The Wall Street Journal reports (subscription required) that a number of prominent value investors have unloaded their stakes in beaten down financials, booking hefty losses in the process. The highly-respected Ariel Focus Fund has dumped its stake in Citigroup (NYSE: C), booking a 24% loss over three years. Weitz Partners Value Fund has dumped stakes in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Read the Journal piece for more examples.
It's impossible to look at these sales without wondering if it's a sign of a bottom. When the most patient investors have thrown in the towel, who is left to sell? Contrarians might look at this is a sign that it's time to dive into badly beaten financial stocks with subprime exposure, but I'm not so sure.
The reason that so many prominent value investors are bailing is that there is a complete lack of visibility and transparency at so many of these names -- the solvency of the company depends on the accuracy of the valuations listed on the balance sheet, and those valuations are in question.
It might well be that the brave few who buy these names will do quite well, but it wouldn't call it investing: buying something you don't really understand is speculating, and I don't think there are too many people who really understand the financial statements of companies like Fannie and Ambac (NYSE: ABK).
Value investors leap out of financials: sign of a bottom?
Posted Sep 2nd 2008 6:30AM by Zac Bissonnette
Filed under: Stocks to Sell
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Reader Comments (Page 1 of 1)
9-02-2008 @ 7:25AM
rin said...
When major investors begin to bail out you know that there is even more bad weather on the way. For the last whole year they have kept flooding the market with their false views of "the market is bottomed out" and "the financial sector is stronger than we think", while in reality they kept selling their holdings on every upswing. Now that they know that the worst is going to be unleashed....THEY BAIL OUT LIKE RATS ON A SINKING SHIP.
9-02-2008 @ 7:26AM
Neolight said...
IMO the way to put it is: value investors probably have to throw in the towel before we see a bottom, but just because many of them have doesn't mean we've seen the bottom, yet....
9-02-2008 @ 6:37PM
Tom said...
These guys can admit they were wrong unlike pompous Bill Miller. When Miller pukes his financials, the bottom will be in place.