Blowing a trumpet of false belief

I few days ago, I made a bullish comment re the bank sector:

“When bubbles deflate, savvy (and lucky) investors can pick off the bargains and make a tidy profit, but buying too early can also spell disaster. One signpost of value that I’ve been looking for in the UK financial sector is bidding activity, and while a bid from either private equity house or sovereign wealth funds would have filled me with greater confidence than a bid from another financial institution, I believe it is still an important signal (especially given the premium of around 50% to the current market price) that we may be near the trough of the dip and that it may now be a good time to start investing in the UK financials as a basket.”

Look at the rally in the financials. I know things, you know, don’t say I didn’t tell you.

Truth be told, it was all luck. My view was a long-term call and I expected a bit more more downside before things got better. It was based on the simple notion that most folk did not expect the banking situation to unravel the way it has, but now that the sector, along with the economy, is the process of unravelling, many folk are expecting and pricing in much more damage than I believe will reasonably occur. Also, with the like sof Royal Bank of Scotland trading at more than 10 year lows and on a P/E ratio of under 3 according to Google Finance, one can guess that the extended period of good times that resulted from lending disintermediation  (I believe this was at the heart of the crisis) are more than priced out of the market. It’s all about relative expectations, to quote th late Sir John Templeton (pulled from a research note by SocGen analyst, James Montier):

“To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest rewards’, but few of us will find this easy.”

It’s fun coming up with opinions, but I don’t have the money make long-term investments, so my money is not where my mouth is. There are so many reasons not to believe too much in one’s abilities when it comes to assessing such calls. Perhaps, most importantly, is the idea that what happened was the result of a distribution of probable outcomes, and that this distribution will never be known. Was it a low probability event that just happened to occur, or were the odds really favouring a swing higher? Hindsight is all we have, and it is useless, especially when the sample size of one’s predictions can be counted on a single finger (that is, n=1). We will never know the truth. The time has passed.

These days, my short-term trades are few and far between, but when these trades do take place, I have learned that this type of opinion just gets in the way


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