Wachovia Revisited
I wrote not too long about about buying Wachovia. I got in just under $17, thinking that the worst of the carnage was over. If you followed me, you followed me off a cliff. Hitting an intraday low of $7.80 on July 15, it was a pretty awful call.
Luckily, it had an extremely speedy recovery, getting back into the $18 range earlier this week. Seeing that this was an unbelieveably aggressive move up for any stock, and that the indices for banks in general had jumped historical leaps in just a handful of days, the writing was on the wall that at least for the short term the way forward was down. So I took the opportunity to cash out for a very small profit and look for a new, much lower entry point.
Well goody for me. Now to the point: the fact is that this is not the first time I have completely missed calling a bottom in a troubled financial. I missed massively on AIG and on Citi as well. So how did I miss so badly on these two and yet hit so perfectly on Countrywide? One word: patience. I started watching Countrywide for a buy opportunity right after BofA bought in at $18. But I never saw the opportunity literally until the day I bought it at less than $4.50. And even then it was speculative, but I figured the fall from $4.50 to $0 isn’t too far so it was worth a chance.
So goes Wachovia and Citi and AIG. These stocks have put in new bottoms substantially lower than what I thought possible, so there is new opportunity to trade them. But this is going to require substantial patience and the ability to say no if conditions aren’t exactly what they should be.
I am still unsure on how to play Citi and AIG, or whether to play them at all. But with Wachovia, I think the chaos made clear the potential opportunity. On Friday, Wachovia again got smacked with a downgrade, so perhaps it will run all the way down again, and I am waiting for the new entry point. For me, if it gets under $10, I will take another look at it, with the notion that if bumps up a few bucks I will take a profit, and if it goes below $8 I know to get clear and reset.
For long term investors, Wachovia may languish for a while, but it’s not going under. If anything, there are a number of majors with the wherewithal and the room under the deposit cap who would love to have Wachovia’s footprint (think JPM Chase). So if it approaches that 52 week low again, it’s worth a look.
As for Wachovia’s new CEO Robert Steel buying 1 million shares at $16? In the short term, this is going to work out to be about as brilliant a move as BofA investing in Countrywide at $18. Take my personal experience here, and for heaven’s sake, do not use that price as the measure of a good price to get in. The opportunity will come much lower than $16, trust me. Alas, I do not think Robert Steel a fool. And while yes, this purchase serves as a vote of confidence in the company he is running, I also believe he sees from the inside that he can right this ship and expects that his investment will pay him back handsomely. And with patience, you can do even better.
Finally, you long term investors just remember the most important thing, which is the thing that I forgot and barely escaped getting burned: that what started this whole mess for these institutions is the housing crisis. And until that improves, the financial condition of these institutions won’t improve either. Be mindful of where we are overall in working off housing inventory and writing down losses related to housing. Only when this resolves will these stocks become something less than highly speculative.
Disclosure: As of publication I am have no position in the stocks mentioned here, but positions can change at any time. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.
