Investors who played it safe in 2005 with broadly diversified market index funds were more likely to end the year in plus territory than were those who selected investments among the corporations that comprise the Inman Index.

At year-end, the hypothetical Inman News index of 10 publicly traded real estate brokerage, mortgage and technology stocks had lost 35 percent of its value.

Investors who played it safe in 2005 with broadly diversified market index funds were more likely to end the year in plus territory than were those who selected investments among the corporations that comprise the Inman Index.

At year-end, the hypothetical Inman News index of 10 publicly traded real estate brokerage, mortgage and technology stocks had lost 35 percent of its value. The Dow Jones Industrials closed the year just shy of breakeven while the Standard and Poor’s 500 and Nasdaq Composite indices gained 3.8 percent and 2.5 percent, respectively.

The big winner among the Inman Index stocks was Homestore, which gained $2.12, or 71 percent, per share. The company reported profitable second and third quarters, an extended content distribution with American Online and a private equity investment of $100 million. As a Fool.com financial columnist declared: “Homestore.com is no longer a desperate fixer-upper.” Credit CEO Mike Long & Co. with an impressive turnaround from Homestore’s bad old days.

Another solid success was IndyMac Bank, which posted an annual gain of $4.35, or 12.6 percent, per share. The low-profile company reported solid financial results throughout the year. Washington Mutual was also in plus territory with a gain of $1.33, or 3.2 percent, per share while Countrywide handed investors a loss for the year of $2.50, or 6.8 percent, per share. Higher interest rates and Hurricane Katrina were among the factors that affected mortgage-related companies in 2005.

Wall Street also frowned on Fannie Mae and Freddie Mac, although Fannie’s loss of $22.46, or more than 30 percent, per share was far worse than Freddie’s decline of $7.64, or approximately 10 percent, per share. Fannie suffered from a flood of adverse news, including early announcements of an earnings restatement of billions of dollars, a cut in its dividend and a management shuffle. An MSN financial writer described the company as “a train wreck moving in slow motion.” Fannie and Freddie also faced uncertainty over proposals that would have tightened federal regulation of their businesses.

Shares of ZipRealty and HouseValues also were in the red at year-end. ZipRealty’s shares lost slightly more than half their value in 2005 as the company reported a second-quarter loss and investors apparently were disappointed even with much stronger results in the third quarter.

HouseValues fared better, but was still in negative territory with a loss of $1.61, or 11 percent, per share at year-end. The company’s share price fluctuated throughout the year, trading as low as $10.75 and as high as $20.29 and closing at $13.04.

It’s not unusual for small-company shares to experience volatility in the stock market simply because they are small companies. Zip has a market capitalization of only $170 million while HouseValues isn’t comparatively much larger with a market cap of $334 million. Compare those figures to Washington Mutual’s market cap of $42 billion or Fannie Mae’s $47 billion. (The biggest public U.S. corporations are General Electric, $370 billion; ExxonMobil, $350 billion; Microsoft, $278 billion; Citigroup, $245 billion; Proctor & Gamble, $197 billion, and Wal-Mart, $195 billion.)

Investment returns for Cendant Corp. and Interactive Corp. were complicated by spin-offs and corporation restructurings in 2005.

Cendant announced a complicated “de-merger” that will split the corporation into separate real estate, travel, hotel and vehicle rental companies; however, a story in the Chicago Sun Times expressed a typical opinion that Wall Street “remained grumpy” about Cendant even after the announcement. A mid-December disclosure of weaker travel bookings hurt as well. A New York Times headline read: “Travel Unit Dims Cendant’s Outlook.” Cendant’s spun-off mortgage unit, PHH Corp., debuted Feb. 1 at $21.55 per share and closed the year at $28.02, a gain of $6.47 or 30 percent.

Interactive Corp., which owns LendingTree and RealEstate.com among other holdings, acquired Ask Jeeves in the first quarter, and then spun off Expedia and other travel units into a separate entity. Expedia opened at July 1 at $24.11 and closed Dec. 31 at $23.96, a loss of 15 cents, or 0.6 percent, per share.

Marcie Geffner is a real estate reporter in Los Angeles.

***

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