Monday, October 24, 2005

I will never understand why people invest with their hearts.....

Cendant (symbol CD) is down 8% today, as of the time of this post.

Why? Cendant announced today that they are breaking into 4 seperate companies. Their reasoning is (I am paraphrasing) that the market continually greatly undervalues them. They continually have solid earnings...yet their stock price remains flat.

Of course I have been preaching this since I bought them for the first time 6 years ago.

So they are splitting up so investors can better understand their businesses (travel, car rental, real estate, and hospitality). They have recently sold their marketing division for 1.something billion, and they have spun off several companies. They are restructuring so investors can understand how strong they really are. They assert that each new company is going to have solid financial statements, and investors will clearly see how strong they really are. In this case the parts are greater than the sum, because people don't understand the sum.

So why is their stock being battered today? For the same reason that they are dividing. Because people do not understand them.

If I had any cash I would buy them today. Unfortunately I don't have cash today. (33% of my stock/mutual fund portfolio holds Cendant, am I selling today...hell no!....its on sale!!!!)

Buy it, and hold it for a few years, and then thank me.


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