Bought LGIH

I have been watching LGIH for a long time. I still have qualms about the quality of earning due to the high debt.

However, even with opening communities in new markets and in places with different cultures than in Texas they have executed as the said they would.

I tried to get my wife to review the financials before we bought, but she said, “Buy” last time she said “Buy” and I didn’t, I didn’t buy Tesla at 240 because the I thought it would dip. It is 340 something now and I am still waiting.

We need to look at the financials on AT&T, my biggest holding, and because of my situation it is not for sale. In addition we want to look at Blackberry, and I Robot just came up.

At the rate we are going we should be fully invested in another 6 weeks. We still have about 45 percent cash in the aggressive portfolio and I need to get rid of Enerplus. I promised my self I would sell it in July.



Hi there, Qaz,

Since you already purchased, but now have qualms, I’m not sure if you want a second opinion or not. Just in case you do, here’s my 2 cents’ worth.

In my slave (working) days, I owned a small construction corporation specializing in new homes on acreages. We became rather successful but hit wall after wall while growing until I met a wall I chose not to breach (and I think most successful builders do.) You said you have qualms about the debt for LGIH. Good call. The wall I hit was due to the huge necessity of always borrowing while growing. Even with most of our buyers owning their own land, just keeping projects running and payrolls met, the demand for cash was incredible. While banks considered us as conservative and “well run” we always had millions of dollars of debt burden. Too much for my little 20-30 employee operation. I can’t imagine the pressure on a larger corporate builder. My gorgeous family home and everything I owned was always seen as collateral to lenders of course, and growing the “next step”, whatever that might be, was tempting, but always required even more leverage to move up to larger crews, more equipment, more marketing and especially more land. When I sold out, people could not believe I would so such a thing just when we were hitting stride. But I have seldom had any serious regret and any I had were certainly not due to my decisions regarding increasing to the next level of growth and debt.

It seems to be almost impossible for a builder to plow enough profits back into the business to be able to leverage land purchases on a sizeable scale on very favorable terms. There just isn’t enough profit in construction to do this very often, and exceptions to the rule are few and far between, and usually occur with very small conservative long-time builders who have resisted temptation to grow, grow, grow have plowed most all profits back in the company. Most have to live off the enterprise while growing. And it’s not like banking where growth just brings in more money to make more money, almost automatically, as close to a sure thing as there can be. There are no set rates of return on land, and how many times have we seen a builder’s land purchases worth “a fortune” turn out to be worth pennies on the dollar when met by unforeseen circumstances (“surprise” recessions, demand unexpectedly dropping off a cliff, cheaper competition, etc.?)

Debt and to a lesser extent financial transparency, were my concerns with LGIH, and I later kicked myself for ever considering it - who should know better than I? - but I bought some, sold it weeks later, and have been happy with the decision since.

Apparently LGIH is experiencing huge demand, so maybe they will profit tremendously as a result. But there are few trends more cyclical or more volatile than housing demand. Maybe their little corner of Texas may prove the exception to the debt equation. (Huge growth demands huge debt.)

With mortgage interest supposedly on the way up (haven’t really seen it yet, in spite of the forecasts for 2-3 years now) I think there are many and better industries to profit from than new home construction, now perhaps more than ever. I know you will make the best decision for your needs, so feel free to ignore my biased opinion. After all it’s just a small data point at best.

It seems you always seem to take the hardest-to-measure cases you can find to invest in. I’m not sure what to think of that, but I know your are one brave investor and I wish you the best.



It seems you always seem to take the hardest-to-measure cases you can find to invest in. I’m not sure what to think of that, but I know your are one brave investor and I wish you the best.


I don’t know about brave. The three things that put me over was that LGIH actually has a profit, and a good YPEG, they executed in a new market, (The Pacific Northwest) and they are past the squatting to rise thing. (See Swim with Sharks by Harvey McKay)

The qualm is not the debt so much as I actually took a short course in Financial Analysis. The one thing I remember was that there are earnings and then there are earnings. The higher the leverage to get the earnings, the lower the quality the earnings are.

If you look at Verizon and AT&T you keep asking yourself, “Why does AT&T have a higher yield?” The reason is they have a higher leverage which lowers the quality of earnings which suppresses the stock price.

However your point that the debt demand never stops may have me sell this one when I get to a fully invested position.


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I posted about buying LGIH earlier this week as well. My reservations were many and you illuminated the big one being debt. Dan makes great points and your points about leverage are excellent as well. What sold me on LGIH is just how well they are executing, even in the newer markets, as you pointed out. The execution by management really sold me as their predictions on sales have come out almost exactly as they re-iterated in the last conference call despite many stating they could not achieve those numbers. Also, the YPEG is low and the forward P/E is under 8 last I checked. Numbers like that in this market are hard to come by.

Do I expect a double from here over the next year like my Shopify or even a 50% return like Nvidea? No, but I believe it is good place to put my cash and get a market beating return over the next 1-2 years and maybe longer.




It was leveraging to buy more land, more land always, that pretty much did in the residential builder I was working for.

We were frequently ready to pay a bunch of subs or whomever, when some lots would open up. We would end up buying the lots, borrowing more money to pay the existing subs and sending stress levels through the (un)built roof!

Once had some lots that had tripled in value within a year. Never sold them. Waited to build them as we were building elsewhere. Then, poof, just like RaptorD2 stated, it was worth pennies. Couldn’t hardly give it away. Shortly thereafter, I’m sent packing…

I’ve been in commercial/agriculture/industrial ever since. We don’t buy the land. We don’t do specs, either.

Am I invested in LGIH? Ummm, yes. But only a limited percentage. As much as I would like to increase the position some days, I won’t or can’t seem to. The main reasons are cyclical industry and land costs.


However your point that the debt demand never stops may have me sell this one when I get to a fully invested position.

I wouldn’t be influenced so much by my thinking, Qaz. Someday there will be a public homebuilder that makes a profit for shareholders, and LGIH just might be the one. As I said, it’s just one data point among many. Besides, I hope they make it big. With your money on board, they probably will. :slight_smile:



Last time she said “Buy” and I didn’t, [was when] I didn’t buy Tesla at 240 because the I thought it would dip. It is 340 something now and I am still waiting.

Hi Qazulight,

My thoughts are that if you decide to buy a stock, buy a part at least now. Don’t wait for a drop. You’re buying it because you think it will go UP, after all. (This isn’t in reference to Tesla, which I haven’t followed in a long time, but as a general principle.) If you made a first purchase and it then does dip, you can add a little more, and EVEN BETTER, if it starts up, you can add to it. But if you haven’t taken that first bite, it goes against human nature to feel good about taking the first bite at a higher price than you could have had it a week ago. You want to prove to yourself that your were correct, so you keep waiting for that dip.

(In the Knowledgebase I wrote something like “When it’s at $50.00 you won’t remember or care whether you paid $10.50 or $10.25, but you’ll be kicking yourself if you never bought it”.)




I have found that advice completely right.

If the company actually comes through the screen, DD and my own ratios, I force myself to buy at least a 25% tranche of the final book cost target. These are tough criteria so there is no point in doing the work unless I take the result seriously.

If everything is fine except for some aspect (say the co. fails marginally on debt, or OM could be a touch better, or the price is definitely high) I would buy what I have seen called ‘a research position’, an expression I rather like.

Unless it is a general market fall however, I never, absolutely never, buy without RS. There is a reason for that and it is straightforward: although valuation is critical to me, I am not clever enough to be a ‘value investor’.


I just saw the subject on the previous post was LGIH, which I should have perhaps mentioned is not a holding.

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…I never, absolutely never, buy without RS.

Sorry, Strelna, this seems like it was an important point of your post, but I cannot for the life of me figure out what “RS” is?


RS = Relative Strength (technical analysis).


It seems the closer one is to an industry, the less inclined you might be to investing in it. I spent my career in IT at a very large corporation. As a result I’m extremely reluctant to invest in information technology that services the internal IT business organizations (security, big data, etc.).

My portfolio is tech heavy, but the companies I like to invest in are ones with end customers who are not in IT departments.

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I suppose relative strength is technical analysis in a way, but I think of it more as a fundamental input because it is a factual historical comparison, not an interpretation of chart lines to support a future forecast (which is what I understand TA to be).

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It seems the closer one is to an industry, the less inclined you might be to investing in it.

Oh, right you are, I’ve noticed that too, like chemists always seem to lose on their pharma stocks. Maybe it’s that we can see so many possible roadblocks that others can’t, that makes it harder to invest in one’s own field. I’ve invested in home builders several times earlier in my investing; Who could sort out the wheat from the chaff better than me? I ultimately realized (or inferred) that public corporations that built homes just weren’t the profit magnet I wanted them to be. Maybe that’s left a bias on my lens that others don’t have.

I would love to see LGIH be a big profit maker. They have some good trends flowing. While I always reserve the right to reverse my position, I will likely miss out on this one.


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