Bac = wtf???

[CyclingInvestor]

I am retired, 50, and keep 100% of my portfolio in individual stocks. I have tracked BAC for many years, but at this point I would not consider investing in them. Their balance sheet numbers are mostly guesses at this point - I cannot even begin to estimate a value for them (or most any financial stocks now).

 

[FinanceDude]

Tought call, I would probably sell. Quite gut-renching to read your story. However, it does point out the danger of concentrated stock positions......

Our RIA has a lot of retired GE folks in it. Many of them refuse to pare down their holdings, so the tumble to $14 has been ugly. They are calling for Immelt's head. Maybe that's why I admire guys like Jack Welch and Peter Lynch....they have an UNCANNY ability to know when to leave............

 

[OAG]

Well there went most of the Dividend down to $0.01 versus $0.32. Bank of America slides to 4Q loss; gets more aid - Road Runner

 

[haha]

I just want to comment briefly on the concept of "too big to fail". No doubt Citicorp and BAC are too big to fail. But they are not too big to allow the shareholders to be wiped out completely.

From today's NYT:

http://www.nytimes.com/2009/01/16/business/16banking.html?em

 

[kcowan]

I have been totally out of the banking sector since 2005. Diversity be damned. I saw the bubble forming in RE and knew that nothing good could come of it.

(All my losses have come from the other sectors...)

I would sell and take your lumps. Keep your money liquid and wait for the tsunami to pass.

 

[haha]

I have been totally out of the banking sector since 2005. Diversity be damned. I saw the bubble forming in RE and knew that nothing good could come of it.

(All my losses have come from the other sectors...)

I would sell and take your lumps. Keep your money liquid and wait for the tsunami to pass.

While I agree that this is way too much money to have in a possible wipeout, your advice to sell and stay liquid until the tsunami passes sounds a lot like "buy high, sell low, but only if it gets scary out there."

 

[Bestwifeever]

But isn't there an investing rule about not falling in love with your stocks? If you realize you have a dog, bite the bullet and get rid of it even at a loss and put the money somewhere (several places, imho for this amount of money) where it at least has a chance of appreciating?

 

[haha]

But isn't there an investing rule about not falling in love with your stocks? If you realize you have a dog, bite the bullet and get rid of it even at a loss and put the money somewhere (several places, imho for this amount of money) where it at least has a chance of appreciating?

Don't know if this is an answer to my post- but if so, I totally agree. Where I disagree is the "stay liquid until the tsunami passes".

Ha

 

[Purron]

Don't know if this is an answer to my post- but if so, I totally agree. Where I disagree is the "stay liquid until the tsunami passes".

Ha

I do too unless you were already in a liquid position before the tsunami hit. There are many posting here who rely primarily on investments such as CDs and treasuries. I'm just not comfortable with the "buy because this is a blue light special" philosophy and would advise them to stay liquid until this is sorted out. If you are heavy into beat down equities like the OP, the question is whether you should bail thinking it will only get worse or stay the course hoping for better times. I don't think anyone really knows the answer to this.

Like some others have suggested, I would not be inclined put more funds into a depressed stock like BAC hoping to "double down". I also agree this illustrates why it’s not good to have a heavy concentration in one stock or feel an emotional connection to a particular company.

Many people are facing a similar dilemma with real estate. DH and I have two homes and have struggled with if we should sell the rental or hang on waiting for the market to improve. We are not, however, pondering the acquisition of additional real estate. This might be dumb as it really is a buyer's market and I suspect many will do quite well by purchasing property. I just don’t have a well functioning crystal ball.

 

[clifp]

But isn't there an investing rule about not falling in love with your stocks? If you realize you have a dog, bite the bullet and get rid of it even at a loss and put the money somewhere (several places, imho for this amount of money) where it at least has a chance of appreciating?

I hope you aren't advocating shooting dogs, PETA will be upset. If it was cat Purron and I would up in arms;

 

[Purron]

If it was cat Purron and I would up in arms

You bet ya I would. Since someone mentioned cats, here's my opportunity to show you all the latest rescue project from the local shelter - a very nice little boy we dubbed "Calvin" who has a bit of ringworm we are treating with great success.

 

[toofrugalformycat]

I hope you aren't advocating shooting dogs, PETA will be upset. If it was cat Purron and I would up in arms;

I second the emotion about the cat thing.

In reply to the OP, I am not intelligent enough to invest in individual stocks. I believe few people are. If it were me I wouldn't have ever been in an individual stock.
But then I've watched my investments (mutual funds) go down down down, anyway, so what do I know?

 

[VaCollector]

Thanks for your thoughts but I have decided to hold the BAC stock....to the ground maybe, but I certainly hope not.....I know that I will have to find other income to live off of other than the dividends....and I accept the fact that it will be MANY years before BAC regains its footing.....BUT it seems to me that the recent government (backing/bailout) plan to maximize BAC's losses (it appears BAC is limited to 10%) should put them in a position to continue in business. I do see possible further erosion of the stock price as mutual funds unload it to replace it with something that WILL be paying a decent dividend....although even that should be a slow process as they will not want to (or should not want to) drive the price down further either....

Even their latest quarter indcated an INCREASE in net interest income of 32% (up from $34Bil to $45Bil) and a 2008 YTD net income of 4 billion! (I hear YOU ....and at that rate it will take 10+ years to pay back the FED)

I realize that the continued recession may impact their earnings but with the (as I have read) FORCED acquisition of Merrll Lynch (seems Mr. Lewis had thoughts of using his "back out clause") by the FED, it appears the FED thinks them a necessary part of the American banking system.....

I do NOT plan on buying more BAC.....no doubling down.....although I have to say that I am having to resist that temptation !!

I found another poster on another site who seemed to have summed it up well ~

"To say that I'm infuriated is an understatement. I feel cheated, swindled, and betrayed. I know, of course, that investing in any company is risky. Money can be be lost, even all of it sometimes. But somehow I see this as being different. And not just because I had money in it. This is Bank of America, for God sake. The number 1 bank in the world. Now, because of greed and incompetence they're wards of the state."

Finally.....as one of those posters who thought runningman to be way off the mark with his BAC predictions, I offer my whole hearted apology and invite his insight here again....and I have to admit that if his current analysis indicates significant futher erosion in the stock price, I would reconsider my decision..... ......

 

[kcowan]

Kenneth Lewis gambled big. He lost. Now taxpayers have to pick up his tab. For that, the Bank of America Corp. chief executive officer probably needs to go. At the very least, Lewis, who also is chairman, should give up one of his posts to bring greater accountability to the bank.
Not because one specific bet, Merrill Lynch & Co., is souring. Lewis could be forgiven if that were his only misstep.
It’s not. Since the crisis began, Lewis has misjudged the depth, breadth and severity of the storm that has crushed the global financial system. In doing so, he used capital that he should have been husbanding.

David Reilly, Bloomberg

and many other similar sentiments on The Big Picture The Big Picture

When BAC and Citi are both in trouble, it is time to head for higher ground...

 

[mathjak107]

bought today at 5.21

 

[ziggy29]

I'm done "buying low" on everything for a while, and I'm certainly done with rebalancing for a while. I'll still get at least a decent share of the pop back up when this is finally behind us.

 

[Gardnr]

I'm done "buying low" on everything for a while, and I'm certainly done with rebalancing for a while. I'll still get at least a decent share of the pop back up when this is finally behind us.

I can't imagine buying one of these hot potatoes (grenades). Even with a small bit of money I couldn't sleep at night. This sector is just imploding, govt bail out or not.

 

[Maurice]

bought today at 5.21

I, too, succumbed.

 

[ChrisC]

I just want to comment briefly on the concept of "too big to fail". No doubt Citicorp and BAC are too big to fail. But they are not too big to allow the shareholders to be wiped out completely.

From today's NYT:

http://www.nytimes.com/2009/01/16/business/16banking.html?em

That's one of the more sensible observations made about investing in mega-banks.

This thread, along with its companion bank stock thread, contains a lot of conjecture about investing in banks. Most of it very flawed and not simply on the basis of 20-20 hindsight! I would hasten to point out that traditional investment analysis makes little sense here, as there is too much uncertainty; balance sheets (public information) and call reports (nonpublic information relied upon by the regulators) reflect lagging financial trends and don't have any predictive value in this environment. If Bank CEOs, armed with massive due diligence teams, and regulators, armed with the squads of examiners and sophisticated regulatory modeling, get it all wrong and cannot adequately judge the toxicity of bank balance sheets or call reports, then what makes anyone think that any of us have any clue about how things could shake out! Moreover, we certainly don't know how massive infusions of capital by the Government (or the establishment of a mega-bad bank or "aggregator bank") may result in "unintended consequences."

"Too big, to fail," as I said before simply means "too big to liquidate" completely. The Government appeared to make the wrong judgment in Lehman when it let Lehman fall into liquidation. However, in preserving an entity too big or too important too fail, shareholders and debt holders are all exposed and can be wiped out. WaMu was too big to fail, but all shareholders were wiped out in the Government-engineered transaction that resulted in JP Morgan Chase's acquisition of most of WaMu.

 

[Purron]

I would hasten to point out that traditional investment analysis makes little sense here, as there is too much uncertainty; balance sheets (public information) and call reports (nonpublic information relied upon by the regulators) reflect lagging financial trends and don't have any predictive value in this environment. If Bank CEOs, armed with massive due diligence teams, and regulators, armed with the squads of examiners and sophisticated regulatory modeling, get it all wrong and cannot adequately judge the toxicity of bank balance sheets or call reports, then what makes anyone think that any of us have any clue about how things could shake out!

Just a couple of comments. First, call reports are public information. Here's a link: FDIC: Call Reports/Thrift Financial Reports

Regarding your observation that regulators couldn't judge the toxicity of balance sheets, you may be correct. However, IMHO, part of the problem was the political environment against regulation. I'm not saying we should have had more regulations, just more rigorous enforcement of existing regulations. The Washington Post has run several articles about this. Here's a link and a quote:

Regulator Let IndyMac Bank Falsify Report - washingtonpost.com

"The Washington Post reported last month that OTS allowed thrifts to lend massively while reserves against future losses dwindled. Even as problems became apparent, the agency continued to prioritize deregulation. The latest findings underscore that OTS failed to enforce its own rules."

Here's a picture of the top financial regulators proudly "cutting through the red tape". Another Washington Post article noted:

"In the summer of 2003, leaders of the four federal agencies that oversee the banking industry gathered to highlight the Bush administration's commitment to reducing regulation. They posed for photographers behind a stack of papers wrapped in red tape. The others held garden shears. Gilleran, who succeeded Seidman as OTS director in late 2001, hefted a chain saw."

Here's a link to the entire Post article titled "Banking Regulator Played Advocate Over Enforcer":

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/22/AR2008112202213_pf.html

 

[Maurice]

I just want to comment briefly on the concept of "too big to fail". No doubt Citicorp and BAC are too big to fail. But they are not too big to allow the shareholders to be wiped out completely.

Thats true, however I personally doubt they'll wipe out the shareholders, if for no other reason out of fear of the effect it would have on the shares of other banks.


I bought C and BAC even though I know they're insolvent. But its not really a bet on what those banks will do, its a bet on what Treasury will do.

 

[unclemick]

Since I have modest amounts of BAC, C, UBS-Ag, and JPM in my former Drip now Norwegian widow pile - I think I shall continue to wait til football(Superbowl) has passed and maybe do nothing or maybe shift deck chairs on the Titanic.

Probably use the non logic of seeing what WB continues to own and check top ten in Pssst Wellesley and Wellington rather than attempt any stunning analysis on my own.

heh heh heh - And have a nice funeral - so long old pals - for the dogs I have tired of owning.

 

[ChrisC]

I bought C and BAC even though I know they're insolvent. But its not really a bet on what those banks will do, its a bet on what Treasury will do.

Using that logic, you should back-up the truck for Fannie Mae and Freddie Mac and get another truck for F and GM. Seriously, if C and BAC are insolvent, then why wouldn't Treasury and the FDIC nationalize these banks, wipe out shareholders and debt holders, and begin propping up strong regional banks to fill in the void that might result in nationalization efforts? Continental Illinois National Bank is a good model for this to occur:Continental Illinois National Bank and Trust Company - Wikipedia, the free encyclopedia

Even if there's a Treasury, good-bank, bad-bank response, shareholders are still likely to get substantially wiped-out. I think you might be misreading the political climate, if you think massive injections of capital or funding to C or BAC won't result in the public and politicians wanting to have shareholders wiped out. It's paradoxical now, that banks are cheap cheap, cheap, but no one really wants to invest, invest, invest capital in them, because investors fear the Government might eventually wipe them out, like this occurrrence:http://www.nytimes.com/2008/09/27/business/27bonderman.html?fta=y

This is just a speculative play, right?

 

[Maurice]

It is indeed just speculation, in fact the first time I've bought a single stock in 10 years.

I don't think they will wipe out shareholders again, at least not for the large banks. I think the view is that the risk of scaring away private capital supersedes any moral hazard concerns. And yes, I'm aware of the political climate among the general populace, its just that I don't think the leadership can afford to kowtow to it in this case.

I may be wrong, of course, but that's my read of the situation and I'm willing to bet money that I'm correct. The upside potential is pretty darn good and on the downside I have a stop-loss at 0 so I'm willing to take the risk.



Re F and GM, I less convinced that the shareholders will come out ok, I don't think there's as much at stake there, so the government doesn't have the same constraints.

 

[ChrisC]

I may be wrong, of course, but that's my read of the situation and I'm willing to bet money that I'm correct. The upside potential is pretty darn good and on the downside I have a stop-loss at 0 so I'm willing to take the risk.

Good luck, as I think you'll need it. Here's a timely analysis in today's NY Times. http://www.nytimes.com/2009/01/26/business/economy/26banks.html?_r=1&hp