Let's Revisit Some Sell Rules

I am a firm believer in William O'Neal's tenets as it has allowed me to be successful in the market place. In reference to Countrywide Financial (CFC), there are significant warning signs in relation to the CEO and stock behavior.

In "The Successful Investor" by William O'Neal, a review of some tall tale sell rules revealed the following:
1. Be ready to sell when the media begins to show the CEO on the covers of the magazines, writing glowing stories, or the CEO makes frequent appearances on TV such as CNBC.

"The time to worry is when they do. And when they get around to putting a picture of the CEO on the cover, the time may have come to consider selling. Remember, the market is a contrary animal, and when it is finally obvious to the masses, it seldom contiues to work. Markets move to fool and outwit the majority" Page 93.

How many times have we seen Mr. Mozilo on CNBC with Maria Bartiromo, Jim Cramer? Last week's Barron's Magazine coverage of very best CEO's had Angelo Mozilo as one. Furthermore, Mozilo is now scheduled to re-appear on CNBC a full one week after he appeared on two segments on CNBC!

2. Countrywide has said countless times, during this mortgage/housing meltdown, that they expect to emerge stronger and bigger as a result of other competitors being driven out of business. Their stated goal then is to become the biggest in the mortgage field and has aspirations of transforming into a savings and loan bank.

"A warning light should also go on when a company indicates it wants to be the biggest in its field. What usually follows is a merger and acquisition binge that leads to a hangover from which the original company rarely recovers." Page 94.

We know that Countrywide has made some large scale acquisitions from the home builders including Kaufman and Broad and other strategic alliances that thrust Countrywide into "other" segments of the lending business. They have also formulated Fullspectrumlending.com for subprime mortgages, despite their assertion that their exposure into this arena was limited. This acquisition binge that they went on few years prior, has diluted shareholder value. Their arrogant posture regarding being the biggest in the field of mortgage lending will ultimately hurt them and it is happening right now.

3. Corporate extravagance can be seen in Mozilo's membership to exclusive golf communities and David Sambol's recent pay package includes country club memberships.

"Also keep an eye out for signs of extravagance-the corporate equivalent of conspicuous consumption." Page 93.

I suppose you can add to that the generous stock options granting to its insiders as well as "extravagent" rate at which it is being exercised should be another red flag for this company.

I am especially concerned about the frequency at which the CEO appears on CNBC to do "damage control" or "pump" up the stock. When the overwhelming evidence points to significant issues within the company, the media, financial pundits, investment banks, seem to be complicit in trying to prop this company up. But luckily, truth will become truth no matter how much spin is inherent within this stock.