Is Financial Sector a good buy now?

[clifp]

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Originally Posted by haha This is an oxymoron. You either "play" the stock market, which by definition is not serious, or you seriously study and research and manage stock and other suitable investments. Occasionally a forum memeber will refer to "dabbling in individual stocks." Dabbling in stocks is like dabbling in mountain climbing. Usually it is not a very good idea. ha

Gosh Ha Ha you take all the fun out it. I hear it is quite a rush to almost fall off a mountain.

One thing I wish I had done when I was younger was spend a couple of years, entering the various stock market contests. I.E. open up a play account where I was losing fake dollars rather than real ones but do it with a particular goal in mind.

I had one business school class where 75% of the grade was based on your teams portfolio performance trading futures, options and derivatives. We all lost money but I still got an A.

[cute fuzzy bunny]

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Originally Posted by haha Dabbling in stocks is like dabbling in mountain climbing. Usually it is not a very good idea.

Especially if you're one of those "if at first you dont succeed" types...

[CitricAcid]

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“Market is collapsing. No more $2k dinners at CRU!! The Financials are being invicerated! [sic]” That cri-de-coeur, penned by a Merrill Lynch executive in an e-mail message last November, showed up in an 80-page lawsuit (PDF) filed on Thursday by the state of Massachusetts, which is suing Merrill for misleading investors about toxic auction-rate securities. (Cru is the West Village hot spot whose $78 prix-fixe includes braised Berkshire pork belly and foie gras terrine.)

I believe it is the "Commonwealth of Massachusetts", not the state, to throw some more onto the poor English of the quote.

About Wachovia, I wouldn't touch it, considering their huge writeoffs (which will continue) their incredible cut in dividend, and their balance sheet loaded with poor loans. Same thing for WaMu. I still like BAC, paying a dividend yield of 7.8% or so, it is tough to know whether they will keep it up, but they have a lot of capital and a lot less writedowns on their loans than their counterparts. Same goes for WFC.

[FinanceDude]

JPM is the only bank I feel is on the right path.

[calmloki]

Just ran across this - the impact on banking systems and our economy i dunno:

[M Paquette]

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Originally Posted by ladelfina Merrill antics:

There was a really good one in BusinessWeek this week, regarding brokers, their client lists, and competition:

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True story: A team of Wall Street brokers, about to defect with their billions in client assets to a higher-paying Swiss rival, broke the news to their boss. Apoplectic, he gave them an hour to clean out their desks, hand in their ID cards, and leave the building with a security escort. Twenty minutes later, suddenly magnanimous, he congratulated them and insisted they all go out to lunch. Life's too short, right? At a table in the subterranean Champagne cave of a luxe steakhouse, they shared stories over $140 bottles of shiraz. And more shiraz. Hours passed before a team member realized his cell phone wasn't getting a signal; then another noticed his wasn't, either. They all wobbled outside to check their voice mails, now stuffed with messages from clients weighing counteroffers from the group's former overlords. Frankly, they were having a hard time refusing.

Revenge of the Stockbroker

I'm not sure I'd want to have anything to do with these brokers or their former overlords. I'll just stick with my mess-O-index funds and Boglehead approach.

[haha]

Quote:

Originally Posted by M Paquette There was a really good one in BusinessWeek this week, regarding brokers, their client lists, and competition: Revenge of the Stockbroker I'm not sure I'd want to have anything to do with these brokers or their former overlords. I'll just stick with my mess-O-index funds and Boglehead approach.

Great story! When the going gets tough, the tough get clever.

Ha

[quietman]

A guy I know to be a very successful investor told me financial bottomed out about 3 months ago. That decision cost him about 60% of what he invested.

I thought the financials bottomed out about a month ago. That cost me about 60% of what I invested.

But maybe you are right and now's the time. Good luck.

Glad I only invested my small slice of Mad Money and the bulk of the portfolio is NEVER invested on a whim.

[CitricAcid]

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Originally Posted by quietman A guy I know to be a very successful investor told me financial bottomed out about 3 months ago. That decision cost him about 60% of what he invested. I thought the financials bottomed out about a month ago. That cost me about 60% of what I invested. But maybe you are right and now's the time. Good luck. Glad I only invested my small slice of Mad Money and the bulk of the portfolio is NEVER invested on a whim.

Financials have NOT gone down 60% in the last month or even 60% in the last 3 months, unless you were heavily loaded up on FNM, WB or who knows what else... trading call options? In any case, the dividend yields right now (if they are sustainable, a big if) could create a temporary bottom, and you are benig paid to wait. Just saying...

[FUEGO]

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Originally Posted by CitricAcid In any case, the dividend yields right now (if they are sustainable, a big if) could create a temporary bottom, and you are benig paid to wait. Just saying...

Dividends were a big part of my rationale to get in financials when I did. When I bought KBE, the trailing twelve months div yield was close to 7%. Hey, I can sit and wait and see what happens for a few years while collecting that! It may get cut some, we'll see. KBE is now yielding closer to 5% (trailing twelve months), so the yield is still juicy, just much riskier since it could get cut some.

Another issue regarding financials is just how much dilution we will see from secondary share offerings that some of the banks are doing to get additional capital.

[FIRE'd@51]

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Originally Posted by FUEGO KBE is now yielding closer to 5% (trailing twelve months), so the yield is still juicy, just much riskier since it could get cut some.

The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

[FUEGO]

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Originally Posted by FIRE'd@51 The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

Thanks - does that include the recent dividend reductions from some holdings of KBE? And also dividend increases from any holdings of KBE? If so, I'm sort of surprised the yield isn't even lower than 4.1%.

[FUEGO]

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Originally Posted by FIRE'd@51 The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business.

Are any of these banks cutting dividends?:
JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP
All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

[clifp]

Quote:

Originally Posted by FUEGO I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business. Are any of these banks cutting dividends?: JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

Here is the dividends of the top 10 holdings of KBE represent 61% of the holdings.
JPM No change
WFC Raised .31 to .34
BAC No change cut still possible
C decreased from .54 to .32 last year
USB no change likely small raise latter this year
SST .23 to .24
BK no change
WB .64 to .375 to .05 latest
NTRS no change
BBT .46 to .47

Dividend yields ranges from just over 1% from state Street and Wachovia to near 8% for BAC and Citi with a bunch in the 5% range so I think the 4.52 seems right.

[FIRE'd@51]

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Originally Posted by FUEGO Thanks - does that include the recent dividend reductions from some holdings of KBE? And also dividend increases from any holdings of KBE? If so, I'm sort of surprised the yield isn't even lower than 4.1%.

Yes, and yes.

[FIRE'd@51]

Quote:

Originally Posted by FUEGO I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business. Are any of these banks cutting dividends?: JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

Did you subtract the 0.35% ER. If not, then are results are pretty close.

Here are the annual dividends I used in my calculation:

WFC 1.36
JPM 1.52
BAC 2.56
C 1.28
USB 1.70
NTRS 1.12
WB 0.20
PNC 2.64
STT 0.96
BK 0.96
BBT 1.88
COF 1.50
MTB 2.80
STI 3.08
RF 0.40
CMA 2.64
KEY 0.75
FITB 0.60
PBCT 0.60
ZION 1.72
MI 1.28
WM 0.04
HBAN 0.53
NCC 0.04

[FUEGO]

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Originally Posted by FIRE'd@51 Did you subtract the 0.35% ER. If not, then are results are pretty close.

I came to that conclusion myself this morning! What a silly mistake on my part to not consider the expenses that get pulled right out of the gross income of the fund...

Yes, the dividends I had used matched very closely with the exception C and WFC - one increased and one decreased and I didn't catch those. All others match exactly. So 4.1% yield is pretty much all you get. Although a few of the banks that are paying very little dividends may recover and go back to paying significant dividends in the future, pushing the yield back up.

I'm not a buyer at today's prices (just a holder). But if KBE goes back to the mid- to upper 20's, I might move some more money in to it. Kicking myself for not moving more money into it at 23 when we were playing "how low can you go". Shoulda coulda woulda.