My Trade of the Decade Is Very Much Alive
In the midst of all that has been going on in the markets, I have not talked much about small banks. Last night, an associate asked how that Trade of the Decade was developing and if I still believed in my thesis for the sector. The trade is going just fine, so far. We have been nibbling and picking at cheap small banks for some time and, overall, the portfolio is more than holding its own. The long-shot banks that were bought by private equity firms have been about as volatile as predicted, with a few huge wins and a few that have just been disasters. I have no intention of selling any of these semi-distressed gems, so I don't worry too much about the price gyrations. If little banks like Flagstar (FBC) and Hampton Roads Bankshares (HMPR) work over the next decade, they will make me a lot of money. If they go under, I will lose a relatively small amount.
My core holdings of small banks with lots of excess capital and low loan losses trading below tangible book value is doing just fine. If you look at the First Trust Nasdaq ABA Community Bank Index (QABA), you can pretty much tell what's going on in the sector. The little banks roared about 40% higher after the September bottom and have since pulled back a little over 10%. Investor caution towards the sector is growing, given the continued pressure of low-interest margins, higher regulation and the latest news that small banks would be subject to the Basel III capital requirements....344 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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