wearmanyhats

Since I pointed out the merits of buying Arbor Realty Trust (ABR), (see ”Better a live chicken than a dead hero, 7/24/08)  the darn stock has taken off like a shot, with me sitting in its dust looking very sad indeed. Hopefully next time I wil grab the stock that insiders are buying heavily. Twice now I’ve resisted doing that, once with another stock, and I am hopefully getting smarter.  Perhaps you have a favorite real estate stock that you’d like to buy, but like me, you are waiting until the sector shows that the coast is clear.

Yeah, right!  Wouldn’t it be nice if all the signs were so obvious? Obviously the huge drop yesterday showed that the real estate and financial sector is far from bottoming out.  But there is something you can do to protect yourself in cases like this. 

First, chose the real estate stock that is has a history of always paying the dividend, and increasing it.  Second, make sure all of the financial data is sound, then make sure the dividend is over 15% or, if you are very lucky, over 20%.    Now even if the sector drags this good stock down with the rest, hopefully it will keep on paying.  And since the insiders are buying like crazy, I figure it will be a strong company.

Finally, put equal amounts into Ultrashort Real Estate Proshares (SRS), especially if you feel the real estate market is going to continue to go down.

Thus my pun:  the double hedge is the shorting of the real estate market, and the sweet dividends.  At least the bottom line of your portfolio should not look quite so dismal with those two hedges putting the breaks on the losses.

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