First, some numbers with results of a few different sectors over several time periods;
YTD;
Financials XLF +0.88%
Technology XLK +4.75%
Energy XLE +14.97%
Staples XLP +5.12%
Discretionary XLY +6.51% (XLY is a client holding)
S&P 500 6.16%
One Year;
XLF -4.11
XLK +9.58%
XLE +26.37
XLP +9.92%
XLY +11.72%
S&P 500 +9.68%
Four Years;
XLF -56.64%
XLK +8.91%
XLE +24.35%
XLP +11.63
XLY +0.71%
S&P 500 -10.05%
The numbers say a lot about the mess that has been made in the domestic financial sector. The events in the market from 2007-2009 were obviously about the financial sector. There were many types of excesses that resulted in a monumental meltdown in the sector--monumental for the number of large companies that failed and the large number of stocks that dropped 90% and are nowhere close to where they traded before the implosion.
The nature of this sort of event is such that it will be years before domestic financials, collectively, are attractive on a fundamental basis and so I think it is likely that they will continue to struggle as stocks. This has been the case with technology from that market event. For ten years the S&P 500 is up 7.41% while XLK is down 12.02% (MSFT is down 25% for ten years and INTC is down 32% for ten years). It looks to me like outperformance of tech over the SPX may have started at the 2009 bottom which is a long time for the ground zero sector to lag and while an exact duplicate in financials is unlikely, if you then consider the fundamental outlook, I think we are a long way from health.
The above brings in two different things to consider; one being how markets tend to work which is more of a top down factor and the other being what I believe is a lack of fundamental health which is of course a bottom up factor. It seems to me that no matter any of this, that the financial sector has been a favorite of many professional market participants. Given my perceptions of the sector I think it makes sense to underweight the risk in whatever financial sector exposure you have (I believe in having exposure to all sectors as zero weight is a big bet). For us this means mostly owning foreign banks as I have discussed many times before.Think of it this way, in speculating on parts of the financial sector where the fundamentals are not yet healthy, how much do you hope to make? Let's say you think you can double your money. I would say it makes more sense to go to a sector that is healthy on all fronts to pick a stock where you think you could double your money. I realize other people view it differently and clearly there were some great trades off the bottom in the financial sector but speculating on something with weak fundamentals is not a risk I am willing to take.
The Harley belongs to a friend whose father bought it new in 1954.
7 comments:
Roger,
very happy that Lactis announced a takeover bid of Parmalat. So far I have announced 3 takeover bids which have taken place. In addition to parmalat, granitifiandre and bulgari. Italian market is tough but I have stayed away from financials , THANKS TO YOU, Roger, and concetrated on lux, industrial and food.
Tx Roger,
Best,
Jeff From Milan, Italy
Time was when "too big to do anything but make money" big financial stocks were a blue chip inclusion within the most conservative of portfolios.
I have JPM and C in my Speculative Portfolio. Having held JPM for about one year, C for a couple of months is a move I do not regret (yet). Both are far cry, though, from the status the two financials held only a few years (or fears) ago.
T
thanks Jeff and congrats
T, "don't regret yet" laughing with you
Interesting. I've been recently contemplating which bank/s to start buying - wholly in speculative-sized amounts, up to a couple % max of total. They're penny shares now with the corresponding interest (no pun intended) on various small investor fora. There's still lots of blood on those streets, and the odds are probably better than getting seats for the heavyweight quarter-finals in 2012. Fingers crossed.
[just read Sunday's post]
Whoops, missed your birthday - happy belated birthday and congrats on the (well deserved) recognition in Money magazine. Now reading 'A Colossal Failure of Common Sense' and, although some may think it could be, no it is not the title of my autobiog.
And congrats to the always engaging and yet inscrutable Jeff from Milan.
That book is one of the better books I've read on the 2008 crisis. I think the stuff about Lehman operations was probably better than Liar's Poker.
Jeff from Milan, inscrutable? Lol.
I'm not quite sure why investors would want to spend the time attempting (and likely not succeeding) to penetrate a typical bank's financials in order to make a truly informed investment decision.
Bank stocks = lottery tickets.
Sure, some speculations will pay off. And others won't. Just like the lottery.
BillM
BillM,
I am looking for additional takeover plays, in the Italian market. The game is not over yet.
When Granitefiandre was announced, I got up in the morning and saw the stock shot up 40%. I though it was a mistake. The egyption rebellion had just started and stocks were down and noticed that Granitefiangre was way down, a price that I liked. A week later as I mentined it open at 40% higher and could not believe my eyes, and though it was a misprint. But I had mentioned several times about this tile company. It was doing lots of reaserch in tiles and diminishing pollution and so forth. Well, I felt that the company was doing the right stuff and the price was an acceptable risk. I have invested into ISP.MI, an Italin bank, but have very quickly exited and have come out with very small gain. In back of my mind there was Rogers words about financials and have stayed out. On some swings could have made some money, but chosen to stay out.
Again, this game is not over yet. I have mentioned that the market will keeep getting higher safely(?) 'til may 15. After that we may have a correction.
Jeff from Milan, Italy
Post a Comment