The rally in financial stocks doesn't make sense to me. From October 3, 2008 to March 6, 2009, financial companies could do nothing right and the stocks were pummeled, with some declining over 90% in that time. Since March 9, 2009, financial companies can do no wrong. All news is considered good news. For example, Bank of America (BAC) needing $34 billion of capital is good news. Many of the banks required to raise more capital saw their stocks rise significantly this week.
I've learned my lesson and I'm not going against the investor sentiment in this rally. On October 3, 2008, I purchased financial stocks and lost a significant amount of money before selling on March 27, 2009. On April 28, 2009, I purchased the Ultrashort Proshares Financial ETF (SKF), only to see it lose 36% in only nine days. For the rest of 2009, I'm going to avoid contrarian investing and follow the trend.
However, in my opinion, this rally has some of the elements of a bubble, specifically optimists are starting to dominate and pessimists are leaving the market. Even Jim Cramer is now saying banks are a buy. Therefore, my plan is to continue selling into this rally. And should the advance become euphoric, I hope I have the presence of mind to cash out of a large portion of our investments :- )
Disclosure: At time of publication, I own shares of the Ultrashort Proshares Financial ETF.
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1 comment:
Abandoning contrarian investing and following the trend blindly sounds like another recipe for disaster. The key is to not just be contrarian; you have to be right.
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