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The hard thing about a bear market isn't watching my portfolio take successive haircuts. It's regretting that I don't have more capital to deploy. The time to sit in cash isn't when the financial system is melting down--it's during the even more frightening periods, those of irrational exuberance.
Right now, there are value investors buying companies for a song that will bring them fantastic returns for the next decade... and I'm looking under the couch cushions for spare change. Now more than ever I value the dividends my boring, large-cap investments throw off periodically--not because they offer protection against a decline in share price, but because they provide a cash stream that lets me snap up bargains.
My biggest mistake this week: taking a pass on Lloyd's (LYG) and Allied Irish (AIB) in the low $20's. The former is among the most conservative of the British retail banks, and Allied Irish, though it has some exposure to the housing meltdown through M&T and its own loans in Ireland, where the housing market is cooling off, is well positioned for long-term growth both in Ireland and in emerging Eastern European markets, particularly Poland.
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guliamo
Jul 19 at 11:32 ET
Revenues and earnings are down for AIB and LYG.. what do you think about STD that was mentioned here earlier? They have taken less of a hit (20% since may) but show revenue and earnings growth.
Top 4%
BenGraham
Jul 19 at 12:20 ET
I do like Santander (STD), though I haven't done the hard work to put a dollar value on it. To the reasons already mentioned, I'd add year over year improvement in the efficiency ratio, good EPS growth in a challenging environment (construction is slowing in Spain, as well as the U.K.), a nearly 4% yield, and, particularly, their strong position in Latin America, where GDP growth continues at around 4-5% in many nations. STD's growth in gross operating income looks to be outpacing expenses by nearly 4:1. Unlike some investors, I did like the purchase of Fortis's Brazilian wealth management business: the next generation will see a non-linear increase in the number of very wealthy people from Central and South American nations, and money management is potentially a very lucrative business to be in.
Clearly Santander is a bit growthier than Lloyds, whose main selling point is the conservatism of its management, along with the hefty dividend. I expect to get another crack at LYG as the UK undergoes its own housing troubles, which will lead to a certain amount of belt-tightening in retail banking (though Lloyds should also be well positioned to do some buying, and clearly management isn't averse to picking up some other European banks or their assests on the cheap).