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If banks aren’t bargains, what are?

Posted on April 23, 2008 by Richard Beddard
Filed Under Investing |

There’s a fair degree of scepticism about banks. Citywire has picked up a comment originally reported (I think) by investment banker Barry Ritholz on the Big Picture.

He asks readers to compare the attitude of investors buying ‘bombed out’ financials to the attitude of those buying food and natural resources stocks:

So if you are looking for a true contrary trade, which do you choose:

- The one in a long-term uptrend with no sign of any technical weakness, widely disbelieved the whole way up? [i.e. commodities]

- Or, do you go for the relentlessly beat up, long term down trend — the one if you are buying here, you are merely guessing the worst is over. [i.e. banks]

The answer is supposed to be self-evident (commodities). But I don’t think that’s the right answer.

The right answer is neither. Both categories of stock are too hot. There are too many investors following them.

I think real contrarians are looking where others aren’t looking now, but might in future. Jim Rogers was truly contrarian when he tipped commodities for the first time in 1999. Now he’s riding the trend.

So if banks aren’t bargains, what are? Furniture shops, perhaps.

If you say I’m crazy, that just confirms I’m being contrarian :-)

Category: Investing

Comments

One Response to “If banks aren’t bargains, what are?”

  1. Four reasons banks aren't cheap enough : Interactive Investor Blog on April 24th, 2008 12:50 pm

    [...] in on bank valuations again, here are four fundamental reasons why I ‘m not buying banks: Price, profits, cashflow, and [...]

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