Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

BKX revisited

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Last May, I cautioned blog-readers against investing in banks. Using the BKX as a general proxy, big banks had fallen about 30% from the peak;  Bear Stearns had been wiped out in March, big banks were reaffirming the dividends are safe, and the calls were being made: “January and March lows have held, so the bottom is in.”

 

But….

 

If you bought M&I Bank, or Lloyds, or Citigroup, or General Electric (a bank in drag) your investment is eviscerated. I mention those stocks specifically because I know from interviewing clients that area brokers were pushing those stocks.   Your broker gave you the sweet song of “juicy dividends” and “bank safety” and “buy and hold and cash the dividend checks”… and you just lost 50-80% of your capital and the dividends have evaporated.

In retrospect is seems it should have been obvious to anyone with just a cursory knowledge of economics:  banks were struggling for a mighty good reason: lack of un-impaired capital.

Sometimes the best investment is just staying out of the way.

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Written by heyercapital

January 20, 2009 at 7:05 am

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