July 14, 2008

Bank Failures - How to Avoid Exposure

With the failure of IndyMac over the weekend, concern about the safety of your savings is of paramount importance in many people's minds today. I will try to help answer any questions that any reader may have to help you make a decision on what actions, if any, one should take.

Remember, your deposits are insured up to $100,000, but there is no standard process on how one can get access to their money, even that less than $100,000 in the event of a failure. But at least you know that you'll be getting it all back! Here is a quick and dirty check-up that you can perform on your bank:

Go to http://www.bankrate.com/brm/safesound/ss_home.asp and plug in the bank(s) you are considering. Check the rating and then read memorandum for the particular bank. There is almost certainly a 4 or 5 star local bank within driving distance and probably within a few miles.

To give you an example of what to AVOID, look at IndyMac Bank. Prior to them going bankrupt, they had been given the worst possible rating and they had a negative ROI! The average for the whole industry the first quarter this year was .7%. Typically, 1% is considered "good." IndyMac was -7.0%. Not -0.7% but -7.0%! This was a big red flag.

Then go to http://www.bauerfinancial.com and check the rating they gave the bank as well. Sometimes the ratings will differ. But my thinking is if the bank in question has a high rating from both then that is a good sign while if it has a low rating from both then that is a bad sign.

July 12, 2008

Been a Long Time......

I know it's been a long time. What's someone to do when there's only so many ways that I can continue to tell investors to conserve cash and stay on the sidelines? So why am I writing now? Well, something has changed. I'm detecting panic and desperation and investors actually throwing in the towel and leaving the market in disgust. This is an important tell because at market extremes - the crowd is usually wrong (the crowd is actually usually right at most other times). So what am I looking for? I don't know. We could get a wash-out where the market washes out the last holders-on. But there are lots of investors just like me (on the sidelines waiting for this event) which decreases the likelihood of this happening. Probably, a little more likely is that the market's volume just dries up though and the market then starts rallying. Nothing spectacular, mind you. Just some days where the market slowly starts ambling up. What sectors should do well? Historically, coming out of a bear market, the sectors that do well are the ones that are already doing well - energy, commodities, agriculture AND the sectors that have been doing the worst - financials, real estate and homebuilders. From the best performing sectors, you can pick names out of Investors Business Daily, or just invest in the ETF's to avoid the exposure of a single company getting hit with bad news. I'd go the ETF route. If you have not already noticed my comprehensive ETF Locator, take this opportunity to familiarize yourself with it. Posted on March 14, 2008 at 5:04 PM on this blog. Good Luck.