I have never owned a brokerage/investment bank stock for clients in my time as a money manager. About ten years ago, in my days as a trader, I was helping out a couple of family members manage portfolios and suggested shares of Merrill Lynch. Keep in mind I am talking about 1995-1998, give or take.
Goldman Sachs looks like a miss this morning, a couple of the others had good numbers. I am not a big fan of these stocks. For the time being there is going to be headline risk about ethical issues. There are plenty of banks that don't have to pay $2.2 billion in settlement awards. There are a couple of mutual fund companies that appear to be very clean. The point is that there are better ways to capture the financial sector without taking such obvious headline risk.
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4 comments:
I'm not a financial professional but with LEH and BSC both surpassing earnings estimates, I would think now might be a good time to get in on the investment houses (i.e., GS, JPM, etc.) since analysts may start to raise their estimates for the current year earnings and next year's earnings estimates. Again, JMHO....
I can't disagree with your point. I was writing about the headline risk in owning the names and whether that additional risk would result in better returns than not taking the risk?
Hi Roger - If I were a financial professional, IMHO, I would counsel investors to take the risk - there's a probability of less downside in equity prices due to headline risks since headline risks ususally goes away over time (i.e., people are quick to forget yesterday's headlines from today's).
Other risks, IMHO, are more prevalent (i.e., interest rate risk which could affect bond trading profits, currency risk via a weaker dollar, and business cycle risk via a slowdown in US GDP growth next year due to the interest rate hikes over the past year or so.
Again, only my opinion but I could be wrong....
BTW: I read Barron's as well - love the interviews. They're the best part of the mag IMHO.
Roger, it'll be interesting to see if Merrill Lynch can pull off a successful closed end fund based on a strategy of buying and holding dividend paying stocks and writing index calls in sort of an indirect covered call manner. It reminds me of the period back in the 1970s, also a period of general market stagnation as Merrill is predicting now, and the rise of various open ended mutual funds, most of which failed miserably. I have never understood it -- these huge firms with deep talent in many cases -- and they seem to be able to take a fairly simple concept where they should hold proprietary and computational advantages, and still lose money. Time will tell if they can pull off this CEF strategy and make it pay out more than a short-term CD. Cheers! JBR
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