"As you will be aware, there has been a wholesale slaughter in the mortgage REIT space recently. This did not happen immediately after QE3, but only over the last ten days, since Obama's re-election. I find this very surprising considering that at least the best of these companies offer stable performance and double digit yield, which is very hard to come by these days. Furthermore, unlike for most companies, there is a very precise measure of a reasonable price, namely their book value, published quarterly, and the best companies like AGNC have been able to consistently increase their book value quite dramatically over a 5 year period and through a variety of challenges (even the 2008 crash).

"The business model is complicated but there is a very high level of information, and by listening to the quarterly conference calls and presentations at analyst meetings, one gets a very strong impression that AGNC and its sister company MTGE are conservatively and intelligently managed and have the situation very well under control. The same applies to TWO, which is though more adventurous in its policies. In particular the effects of rising mortgage prepayments (a consequence of QE3) have been very largely mitigated by investing in mortgage types which are protected against prepayments, and the portfolios are extensively hedged against interest rate risks.

"All in all a terrible reminder of just how unpredictable markets are, and how quickly irrational panic can set in. It is very hard to know how to protect oneself against this kind of thing, since stops are no longer feasible because of the possibility of a flash crash. I suppose one just has to look very critically at any good-looking chart, every day, and ask oneself the question "has the uptrend lost consistency?", and if so, get out, never mind how good the fundamentals are. If only I had done that!

"I would appreciate any comments you care to make on the subject."

David Fuller's view Thanks for an informed email on mortgage REITs and your third paragraph which addresses the challenges in a volatile environment.

While you know far more about REITs than I do, and I congratulate you on your many successes in this sector, I will take exception to your "irrational panic" comment in the opening sentence of the third paragraph.

As I see it, US Republicans were the main owners of these shares and their financial press (WSJ & FOX News), felt or certainly hoped that Romney would win the election. He did not and holders of many of the best performing US equities have been selling and taking profits ahead of the anticipated increase in Capital Gains rates shortly after President Obama is sworn in once again in January. If my hunch is correct, many of these shares will lose downward momentum before that event, followed by strong rallies as previous holders repurchase.

Needless to say, this was a difficult and largely one-off event in our personal experience and it is always far easier to appear clever after the event. Nevertheless, rather than asking yourself every day: "has the uptrend lost consistency?" - a tactic that would increase stress and probably have you buying in and selling out far too frequently in this high yielding (17%) REIT, why not just look at the weekly chart of AGNC and others in relation to their 200-day MA?

It had become quite overextended relative to its MA in September, just before the US Presidential Election. I believe you also maintain total return charts for some of these high-yielding shares. They will have looked even more overextended relative to their 200-day MAs. Would that not have warned you, as we have seen on so many occasions over the years, that a period of mean reversion back towards the MA was very likely, once a downward dynamic occurred?

Lastly, please do not beat yourself up over this because that would not be constructive. You know that investing is a challenging activity, but highly rewarding over the longer term, especially if we calmly assess and learn from our experiences.