# Time to buy bank shares?



## Firefly (12 Aug 2009)

I know discussing individual shares is not permitted on AAM, but in general, do people think it is a good time to start buying? Personally, I'm edging towards buying (but need to convince Mrs. Firefly  ).


----------



## thespecialon (12 Aug 2009)

I brought certain bank  shares at 40 cent a share and most people in here were telling me i was mad!!! And they were probably right at the time, we live in strange economic times anything is liable to happen.btw i have since sold them off at aroud 2Eur a share, a nice tidy profit, but in essence it was gambling!!


----------



## Howitzer (12 Aug 2009)

Firefly said:


> I know discussing individual shares is not permitted on AAM, but in general, do people think it is a good time to start buying? Personally, I'm edging towards buying (but need to convince Mrs. Firefly  ).


On what basis?

Do you see the Liam Carroll judgement yesterday as a positive?


----------



## Guest116 (12 Aug 2009)

If you are looking to make short terms gains with shares then you are just gambling.


----------



## Brendan Burgess (12 Aug 2009)

This is very close to breaking the guidelines as there are only three banking shares - AIB, Bank of Ireland and Irish Life & Permanent.

We would certainly regard "is it a good time to buy Irish publicly quoted packaging companies? " a breach of the guidelines. 

I think we made an exception before at the height of the crisis and if the discussion is kept at a very general level, we will allow this discussion.


----------



## Bronte (12 Aug 2009)

Firefly said:


> I know discussing individual shares is not permitted on AAM, but in general, do people think it is a good time to start buying? Personally, I'm edging towards buying (but need to convince Mrs. Firefly  ).


 
Mr. Bronte wanted me to put 20K into 'bank' shares this year. He reckoned that they were so low the only was was up (He was correct). His logic was we wait until they doubled (they have more than doubled) that we take back the 20K and let the rest ride. A win win situation as they say. It's very logical, makes sense even. Only problem is I see it as the same as putting it on sure thing at 4.50 in Kempton. It was probably more a sure thing in that shares were so low it would be hard to lose short of the bank going bust (and that wouldn't happen in dear old Ireland where we have the government allowing banks free to gamble with all our lives). The reason I can't go for shares and I've been mightly tempted this year with 'banking' shares is that if you start where do you stop.


----------



## z107 (12 Aug 2009)

> Do you see the Liam Carroll judgement yesterday as a positive?


judging by the share prices today, this judgement does seem to be a positive. Why is that? Does anyone know?


----------



## Firefly (13 Aug 2009)

Howitzer said:


> On what basis?
> 
> On a long-term basis. I think they'll be looked after by the state via NAMA or whatever else the gov can condure up. I wouldn't be surprised if any future profits (0-3 years) in Ireland were low, but these banks have international interests which could be more positive. I think that after NAMA the banks will take a large hit via writing off bad debts in 1 big go and then they'll be well capatilised.
> 
> Thanks for the advice Brendan, I hope this thread stays within the guidlines.


----------



## Duke of Marmalade (13 Aug 2009)

In the short run (next 12 months, say) this is all about the size of the NAMA haircut.  It is well accepted that based on fundamentals (i.e. without State support) the shares are near worthless.

The NAMA haircut is now a hugely political hot potato. We all now know the balancing act, even Joe Duffy and that is dangerous. 

Too deep a haircut and the State stumbles into quasi nationalisation which it seems definitely not to want. Too generous (with share prices suddenly soaring) would be political suicide.

Listen to Frank O'Dwyer of the IAIM, he sees the danger of the political pressure.

Buying bank shares at this particular point of time is a gamble on the politics of the NAMA project.


----------



## Raskolnikov (13 Aug 2009)

Before you even consider buying shares, ask yourself these questions.

- Have you ever read the annual report of a company?
- Can you read and understand the balance sheet of a company?
- Do you understand how the market capitalisation, dividend yield and price/earnings ratios are relevent to a stock?

If the answer to any of these questions is no, you have no business whatsoever buying stocks.


----------



## Firefly (13 Aug 2009)

Raskolnikov said:


> Before you even consider buying shares, ask yourself these questions.
> 
> - Have you ever read the annual report of a company?
> - Can you read and understand the balance sheet of a company?
> ...


 
I hear what you're saying, but given that the vast majority of professional investors are qualified in these areas were buying these shares a year-18 months ago at 10 times their present value, I'm not sure that your points (while relevant) should preclude a non-professional from investing.


----------



## Firefly (13 Aug 2009)

Duke of Marmalade said:


> In the short run (next 12 months, say) this is all about the size of the NAMA haircut. ....
> Buying bank shares at this particular point of time is a gamble on the politics of the NAMA project.


 
+1 Duke, and for my tuppence the gov is siding with the banks because it will get them out of a jam. The taxpayer will pay for this gradually over the next 10 years and the current FF'ers will be happily retired at that stage!


----------



## Raskolnikov (13 Aug 2009)

Firefly said:


> I hear what you're saying, but given that the vast majority of professional investors are qualified in these areas were buying these shares a year-18 months ago at 10 times their present value, I'm not sure that your points (while relevant) should preclude a non-professional from investing.


Being a "professional" has no bearing on how well you can pick stocks. Professional money managers are driven by herd mentality. They get their fees regardless of how well their picks perform. If they value their jobs; they will want to be performing in and around the level of their peers. After all, if they make an incorrect decision that's contrary to the market, they'll be fired. It's simply not worth it for them to deviate from the consensus.

I lost money on investments I made in 2008, but because I can do the things I described, I was able to minimize my risk.


----------



## Duke of Marmalade (14 Aug 2009)

Davy Stockbrokers in their website today said:
			
		

> Ultimately, the value of the Irish banks still hinges on a number of key variables: the NAMA haircut; the level of capital required in the 'cleansed' banks; whether there is a levy down the road to cover any possible second loss in NAMA; and both the pre-provision profit potential and impairment outlook for the 'cleansed' bank.
> However, the recent publication of the draft NAMA legislation and the relative 'cheapness' of the Irish banks (on any post-NAMA estimate, be it operating profits, TNAV or more 'normal' earnings a couple of years hence) has put the Irish banks firmly back on investors' radar screens.


----------



## joe sod (15 Aug 2009)

if you buy shares in any company you have to do a proper valuation of that company, that is not possible with the banks because firstly they have not properly valued their bad debts, nobody knows how many people will continue to pay their loans if house prices continue falling, thirdly nobody knows what the government is going to do with the banks. Therefore buying bank shares is essentially gambling, therefore you have to weigh up the odds of the above events happening, warren buffet has already written off the losses he made buying irish bank shares, yet the banks themselves are refusing to write down their own losses and are still living in a world of unreality, no workers have lost their jobs as would normally happen in any other company that had such difficulties, so the banks are already operating like a quasi semi state company. there is world of investment opportunities out there with much stronger fundamentals than irish banks


----------



## tiger (15 Aug 2009)

The fact that people are even comtemplating buying bank shares surely SCREAMS that NAMA is a bad deal for the tax payer?

If capitalism was to prevail, the bank shareholders would already be wiped out?


----------



## smiley (15 Aug 2009)

Raskolnikov said:


> Being a "professional" has no bearing on how well you can pick stocks. Professional money managers are driven by herd mentality. They get their fees regardless of how well their picks perform.



Excellent points Raskolnikov. People that invest in companies without doing some serious homework are doing nothing but gambling.

If I become interested in investing in a company i will do a very quick analysis of the company. Usually it doesnt take too long before i decide to investigate further or bin the idea. If i like what i see initially i can spend days/weeks investiagting further...and going through lots of annual reports. I read these starting at the back. Once i am happy i wait if i have to for a suitable share price.

The great investor Peter Lynch said "Investing without looking at the numbers is like playing bridge without looking at the cards." 

Anthony Bolton has stated on numerous occassions that many analysts do not understand balance sheet risk. Many dont even look at the balance sheet! Madness. And these are the so called professionals!

For anybody that is interested in learning about how company accounts work this is a very good book: http://www.amazon.co.uk/Investors-Guide-Understanding-Accounts-Questions/dp/1897597274

On the Irish banks (i own some) most are still highly leveraged institutions. Leverage is wonderful on the way up, but highly destructive on the way down.

Warren Buffett once said that there are two things certain to kill you: drink and leverage.


----------



## Chris (17 Aug 2009)

tiger said:


> The fact that people are even comtemplating buying bank shares surely SCREAMS that NAMA is a bad deal for the tax payer?
> 
> If capitalism was to prevail, the bank shareholders would already be wiped out?



I couldn't agree more. If free market capitalism would actually be allowed to run its path, then there would be no bailouts for failure. Free market capitalism is meant to reward success and punish failure. The constant intervention by governments and central banks has and will only make things worse.


----------



## Bronte (17 Aug 2009)

Raskolnikov said:


> Before you even consider buying shares, ask yourself these questions.
> 
> - Have you ever read the annual report of a company?
> - Can you read and understand the balance sheet of a company?
> ...


 
I'm sure Michael O' Leary did all of those things when he purchased 30% of Aer Lingus and much good it did it him.  Ditto for the pilot's.  A monkey picking shares is just as good as any expert.


----------



## Chris (17 Aug 2009)

Bronte said:


> I'm sure Michael O' Leary did all of those things when he purchased 30% of Aer Lingus and much good it did it him.  Ditto for the pilot's.



Bad example as neither O' Leary  nor Ryanair nor the pilots are professional/expert investors. The reason he bought shares was to take control of the company.



Bronte said:


> A monkey picking shares is just as good as any expert.



Depends who you use to define 'expert'. Soros, Rogers, Buffett, van den Berg, among others, have all proven the monkey analogy wrong.


----------



## Brendan Burgess (17 Aug 2009)

There may be about 10 or a dozen people in the World in history who have managed to successfully beat the market by reading the accounts of companies. This shows just how difficult it is.

There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.

If you want to invest in the stockmarket, then buy a balanced portfolio of shares and forget about them. 

You should not be put off investing by people claiming that you need to understand accounts. 

If I was considering investing in Aer Lingus now and I was given a choice of an hour with Michael O'Leary or with the Council of the Irish Association of Investment Managers, I know which one I would choose.

Brendan


----------



## Purple (17 Aug 2009)

Brendan said:


> If I was considering investing in Aer Lingus now and I was given a choice of an hour with Michael O'Leary or with the Council of the Irish Association of Investment Managers, I know which one I would choose.



I like it.


----------



## ccraig (18 Aug 2009)

sorry to hijack but what are your opinions on the s&p500 and its prospects over the next couple of years. I appreciate that it is just speculation but would be interested to know.

Its recovering from a big dip which seems to have happened immediately after the couple of dips its experienced in the past 100 years.


----------



## Bronte (18 Aug 2009)

Purple said:


> I like it.


 
Me too.


----------



## Chris (18 Aug 2009)

Brendan said:


> There may be about 10 or a dozen people in the World in history who have managed to successfully beat the market by reading the accounts of companies. This shows just how difficult it is.



While it is true that the number of successful long term investers is small (however a lot more than 10), there is no reason why anybody could have similar success by just copying their decisions. All large scale investors have to publish their investment holdings on a quarterly basis.
An extensive study was published last year on the 'art' of copying Buffett:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=806246#PaperDownload


----------



## Bronte (18 Aug 2009)

Chris who in Ireland has succeeded when buying shares?


----------



## Chris (18 Aug 2009)

Bronte said:


> Chris who in Ireland has succeeded when buying shares?



Not sure what being in Ireland has anything to do with success when buying shares, but I have! However, Irish shares have never made up more than 5% of my portfolio


----------



## Afuera (18 Aug 2009)

Bronte said:


> Chris who in Ireland has succeeded when buying shares?


Not Warren Buffett anyway...
http://www.independent.ie/business/world/buffet-comes-a-cropper-on-irish-bank-stocks-1658249.html


----------



## Bronte (18 Aug 2009)

Chris said:


> Not sure what being in Ireland has anything to do with success when buying shares, but I have! However, Irish shares have never made up more than 5% of my portfolio


 
Do you mind me asking over what period of time and how much you made?  The Irish stock market has lost heavily so I'm interested in your magic formula.  People with gilt edged investments and pensions have lost heavily.


----------



## Chris (18 Aug 2009)

Bronte said:


> Do you mind me asking over what period of time and how much you made?  The Irish stock market has lost heavily so I'm interested in your magic formula.  People with gilt edged investments and pensions have lost heavily.



I have been investing since 1998 and have had an average gain of about 14% per annum. That includes bad years in 2001 and 2002 where I made a paper loss of about 10% and 12% respectively, and my worst year so far, 2008, where I made a paper loss of 19%. Even last year my losses beat all major indices.

I agree that the Irish market was one of the most heavily hit (down 55% in 2008), but as I said previously, Irish shares have never made up more than 5% of my protfolio. In comparison, the DAX was down 'only' 25% last year.

As for a magic formula, there is none. I learnt my investment strategy from my dad, and it would fall into the category of value investing with a heavy focus on diversification. I spent years reading and learning about economics and investments (which is not my professional background), especially focusing on two books by Ben Graham, 'The Intelligent Investor' and 'Security Analysis'; the latter took me a very long time to grasp. 

Now I do understand that most people do not have the time, interest or patience to learn everything there is about investment. However, with some basic understadning of balance sheets and how to calculate, Return on Capital, Price/Book value, Price/Earnings value, dividend yield, you can go a long way towards making better stock selections than a monkey. 

As already mentioned, diversification is an important part of my strategy, and I think that the Askaboutmoney investment guide is pretty good at explaining the merits; it does however fall short of stressing the need to diversify by country and continent as well.

Bottom line, if you don't want to look at annual reports before making investment decisions, then you would be better off with a cheap and diversified index linked fund. If you want to pick your own stocks, at least know what basic shape the company is in.


----------



## Raskolnikov (19 Aug 2009)

Brendan said:


> There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.


I am stunned by this comment. If you're willing to completely abdicate responsibility in informing yourself of your investment decision, you might as well take your money to a casino.

In the case of banking shares, I do agree that annual reports (at least the Irish ones) were practically useless in judging the position of the business. In other cases though, a cursory glance of the annual reports of Waterford Wedgwood and the Newcourt Group would have told you that these companies were bankrupt.

Reading annual reports will give you an idea of the risk that you're exposing your capital to. Without making recommendations, let's look at two Irish companies who operate in the same domain. If you look at the reports of Abbey Group (housebuilders), you'll see a business that has relatively low debt, a huge cash pile, profitable, slowed down building after construction collapsed, etc. From their accounts, I know that if I invest in Abbey, at least I am sure that the company has a balance sheet that says it's in a position to ride out the downturn.

On the otherhand, look at McInerney housebuilders. Huge debt, low cash, massively loss making and breaching debt covenants, etc. To me, McInerney is a deadman walking. I can clearly see that if I invest my money in them, there's an extremely high risk of losing all my capital.


----------



## Raskolnikov (19 Aug 2009)

Chris said:


> Bottom line, if you don't want to look at annual reports before making investment decisions, then you would be better off with a cheap and diversified index linked fund. If you want to pick your own stocks, at least know what basic shape the company is in.


Wholeheartedly agree with that statement.


----------



## Bronte (19 Aug 2009)

Raskolnikov said:


> In the case of banking shares, I do agree that annual reports (at least the Irish ones) were practically useless in judging the position of the business. In other cases though, a cursory glance of the annual reports of Waterford Wedgwood and the Newcourt Group would have told you that these companies were bankrupt.
> 
> Reading annual reports will give you an idea of the risk that you're exposing your capital to.


 
I'm curious about the two companies you mention here though it doesn't have to be specifically them.  Would that mean that a financial advisor would advice you not to invest in them and that therefore if they did advise you they were negligent in so doing because just by reading the report they would know to stay away from them.  Also would you know who invests in them if they are so obviously the worst share to 'invest' in.  Someone obviously had shares in them.    

Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?


----------



## Raskolnikov (19 Aug 2009)

Bronte said:


> I'm curious about the two companies you mention here though it doesn't have to be specifically them. Would that mean that a financial advisor would advice you not to invest in them and that therefore if they did advise you they were negligent in so doing because just by reading the report they would know to stay away from them. Also would you know who invests in them if they are so obviously the worst share to 'invest' in. Someone obviously had shares in them.


No one has a crystal ball. It's easily possible that awful companies can turn out to be good investments and brilliant companies can be terrible investments. Back in the early 1900's, the Equus Buggy Whip Company was one of the largest manufacturers of horse-drawn vehicles. By all accounts, it was a well-run company. However, the combustion engine revolutionized travel and rendered the horse obsolete. No one can foresee all possible events, therefore the best you can do is work to minimize the risk to your portfolio.


Bronte said:


> Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?


I'm going to quote what I said in an earlier post.


> Being a "professional" has no bearing on how well you can pick stocks. Professional money managers are driven by herd mentality. They get their fees regardless of how well their picks perform. If they value their jobs; they will want to be performing in and around the level of their peers. After all, if they make an incorrect decision that's contrary to the market, they'll be fired. It's simply not worth it for them to deviate from the consensus.


----------



## Bronte (19 Aug 2009)

So are you saying that the experts just copy each other right or wrong and one would be better off picking shares oneself because you have just about as much chance as they do in picking right and you don't have to pay fees?

You and Chris make it sound so easy to make money..............


----------



## Chris (19 Aug 2009)

Bronte said:


> Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?


This statement ignores the fact that so many people made a fortune in the years leading up to the mess we're in.

Just to clarify, I do not work as a financial advisor, I don't even make recommendations to friends and family (except for my dad). As for investment analysts' opinions, don't bother with them, as it mostly serves as propaganda for their vested interest.




Bronte said:


> You and Chris make it sound so easy to make money..............



If anything, I have pointed out how difficult it has been for me to achieve what I have.
However, there are somewhat simpler ways that I have pointed out, that will give you decent returns on your investment:
1) pick a cheap index linked fund and you are guaranteed to achieve the same returns as the index (minus charges of course)
2) copy what the likes of Buffett do

What I didn't point out is that not all of my investment decision were good ones, with a couple of them down-right stupid in hind sight. This is something that will happen even to the best investors, it is inevitable, as there is no magic formula.


----------



## smiley (19 Aug 2009)

Brendan said:


> There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.
> 
> Brendan



I also repeat what i posted earlier:

The great investor Peter Lynch said "Investing without looking at the numbers is like playing bridge without looking at the cards." 

I like to sleep at night.


----------



## asdfg (19 Aug 2009)

> I brought certain bank shares at 40 cent a share and most people in here were telling me i was mad!!! And they were probably right at the time, we live in strange economic times anything is liable to happen.btw i have since sold them off at aroud 2Eur a share, a nice tidy profit,


 


> His logic was we wait until they doubled (they have more than doubled) that we take back the 20K and let the rest ride.


 
Don't forget about Capital Gain Tax


----------



## MOB (20 Aug 2009)

Bronte said:


> The reason I can't ......................is that if you start where do you stop.



Because otherwise there would be no passion in our lives and no great art in the world?


----------



## Firefly (20 Aug 2009)

My own tuppence is that the Gov will re-capitalise the banks via NAMA. They will take over these loans at a deep discount to please the voters/media and then supply the banks with additional post-NAMA capital. The banks are then "clean" and capitalised. Nationalisation is the biggest unknown in all of this and even if they are temporarily nationalised (say 3 years) they will be back on the market. Now if I could just convince Mrs Firefly!


----------



## Raskolnikov (22 Aug 2009)

It sounds like you've made up your mind. If you insist on buying banking shares, then at least minimise your risk by buying them through a financial ETF.


----------



## Howitzer (31 Aug 2009)

Dermot Desmond sells up. Good enough signal for me.


Desmond sells off shares in top banks
http://www.independent.ie/national-news/desmond-sells-off--shares-in-top-banks-1872818.html


----------



## Bronte (1 Sep 2009)

MOB said:


> Because otherwise there would be no passion in our lives and no great art in the world?


 
I know I'm slow on the uptake but I don't get this in relation to gambling, sorry investing in shares?  

ASDFG yes we would have calculated the CGT and the entry and exit charges.  

Chris we should have copied D. Desmond, another regret.........  It's so easy for some.  Nerves of steel those boys have.


----------



## Chris (2 Sep 2009)

Bronte said:


> It's so easy for some.  Nerves of steel those boys have.



I think it's more of case of confidence in what you are doing, and more importantly being psychologically OK with sometimes taking an actual loss when you make bad decisions. 
Many people think that those highly successful investors and business people got to where they are without making losses. This is simply not true, they just make more money on their winning decisions than on the losing ones, and are fully OK with making losses from time to time. This is one of the biggest hurdles to overcome.
Personally I think that buying banking or other financial shares is a pure gamble at the moment, as nobody can actually propoerly evaluate their assets, especially since the introduction of 'mark-to-makebelieve' accounting.


----------

