Risks & Rewards of Investing in FRE & FNM

I bought FRE & FNM at about $0.60 and I have made 150% paper gains for these two stocks to date. Despite getting frequent reminders from my buddy to take profit, I am sticking to my original trading plan.


My trading plan
• Stock price target: $25 (FRE historical high is about $70, FNM is about $80)
• Time frame: 3 to 5 years

Potential Rewards
• 4200% (from $1,000 to $42,000) each stock


Risks
• I can lose EVERYTHING if FRE & FNM bankrupt or delisted from the stock exchange due to company re-structuring to clear all the bad debts & toxic assets! I am prepared to lose a total sum of $2,000 on FRE & FNM when I first buy the stocks.

My Risks Assessment on why I think this is a good bet!
(This is more like a gambling instead of calling it as investment!)

• FRE & FNM will not go bankrupt as US government has spent some much tax payers’ money to bail them out. They should have gone bankrupt long time ago if US government wants to do so.

• Real estate is one of the three main pillars of the economy recovery besides transportation/communication and finance sector. FRE & FNM play very the important roles to ensure real estate and property market in proper recovery path.

• FRE & FNM may not go back to previous high or reach its past performance. There is an extremely high probability the price will go up in the long term and the upside potential is huge!

Thus, in my opinion, FRE & FNM are good investment with calculated risks. The profit potential is extremely handsome even though it does not reach my price target. Of course, the assumption is they will not get de-listed during my investment time frame. Hope Murphy’s law does not applied here!