Stock Market Mistakes : Buying Fannie Mae and Freddie Mac

by | Sep 27, 2008 | Asset Management, Stock Market Comments

A client called me today, curious about buying shares of Fannie Mae and Freddie Mac.  He said, “I’m sitting at home, watching the stock market channel and I’m amazed.  I am seeing all of the shares of Fannie Mae and Freddie Mac changing hands.  The stock prices are so cheap.  But, Tom, I thought these two companies were gone?  Can I still buy them — and maybe make a few bucks on them?

It’s true.  Shares of Fannie Mae and Freddie Mac still trade…and amazingly…they trade at prices between one dollar and two dollars a share.  If these two companies have, essentially, been “nationalized”… how can these stocks still be worth anything?

They’re not worth anything.  I have to believe (my opinion) these trades he has seen are purchases that are covering previous short sales, and nothing more.  We saw a similar event years ago when Enron had been completely wiped out, but yet their stock continued to trade around one dollar per share.

My answer to the client was… “yes, you could buy these stocks.  But I won’t let you do that.”
I was very pleased to hear him say “that’s why I have you — looking out for me.”

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