Thursday, June 9, 2016

The RCS Effect on Parent Company Stock: Bet Right and Sit Tight

The RCS Effect is one of Mr. Stowe's most powerful and lasting legacies. Without knowing it, he's blessed many thousands of investors with the gift of confidence. We all called this, and it's playing out pixel perfect on stock charts all over the internet. If you didn't invest in MTGE, it's understandable...risky sector and all that. But if you didn't bet against RCS by shorting WAC, shame on you!

Let's go back in time, to the announcement day. Sure, there was some feistiness at MTGE a few days before, but we're not too concerned with that. You did mighty fine as a mortal: $2000 in MTGE would now be $2460. And, if you'd borrowed $2000 of shares of WAC and sold them on doomsday, you would spend just $840 to buy the shares you need to pay back the loan. If you'd been in line to get on that slide that preceded doomsday...well, I guess we're not too concerned about that, either. Just be happy that you made $460 for banking on RCS-free MTGE and $1160 by shorting WAC. You're up $1620 minus those pesky commissions and short term cap gains taxes. All indications are that it's not too late to join the fun. MTGE is climbing a stairway to heaven, and WAC looks like a straight shot to sea level, no paddling required.

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Have you had a go-round with RCS? (If you're willing to share any NPV input data you got, please let me know.(