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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: David C. Burns who wrote (765)	9/12/1998 10:34:00 AM
From: Freedom Fighter	Respond to of 1722

>>I am wondering whether you aren't being rather more pessimistic about the banks that the situation warrants. the "long haul" of 1 to 2 times book includes a LONG time before the substantial restructuring (starting the elimination of excess capacity) that has taken place in the last few years. Plus the general environment is still favorable for loan demand, etc. Why do you think the good times are over?<< I don't know (I think maybe) that the good times are over and I agree completely about the favorable effects of restructuring. I just take a much longer term view on value than many. Despite some improvements in the revenue mix at investment and commercial banks, and the restructuring, they basically are still a boom/bust business. If the global crisis that is in progress does not burst their bubble, prices and profits could indeed rise again after the coming quarter. But, I see no reason to think that companies that make high risk loans, gamble in derivatives with values substantially higher than net worth, are dependent on bullish stock markets to do deals and underwritings, etc... won't still have some bad periods ahead. If so, the standard valuations will probably still be reasonable (give or take - I concede some improvement) measurements of value. At 2x book, I see no margin of safety in buying them. Especially now, the crisis is still in progress. That doesn't mean they can't go back to 4x book. I just think it's a bad bet for long term investors. I'd rather get them during the height of the next bear market and recession (assuming we have one someday of course). Their earnings will evaporate, everyone will hate them, they'll be selling at around book value etc.. In addition, with some exceptions, most investment and commercial banks have no special advantage over each other that leads me to believe the the higher margins that resulted from restructuring are sustainable. It's a commodity like business. I personally don't care if I bank at Chase, Citi, etc.. or if my broker is M.Lynch, Pain Weber, etc... They are basically all the same, with a few exceptions. Bought at that right time, patience will be amply rewarded. In the mean time there are other things to buy. I take what they give me.