The Democratization and (In)accuracy of Financial Data: BofA's Share Price

When it comes to making money there seem to be more opinions than money. This is startlingly true today after multiple trillions have been removed from world markets since the summer of 2007. (One would think there would be less interest in and more revulsion towards investing.)

I don’t intend this as a knock to the authors (bloggers) who find the world of finance an incredibly fascinating place to inhabit nor to the readers seeking to become better informed investors. On the contrary, an excess of opinions is infinitely better than the opposite. This is, of course, just one opinion.

The phenomenon of endless opinions can be called the democratization of financial information. It is an extension of the move away from full service brokerage, requiring no more than a yes or no from the customer, to the customer acting for their own benefit. These are very positive trends: to empower the individual with information readily available for free or little cost (not a case of you get what you pay for). Yahoo Finance, Seeking Alpha and Hillbent are a few examples of the wide variety of quality financial information available to the public.

I recently received gold certification from Seeking Alpha. Not knowing the significance of this seemingly honourable title, gold being a good asset to own these days (more opinions!), I looked up the Seeking Alpha criteria for obtaining gold nobility. I am happy to report that the authorship criterion assures quality reading based on: value to reader, restraining self interests (as in stock manipulation), originality and accuracy.

This brings me to my final point. With numbers flying everywhere on financial internet sites, it becomes important to question the accuracy of the data. A case in point: Yahoo finance key statistics for Bank of America (BAC) indicate a book value (most recent quarter ending December 2008) of $27.7/share. Book value is an important benchmark for financial institutions. With B of A’s shares trading below $6 on February 17, 2009, one must question the accuracy of the Yahoo finance data or assume the market questions the value of the billions of dollars of illiquid assets sitting on B of A’s books as well as the books of other major banks. Well respected economists, Paul Krugman in particular (noble prize, economics), claim some major banks have no value (does not name names) and should be nationalized.

Making a long investment in a bank whose book value could be anywhere between $0 and $27/share seems like a poor bet even if the shares appear cheap at less than $6. But this is just one opinion.

Disclosure: None

Comments

[Conan the B...:]

I'm making a monetary wager that BAC will not be nationalized. I own 2 sets of preferreds now.

The ordinary Preferred series J and the Trust preferred series X. Each at an average cost of around $11.

Average Yield is around 15%.

I believe in the continued buying by Insiders but prefer Income.

Granted its not like buying the common but If I'm going to take the risk, 15% annually is one I'm willing to assume.

IMO

Feb 18 05:27 AM

[NITRAM:]

I dont think we should Nationalise BAC. What we should do is press criminal charges against K.Lewis and J. Thayne. Lewis should be thrown out. Why hasnt the board acted. Oops, they didn't do their job on the purchase of Merrill. Therefore the individual board members should be charged with violating Fiduciary Responsibility. Clean house and with new management wthey will come back. Remember, we have millions of good men to take over these banks,

Feb 18 05:43 AM

[Dr. James V...:]

I have calculated the REPORTED book value per share of BAC common equity as of December 31, 2008 at $27.77 per share. Those favoring nationalization say that BAC's true common equity (tangible common equity TCE) would be negative if you marked its assets to their true market value, which they assert is the amount that would be paid by private equity investors for BAC assets.

You might find my comments of BAC on my blog of interest, see:
bankofamericamonitor.b.../

Feb 18 09:02 AM

[Syl:]

I can't see any reason why the government should take my money because one or two individials did not do their duty. I have to wonder why the directors should not be sued for not fulfilling their fidiciary duties. Should we also nationalize the auto companies? Should we some how put some controls on the United Auto Workers? Hey, this is a global recession, not just an American problem.

Feb 18 05:21 PM