How to Invest in Bank Stocks

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To invest in bank stocks, wait until the real estate market stops declining to determine which banks will survive for years to come. Being buying up bank stocks as soon as the real estate markets begins to pick up again with information from a portfolio manager in this free video on investing.

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Video Transcript

Real estate prices in your neighborhood going down still? Once they stop, bank stocks might be something for you to consider as a portion of your portfolio. The reason is when the price of real estate begins to move up again, bank stocks will likely begin to outperform. The problem is that as long as the price of real estate declines, you really don't know which banks are going to survive or not. So today, it might be early to make an investment in the bank sector. You could be a chicken though, and play banks which don't have real estate exposure. In other words, you can buy an investment bank, such as Goldman Sachs as an example, or perhaps you could buy one of the more consumer focused lending businesses such as Gladstone or American Capital. Before buying them, you need to do your own research. Consult carefully with your...with your knowledgeable, and this is key, financial adviser. And I'm not recommending purchasing these companies today, I'm just saying as an example, they are ways that you can play banks, get high dividends and not necessarily have total exposure to the real estate business. Now, what banks are likely to survive? Well perhaps some of the more regional banks where they've done a better job of picking properties to make loans to that have not let them come, become such a big piece of their portfolio that they're going to overwhelm the bank and force it into bankruptcy. It's early days, you need good research. Get some help. Be very careful this sector. If you are considering doing it, one of the other things you can do is look for a preferred stock, or even better yet, a cumulative preferred stock. What that means is: you're going to get paid first in terms of dividend and if it's cumulative, if they stop paying the dividend, they're obligated to catch up on what they haven't paid you when they have cash again. Rule of thumb, I was always taught you buy bank stocks when they sell at one times book value, real book value, and you sell them when they hit two. Are we at one today? I really can't tell you that because we won't know until real estate prices stop going down. When is that going to happen? I don't know. Is it likely to happen in two thousand and nine or perhaps two thousand and ten? Yes. But the exact time, I don't know. Expect great volatility in that sector. I'm Roger Groh and that's a little bit about buying bank stocks.


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