Run! Run! The Banks Are Falling!

Been following bank stocks lately?

If so you probably don’t have much time to read this post since you’re either preparing for Armageddon and stocking up on canned beans and bullets or nursing that extreme case of whiplash you’ve picked up by watching these prices gyrate for the past week (ice helps; bullets are expensive as hell these days).

Since the Securities and Exchange Commission (SEC) is putting the smack down on folks [1] (you think they’ll fine Senator Schumer for not just writing a letter of concern to the Office of Thrift Supervision about IndyMac but then leaking the damn thing to the press to really get this party started?),[2] I’m not going to mention any other company names in this post.

But rest assured dear reader, when analysts, pundits, or whomever, are openly talking about the possibility of collapse at the bank that, according to my research, has one of the highest, if not the highest, tier-one capital ratio among the top 20 banks by assets in the United States as of 3/31/08, reason has been tossed far, far out the window (they get paid for this?).

So what is one to do?

Well, since I’m not giving you financial advice, I’ll just tell you what I plan to do.

By being careful and rational, I expect to earn sizable profits commensurate with my capital base, knowledge, and abilities by investing in banks and financial companies.

How?

If, after careful analysis of the facts, I am confident that particular companies will perform well over the next 10 years and their intrinsic value per share is well in excess of their current market price, I’ll buy those stocks in stages, build a position, and then sit tight.

If not, I’m going to put my money in a low-cost sector fund that focuses on financials and banks.

Or I might just do both.

Point being, the sky is not falling.

Everyone is just terrified that it might.

Like Mr. Buffett says: fearful when others are greedy, greedy when others are fearful.

I’ll write another post in 3 years and let you know how things turn out.

[1] See http://www.sec.gov/news/press/2008/2008-140.htm,  http://www.sec.gov/news/press/2008/2008-143.htm, and http://online.wsj.com/article/SB121614248005255151.html?mod=hpp_us_whats_news among others.

[2] The 7/15/08 Wall Street Journal has a great editorial on this issue called “The $4 billion Senator.” Page A18.

July 16, 2008 | Filed Under Investing

 

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