Is the Time to Invest in Banks approaching?

SouthCoast

You will be gambling against some very major players.
Rough value of total trades on Friday:

BARC £87 million.
LLOY £26 million.
RBS £17 million.

gozomark

You will be gambling against some very major players.

you will also on the same basis be gambling with very major players, as every share sold is also bought....

Decadent_Fool

gozomark wrote: »

as long as you see it as £ 5,000 you no longer have, then you might well be in for a nice surprise, but there is a real risk that you will never see your money again.

There is also the risk that the bank's market cap will be alot higher in a few years than now, but that you will own a smaller %age of it as new shares are issued.

There's a 'real' risk I could die next time I go out in my car as well, but I still do; we all do. But we make sure we know the road, we wear our seatbelt, and our car is roadworthy. If we didn't, we'd expose ourselves to greater risk, and face the consequences...despite our best preparations though, accidents still happen. That potential risk is still there but I still go out in my car, so that I can achieve my objectives.

I've done my research, and looked at the factors. I am aware of the potential risk, and made my investment decision based upon my best abilities, knowing that yes, that accident may happen but I still want to make the journey.

As for market capitalisation, you're right, I could although I doubt the company would want to issue more shares and devalue their existing ones, when other sources of funding are available...or the share price could rise to £10 a share where the company issues a 2 for 1 scrip issue to make the shares more 'liquid', which in turn rise to £10 a share again, meaning my £5000 (bought in a share ISA with no capital gains tax commitment on sold shares or dividends) would be worth £200,000, with 35p per share dividends every year.

Who knows what the future holds? I doubt the above is likely to happen and I've not bought thinking that it will. I'd just rather be realistically optimistic, and invest accordingly.

gozomark

to me the key is - if you are right, don't sell too early - given there is a real possibility of losing the lot, I wouldn't sell unless it, at the very least, doubled, and would really look for much more than that given the inherent risk in the trade.

Decadent_Fool

Absolutely; I'd be happy with an eventual £2.50 a share.

I'd be interested in hearing why some people think the banks shares are so cheap?

gozomark

they are not cheap (necessarily) - they are low, which is not the same thing at all.

Aegis

gozomark wrote: »

they are not cheap (necessarily) - they are low, which is not the same thing at all.

And they're presumably low because people and institutions realise what a huge risk they currently represent to investors.

Decadent_Fool

gozomark wrote: »

they are not cheap (necessarily) - they are low, which is not the same thing at all.

That's the root of this debate isn't it? I believe they're cheap, and undervalued.

Anyone considered the implications of short selling here?

mrposhman

They may be undervalued yes, they may be cheap, yes, or they may be just low, but unfortunately some people may look back in the future and say "I wish I'd invested". Or it could be a case of "what was i thinking".

The point is hindsight is awesome but once hindsight kicks in you've missed the boat.

The way I'm looking at the situation is this. Over the last week, there has generally not been any bad news for Lloyds, its been relatively good actually. However, in a week the following has happened.

Lloyds share price has fallen from £1.04 to 49p. This has also been the first week that Lloyds have traded as LBG so you have to compare the share price (and the relevant market cap) with Lloyds and HBOS from last week.

I did a calculation earlier in the week and the below is from memory and use rough share volumes.

I think Lloyds had roughly 8bn shares which at £1.04 valued Lloyds around about £8.32bn. HBOS closed at 70p and they had roughly 12bn shares which valued HBOS at about £8.4bn. The combined market caps are would therefore equal around £16.72bn.

LBG (with their new share capital of around 16bn shares) closed on 49p which would provide a market cap of the entire group of £7.84bn. I have used rough calcs here but the actual market cap is £8.054bn so I'm not far away.

Can anyone say that they think enough bad news has come out in the last week for LBG to close at a lower price than LloydsTSB did last week and at less than half of the value of the entire group last week? The value of HBOS is therefore priced in at a negative value to LBG. Seems a tad extreme to me.

sabretoothtigger

Everyones view here is biased because you see these banks as a consumer would. If you viewed them as a creditor or through the debt markets it would be more accurate most likely.
Their future relys on managing their debts which are leveraged and also in foreign currency, its pretty dire.

Another view would be to try and predict gdp, a positive there would mean alot I think. Betting or relying on politicians or consumer views of 'your' bank is a dodgy game.

Long term gain should be plan B, invest now for short term. Your invested so much there you could well make a nice gain, that profit is what I'd then leave in the shares for the long term risk/gain.