On CNBC this Monday, Nov. 28th, analyst Dick Bove apologized for the failure of his foremost recommendation of the year: US bank stocks.
The official apology ran like this: “I failed to understand that the fears in the market concerning banking were so great that the fundamental improvements in the economy, the industry, and companies like Bank of American and Citigroup would simply be ignored.”
In other words, Bove's "apology" consisted of telling investors that they are foolishly selling excellent stocks that are a great value, simply out of fear. He didn't quite call them idiots, but pretty close.
The reason I mention all this is because I agree with him.
Back in March (US Banks to Rumble), and again in August (Buffett and the Beautiful Banks) and I'm sure a few times in between, The Frost Report has recommended buying US bank stocks. But after a short-lived pop, bank stocks kept dropping. And dropping some more. And a bit more yet. So what have I been doing?
Why, buying more bank stocks, of course! Instead of trying to guess which particular bank will fare the best, I have been purchasing the KBW and XLF bank index funds. Every time the market has a 2-4% correction I buy more, since each "correction" misprices them just a little bit more.
The view that bank stocks are a great bargain is clearly an unpopular one. Every time someone recommends bank stocks (like Dick Bove), their article is overwhelmed with comments calling them a loser/screwball/dope/idiot, or ranting about bank bailouts and world domination. Fortunately, my goal is to make money, not to make popular decisions.
Bank stocks will recover because they are highly profitable, and an economic necessity for which there is no replacement (contary to popular sentiment, credit unions are not equipped to handle large-scale multi-national banking).
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See also:
Bill Miller vs Instant Gratification
Bank Debt is Near Record Low
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Disclosure
Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.
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