Is the banking crisis over?

For those of you who want to see my latest quarterly client letter, it’s here.

Banks stocks took a beating over the last several weeks, and it created some wonderful opportunities to buy top-notch banks at rock bottom prices.

Not only was I a buyer, but an eager buyer of certain companies. But, not all banks are equally good, and just because I’m buying specific companies at specific prices is not a statement that banks stocks have hit bottom.

I don’t try to pick bottoms because I don’t know that anyone can. It’s like forecasting the weather, you can get in the ballpark with some guesses, but you never really know exactly what’s going to happen.

If you don’t believe me, look at the annual hurricane forecasts over the last several years. They are pretty far off on an annual basis, but pretty accurate over 5 year time frames. Sounds like the stock market in many ways….

Back to bank stocks. I don’t know if crowd psychology has signaled capitulation in bank stocks in general. I don’t believe so. I think poorly run banks will be announcing significantly worse results as the impacts of a slower economy ripple up into more loan defaults and delinquencies.

I’m buying now because good banks hit very good prices, not because I know when bank stocks will bottom. In fact, I may very well have opportunities to buy the companies I just bought at even lower prices.

As the stock market continues to recognize that the 3rd and 4th quarter won’t be so peachy, I’d expect it to roll over further. It also wouldn’t surprise me that what we’re currently seeing is short covering and mere reactions to short term noise.

When will the market and banks stocks really bottom? I don’t know, but my guess is that people will be talking less about buying bargains at that point, and more about running for the hills.

As Rothschild said, “Buy when there’s blood in the streets.”

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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“I made my fortune by selling too early”

Baron Rothschild once said, “I made my fortune by selling too early.” What did he mean by that?

Some “investors” think they can buy an investment as it bottoms and then sell right before it tops. I call such “investors,” speculators. There is too much speculative movement in price to precisely time tops and bottoms.

But, because so many speculators pursue this ideal, they tend to laugh at those who sell too early. Hence, Rothschild’s quote is in response to them.

Investors like Rothschild spend time figuring out what an investment is worth. Only then do they try to buy low and sell high. With the reference point of worth, or value, they can try to buy things below value and sell them above value. Not surprisingly, speculative stock movements lead them to buy before a stock bottoms and sell before it tops. In buying investments below value and selling them above value, though, they make fortunes over the fullness of time.

In other words, Rothschild has the last laugh. Speculators make fun of him for selling too early. But, his ability to sell too early is the reason why he keeps his gains, while the speculators end up holding investments on the way down. Using the rational reference of value, Rothschild buys low and sells high (and too early in most cases), while speculators frequently buy high and sell low trying to time tops and bottoms.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.