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| Taking a Cue from Stock Fund Managers |
| Written by Jonathan Smoke | |
| 06.04.2007 | |
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Discuss this article on the forums. (0 posts) Lately I have been discussing the virtues of applying a form of portfolio management to residential housing investments. Whether you are a local builder, a regional developer, a land banker, a lender, or a national developer, your land holdings represent a portfolio. And we’ve got the benefit of decades of research in the broader world of equity investments to apply portfolio management concepts to land investments.  Perhaps with better intelligence, the whole industry will some day soon talk in terms of optimizing risk adjusted returns, chasing alpha, and beating relevant market benchmarks.Today I was reminded of this by an article in the Wall Street Journal on how top global fund managers choose investments. The article described the philosophies of three top managers, but it was the third one described, Robert Gensler, who manages the T. Rowe Price Global Stock Fund, who piqued my attention: “Once in real-estate development, he sees stocks through the prism of that experience. ‘Here's the secret sauce,’ he says. ‘The neighborhood creates the opportunity in a piece of real estate, and the industry creates the opportunity in a company. But in stock picking, change is when you get your opportunities. I love things that are changing.’
Of the three managers, Mr. Gensler has been most bullish on the U.S. recently. … The fund's relatively large U.S. allocation stems from his belief that some industries have been hit disproportionately hard by concerns about a slowing economy. He thinks that has knocked stock valuations lower than they ought to be for home builders and construction-equipment manufacturers, among others. The fund owns home builders D.R. Horton Inc. and Hovnanian Enterprises Inc., and bulldozer manufacturer Caterpillar Inc. ‘I don't give two hoots about today's housing starts,’ he says, referring to increasingly bearish government data on house construction. ‘I care about how the stocks will trade in 2009.’” I couldn’t agree more with Mr. Gensler regarding what creates opportunity and the importance of the time horizon. This applies even more significantly to housing, as the investments with the most return potential cannot be developed overnight. Indeed, it may be 2009 or well past before unit deliveries begin on investments made in 2007. So for many reasons we should be focused on 2008, 2009, 2010 and beyond to determine where to focus residential housing investments. Here’s to the intelligent investors, developers, and builders who are actively trying to figure out what that optimal portfolio should be! 
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