I purchased Bank of America on the 8th of December, without doing any fundamental analysis, after they had announced they were repaying their TARP funds.
Mistake No. 1 – Not doing any analysis
Logically speaking, I felt that the repayment of the TARP funds was a key indicator of the prospects of BofA. Ken Lewis was stepping down (Positive Point 1), they were searching for a new CEO and as BAC was in the TARP, they could not offer astronomical salaries to the replacement CEO. With the repayment of TARP, they had this cap lifted off, and could carry on the search for the new CEO (Positive Point 2).
Mistake No. 2 – Overthinking Merrill Lynch
BofA’s merger with Merrill Lynch was a major disaster, and resulted in BofA seeking the aforementioned TARP funds. As the economy recovers, so will the risk appetite, and this means more capital for Merrill Lynch. I had put too much emphasis (again without any fundamental analysis) on the profitability of Merrill Lynch, without much regard for BofA’s other income generating sectors.
Mistake No. 3 – Calculating upside based on past performance.
Looking at BofA’s share price, I looked at the possible upside, which was at least 33%. Looking at this number clouded my judgment, and my warnings indicators became clouded. If that’s the case I should be purchasing China New Town, with at least a 100% upside. (I stated China New Town as I just finished an analysis of it)
I am still holding on to BofA, and will not sell it off just yet. The purchase has been made, and the paper losses are less than 5%. I don’t intend to sell it off anytime soon, and will wait for any new developments. Low interest rates are going to be around till at least May next year, and it will be good for the financial sector.
A reminder to all investors: Make sure you know what you are investing in, and do your analysis beforehand. Logically thinking does not necessarily work, and even if you develop a surefire investment method, chances are the market will smash it up into pieces.
On a sidenote which has nothing to do with investment, I am mystified by how Russell did not win the latest season of Survivor. I know that many people feel that Survivor is such a boring show, but if you have time, read it all on samoa.survivor.com.
*Disclaimer I am vested
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