“Stocks are bought on expectations, not facts.” – Gerald Loeb

Yesterday was a good day for investors in Home Capital Group (TSX: HCG). 

The struggling company just got a bailout from Berkshire Hathaway (NYSE: BRK.A), owned by Warren Buffett. 

The share price of Home Capital lost nearly 90% of its value from its peak in 2014 to last month’s trough. The stock has been a pain for long-term investors to own. In comes Warren Buffett which agreed to indirectly acquire $400 million of HCG common shares at a discount.

It’s not a mystery that Home Capital Group was on its knees after being under investigation for misleading the general public with tampered documentation for a portion of mortgages as well as being under the constant attack of short seller Marc Cohodes, who is clearly not a fan of alternative lenders and their predatory nature.

Now, why am I short-term bullish on this company? The same reason why everyone is excited about it. Warren Buffett.

If you don’t know, the stock market is primarily run by emotions. Good news pushes a stock up, bad news, down. Both of those companies could be great companies but because of news, investors and traders bail.

The Canadian housing market is still messy so Home Capital being bailed out won’t ensure a sunny sky. We have a housing cycle right now. Does Buffett take bancruptcy off the table? Yes. But can he change the housing market? No. Buffett does not lose money on this deal unless the stock price dips below $5. Think about that.

Investors are on a Buffett high and I will be taking advantage of it. Warren Buffet knows this. For this reason, I will be exiting the ownership of this stock at $25 per share and not look back. If the stock goes higher or not, I will be content because I am not a gambler, I am an intelligent investor. 

I hope you are the same. 

Until next time,

Live Long and Prosperous.

J.M.

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