[critikal]

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I think there is some value in subprime, the problem is it's a lot of work to figure out where. I bought some DFC and made some nice profits and sold most of it before it replunged. I'm not going to buy it back until I do my homework on it in more detail now that I better understand these businesses.

The company I'm referring to in my first post is out of business and the market apparently thinks it's bloated corpse is worthless. It's been a great learning experience, I bought early before I really understood it and as it declined I've been constantly reresearching it and learning more.

Effectively what you need to understand is that most mortage/lending companies carry huge assets (securitizations) on their balance sheets that they don't own and huge liabilities are are totally non-recourse to them.

So you have to carve out a "pro forma" balance sheet of what they really own/owe. Then you look at the "stub value" of what cash they can reasonably get out of their securitizations. The securitizations are separate companies and you need to get their prospectuses and monthly reports to tease out how much cash flow they can generate and what collateral will be left over when it's closed. In some cases it's clearly nil, in some cases it's murky, and sometimes it's obvious that the parent company is going to get some cash.

Lots of work. But I think it's rewarding. I'm down $70,000 so far, but if I'm right I'll end up with a substantial profit by next year.

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And what if you're wrong? I personally have probably not done anywhere near the amount of research on the sub prime market as you have, but to paraphrase Keynes- the market can be irrational longer than you can remain solvent. You expect to make back your basis on dividends, but isn't it possible (and imo, likely) that this "crisis" will force your company to cut dividends? You've already said that one went out of business.

Perhaps I'm wrong but my view of the value investing strategy is that you make purchases with very little downside. You say you've already lost $70k, which is apparently significant to your portfolio. Dollar amounts don't actually mean much- what percent of your portfolio have you lost in these investments? What percent of your portfolio is in these mortgage related companies? Going against popular view can be quite profitable, but the view is usually popular for a reason. I'm by no means an expert on mortgages, but the experts sure seem to believe that a crisis is on hand.

When the S&P500 was trading in the 700s in 1997(?) Greenspan said that the market was far too optimistic, yet we had a huge bull run for the next three years. The market as a whole has only been showing weakness about the "lending crisis" for a couple of weeks. Reports that I've read on the housing markets seem to indicate that barring some sort of intervention, the downturn will extend into 2009. Are you planning on adding more and more money into your positions (which could be black swans) while they keep going down?