Sunday, April 22, 2007

Novastar Financial - OUCH!

Full disclosure: I once owned $1,000 worth of Novastar Financial (NFI), and now I own about $100 worth. @#$%&@!

First off, it's pretty disconcerting when one of your holdings drops by 90%. I had originally purchased Novastar for its high dividend yield, and I probably pulled almost $500 in dividends off it over the last few years. Nevertheless, it clearly ranks as my biggest investing disappointment ever.

And the great part is that it's not really holding me back. Besides owning a bunch of index funds, and Fidelity Contrafund (FCNTX), I own a basket of approximately 40 stocks. Novastar represented only a small part of my holdings, and that's of course intentional. The majority of my other stocks are on the rise - this dog dropped precipitously and probably isn't coming back. (The dividend is probably toast, too). But the pain was mitigated by diversification.

I don't even diversify in the classic sense - I don't own any bonds, and I keep very little cash around. But that large basket of stocks allows me to not sweat a little meltdown like Novastar's.

At this point, I'm not sure it's even worth selling - I don't need the $100 dollars. Perhaps Novastar will be purchased and I'll recoup at least some of my money.


Mercedes Lopez said...

That's always the hope, my sister's boyfriend bought a stock without doing some research. It was going down because it was going into bankruptcy. He thought he was getting a good buy since it was an energy company. A couple days later it plummeted to about .17 cents rallied to about .22 cents or so. He had bought 1001 shares at ~2.XX so it was his biggest loser but it looks like someone was buying up the assets so the price went up (the stock had gone to penny stock status of course) and he sold and made a $14.XX profit if I recall correctly. So there's always hope... I just wouldn't count on it!

Chris said...

I think Novastar is at least positioned well when it comes to the subprime lenders. In other words, in a group of dogs, they have the best chance to somehow survive.

With that being said, I don't hold out much hope. My bet is now essentially a $100 bet that my stake can go to $200. Seems like a cheap bet to me, so I'm taking it.

On the other hand, if I sell, that would pay for 10 stock trades at TDAmeritrade! :-)

Q said...