downs. Don't buy it just because it's at a discount to
      book value.

 
RWT
19.01-0.08(-0.42%)Nov 21 4:04 PMEST

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