Swap ORH for FFH?

[StubbleJumper]

Over the past year, some of us have played the game of swapping back and forth from FFH to ORH, and then back to FFH.  The reason for this is that there have been some unexplainable swings in the relative value of the shares.  For example, the price ratio of FFH:ORH on February 19, 2008 was 8.3:1.  By September 3, the FFH:ORH ratio had plummeted to 5.5:1.  A month later, on October 2, it was back up to 8.2:1.  Earlier this afternoon it was waaaay back down to 5.85:1.

 

Now, I'm not a major believer in technical analysis, and I don't believe in witchcraft.  However, over the course of a single year, the relative value of FFH vis-à-vis ORH dropped 34%, increased 49%, and then dropped 29% again.  For me, this is completely baffling that the relative valuation should swing like this, but I have chosen to try to exploit this rather than explain it.  I sold a pile of ORH last week and used the proceeds to buy FFH.  It looks like I was a bit early to make the switch, but I'm expecting the FFH:ORH ratio to head north after earnings are released later this week.

 

Is this a fool's game, or is it a way to make a few bucks in an irrational market?

 

SJ

[Redskin212]

Stubblejumper,

 

I don't think it is a fool's game or I'd be a fool, at least with my trading in and out of FFH and ORH.  I was holding FFH and I thought ORH would get to $50 before FFH would get to $400 - similar to your thesis.

 

Nov/07 - Sold 200 FFH at $297.50, purchased 1500 ORH at $38

Dec/08 - Sold 1500 ORH at $50

Jan/09  - Purchased 200 FFH at $308 (and picked up $8 dividend)

 

So today I am still holding the 200 FFH at about he same price as Nov/07, however picked up an extra $18K on the ORH holding or 30%.  I continue to hold the FFH as I think it will get to $400, before ORH gets to $65.  I realize this is an isolated trade and not reflected of my entire portfolio - but I did make a consious decison to trade in and out of FFH and ORH, so I like the game!

 

Redskin