Coping with Investment Nerves

It is interesting how, on a reasonably substantial trade such as my long position in GGP, even after so many years of investing I still myself effected by emotion. Having steadfastly held since early December 2008, and increasing my position as the stock fell to $1, until now I have had few concerns. However with global markets continuing to fall hard this week, GGP now sits priced at a mere 45 cents - back to near its lowest ever price. I made the mistake of calculating my paper loss: currently about £54,000.

Of course being an unhedged trade is the root cause behind that figure; I have equal upside and downside exposure here, which is never desirable. However without access to short facilities or options (outside the bank I work for), my choices here are limited. Enough to make me look at that unrealised loss and think the usual: "ouch, my net worth is lower by x amount", "God, I wish I had never got into this" and "if only I had waited until now, I could have bought TWICE as many shares for my money!"

Falling prey to such thoughts is a fallacy. Nobody can 'know' the short-term movement of stocks (despite confident assertions by junior trader). With hindsight my only wish is that I had acquired my position in GGP more gradually to give a wider spread position - that would have given me a better opportunity to take advantage of its steady falls to date. Still, to put it into context, should the price move back to where it was 5 weeks ago now, I would be sitting on an unrealised £35,000 profit.

That is a big 'if' of course. At present the reason for the increasing decline is that other investors are acting upon their own fears that GGP will probably file for Chapter 11 and that common shareholders will lose everything. I have to constantly remind myself of my previous analysis on this, and that fundamentally nothing has changed to date.

As such, I am not going to do anything - although I am toying buying another £10k's worth of stock at these low levels. An RBC Capital analyst summarised the situation GGP faced relating to the credit market seizure and refinancing the Las Vegas malls:

"Basically we had a very large, very successful company asking banks, insurance companies, anyone who is interested, 'Please lend me money on two very, very good retail properties.' And the lending community simply said, 'No.' "

I recall mulling over the psychological aspect of all this some time ago; that when GGP stock cooled off again from the period in which I first purchased, that fear would possibly reassert itself and push the price back down. I toyed with selling in the January rise - which turned out to be from the hedge fund Pershing Square making further substantial purchases - but decided the $2.25 price was too far below my target exit price.

Of course with hindsight, I should have sold then and bought now, but if we could see the future we would all be millionaires very quickly. It seemed quite possible that the price would stay in the same range as December, and at any moment could increase significantly. Quarterly earnings are on Monday, mall purchase deals are still potentially out there, and there is potential for government refinancing of the CMBS market through the starting up (at last) of the Term Asset-Backed Securities Loan Facility (TALF).

One thing's for sure - the GGP pressure pot is close to boiling now, and something is going to blow and start to move this whole situation further. I am inclined to believe now that it will be through government intervention, given the entire commercial real estate sector faces these same refinancing issues in 2009/2010.