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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (58395)	11/6/2016 2:17:11 PM
From: E_K_S	Read Replies (1) \| Respond to of 78711

Re: SCHW I also look at the balance sheet and how leveraged the bank/brokerage is and what the credit rating is for their debt (Fitch, AM Best,S&P, Moody's). When we had the market crash in 2006/2007 due to real estate loan defaults and the massive debt liquidity freeze up, Schwab's balance sheet was too leveraged and their credit ratings were not that good (I believe BBB) when compared to it's peers. I have been a Schwab customer for over 30 years and at the time I was concerned w/ all the banks, brokerage houses and even credit unions (&including the smaller regional banks). I had most of my money w/ Schwab and upon review, I decided to open another brokerage account (w/ Ameritrade), hold a large amount of my cash in the local credit union (FDIC insured) and basically diversify my holding of equities & cash among several firms rather w/ one (ie Schwab). I also, created a cash account at Schwab to go w/ my margin account holding almost all of my stock in the cash account. This way my stock could not by hypothicated to some other institution if Schwab used customers/company's assets in the determination of their secured/unsecured debt. Note: sometimes hypothicated securities can be loaned out to other institutions and/or derivative paper/loans can be secured on this 'quasi' asset unless those securities are held in a cash account (read the fine print in your brokerage margin agreement). When I saw Schwab's credit rating (ie below average but still investment grade) and the bond market freeze up (lack of liquidity), these moves provided me another level of security/safety. Who knows if things got really bad, how long assets & cash might have been frozen until things got worked out. Therefore, I typically will find other value investments outside the financial industry. There have been some posts in the past where some of the smaller banks were presented as being undervalued based on price/BV. Again, many of those stocks are thinly traded and are more of a Buy & hold (collect dividend) and at some point fair value will present it'self. I learned to look at the credit ratings of the secured & unsecured debt for the candidate company as another metric to determine overall risk (risk/reward). It seems like the first indication on an implosion deals w/ debt; too much leverage, credit quality and/or maturing debt that needs to be rolled over in a rising interest rate environment in an illiquid debt market. The novice value investor really needs to add this to their check list. That 2006/2007 market melt down was scary and I owned a few companies that blew up for having too much leverage and below investment grade debt. (Note: original debt was investment grade but was downgraded later during the market 'event' but usually too late to react). EKS