IF you are investor for the long terM?

Question

If I'm a investor for a long term thinking about holding a financial stocks like JPM or C or USB for more than 30 years, should I buy them despite the financial crisis?

Answer 1

Some financial companies will probably go bankrupt before this economic crisis is over.   And if you buy the wrong company.  Then you may end up with a short term investment that leaves you with a permanent loss.

The best companies to buy for the long term are those that are doing well now and probably will do even better in the future.

Answer 2

For the long-term (like 20-30 years) financial stocks are a very, very good idea, since they MUST either recover, or the whole economy must collapse and money cease to exist.  Whilst that is not completely impossible, it's pretty unlikely!

Unless you are going to carefully monitor each of your holdings for individual problems, however, it might be a better path to use a mutual fund that invests in financial & banking stocks, since that dilutes out the inevitable occasional "disaster" stock.

Answer 3

Sorry, but in today's world I think "Buy and Hold" is a failed philosophy for individual stocks.

One reason is the still high PEs. Blue chips used to sell at around 6 to 8 times earnings and were growing companies when buy and hold proved so profitable. But today you don't know where the competition will come from. It could be China, or the Mideast.

Another is the lack of dividends. Companies used pay out most of their earnings. They don't these days. "Growth" is what is all about and they invest that money either back in to the company or others to "grow". That greatly increases risk compared to reinvesting high dividends that cost averaged stock prices. It also made stock prices more stable.

If you want to "buy and hold" I think you should buy an index fund. Even with a passively managed index fund, companies that fail fall out and are replaced with growing companies.

And an actively managed fund will avoid the dogs and overweight the winners.

With the financials not even the experts can get a grip on what they are worth right now because the underlying asset values are so much in flux.

And some banks are in a much better place than others.

In the least if I were to dip my toe in to the sector here I would buy a sector fund. One where I would have some confidence the manager was good. With a sector in so much turmoil thinking you know better than the pros I think is a bad idea.

Remember you want to buy GOOD and profitable companies that are undervalued, not buy companies that are priced low because they are losing money like the banks right now.    

Too much changes too fast to try thinking about an investment over 30 years. You should reevaluate individual stocks for a SELL regularly imo.

I saw somebody asking about and later claiming to have bought GM because it was "cheap". They lost 15-20% of their money this WEEK.

Be careful.

Answer 4

the contrarian style has shown itself to be a major creator of wealth in the long run - it's basically an extreme version of value investing, which is the most profitable, widely used style.

however, i would wait a bit - in the long run, if you miss out on a couple of dollars of capital gains now, it won't kill you. personally, i am waiting until the major financial firms can go 2 consecutive quarters without announcing major write-downs.  if i miss a few points on C, UBS or BAC, i can live with it - at least i won't have bought in right before another BSC-like collapse.

Answer 5

thats a good thought but you can wait a while cause they are just going to go down further. The credit crisis is going to be prolonged due to higher costs due to rising oil which means low consumer confidence.  Despite low rates people are not taking out many loans which is how the banks make money.  Maybe in the beginning of next year but you want to buy as low as possible, your thought process is correct though, buy low especially after an industry is hit hard.

Answer 6

If you are an investor for the long haul, certainly certain bank   stocks might be tempting.  There is no rush to jump in; but when blood is flowing in the streets, as it certainly is now one is tempted.  However, each day the blood is flowing faster than the day before.  Personally, I would be hesitant to buy C at any price.  The company is an absolute disaster. The CEO is the ex manager of a failed hedge fund.  Geez.  

I am however riding USB, riding it down that is.