Waiting on Buffet?
Posted on | September 15, 2008 |
Money Grubbing Lawyer asks if the time is right to invest in banks - on the very day the DJIA opened 300 pts down in the states on news of Lehman Brothers filing for bankruptcy and BofA buying Merrill Lynch & Co.
Is MGL insane?
Or, to (perhaps) quote Homer J. Simpson, “Insane like a fox?”
It’s an interesting question indeed, as financial stocks have been absolutely hammered over the past 12 months or so. In fact, a recent article in Kiplinger posed the same question. Guessing when the financial sector will rebound seems to be the choice of speculation among investors these days, right behind guessing the next direction of oil prices.
Two things seem to be commonly tossed around as potential indicators to the bottoming of the financial landslide:
- A big fish needs to go under
- Warren Buffet needs to take an interest.
OK, I’ve only seen that Buffet bit in Kiplinger’s, but it got me thinking. Buffet’s M. O. is to buy undervalued companies with business models that he understands. Banking and financial services companies are known to have some of the easiest to understand business models out there, and you have to think that eventually the financial sector is going to be beaten up badly enough to take down some pretty decent companies with it, thus creating the value opportunities Buffet thrives upon.
It’s certainly something to look out for. As for who the big fish is that gets sacrificed to the market gods, I’m not qualified to determine what’s “big enough.”
On another note, it occurs to me that the banking woes in the U. S., which are mostly due to a preponderance of bad loans (i.e. sub-prime), might create opportunities in foreign financial stocks. It’s likely the U. S. financial sector will weigh upon the global economy and pull down share prices in other countries, even though the root cause (sub-prime loans) was never an issue there. Just a thought 
I want to say thanks to MGL for providing the impetus to write this post, which I have been toying with for several days.
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4 Responses to “Waiting on Buffet?”
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Unique visits since 2008:
September 16th, 2008 @ 9:44 am
I tend to think I’m insane like a fox, but I’m probably just a little biased.
I’m not fully confident that financials have hit rock bottom, but I think we’re close, especially in Canada. Lehman Brothers might actually be the “big fish” going under a signalling the bottom, although some said the same thing about Fanny Mae and Freddy Mac.
My take on bank stocks at this point is that a recovery is inevitable at some point, the prices are currently down, and the dividends are stable. Even if prices stay down for some time, the regular dividends will give as good a return as many other stocks in the current market. When the recovery comes, you’ll see capital gain as well.
And thanks for the mention, even if it did question my sanity!
September 18th, 2008 @ 1:21 pm
MGL,
Just to be explicit, I don’t really question your sanity… scruples, maybe.. I mean you are a lawyer after all..
Ok, cheap shot, I know. I couldn’t resist. But like I was saying, I think you had a good question but I know that some people will think going anywhere near a financial stock is investment suicide. It may insane today, but maybe a genius move tomorrow. At some point financials will rebound and they have a long way to go on the upside when they finally do, but determining when that upside climb begins is the trick.
September 20th, 2008 @ 6:24 pm
[...] Debt-Free Finance has called my sanity into question for wanting to invest in banks in his post Waiting on Buffett. He may be right, I may be crazy. But it just may be a lunatic you’re looking [...]
September 26th, 2008 @ 12:15 pm
[...] wrote a post last week called “Waiting on Buffet“. The general point of that post was that many experts have put forth the proposition that [...]