Citigroup: The Death of Buy-and-Hold Investing?

[Excerpted from Bill Cara's Daily Report]

Sex and the City was a very popular television and movie comedy-drama. Washington and the Citi, on the other hand, has been a drama totally devoid of comedy or sex. Call it nationalization or call it a public-private partnership, but traders walked out of the theater this week. They had wanted to see Citi fail.

Citigroup (C) shares have now plummeted all the way to $1.50. Oh, how the mighty have fallen. As recently as April 2008, there was a high of $29.89 and as much as $56.28 in 2007 when Citi was the largest financial services company in the world. But C is now down -$55/share on 5.5 billion shares, losing roughly -97.7% of market value, causing the single biggest loss of wealth in world history. And if it wasn’t for the US government (ie, taxpayer) stepping in, there might even be a movie called the Lost Citi – or as some of us would like to have the script written, the Last Citi.

To watch Citi self-destruct in only about 16 months has been stunning. All through this drama, management tried to make it appear they were in control, and their investments in real-estate mortgage-backed securities would pay off, while others claimed the destruction was due to short-sellers. They all lied. Greed made them do it.

The Citi case study, however, has an upside; it has led to the death of buy-and-hold investing, which is ultimately a good thing in that the public can now see that vested interests of a relatively small group of Wall Street connected insiders, acting without full transparency, some might say deceptively, can be ripped apart by free market patriots from Main Street.

Moreover, regulators in Washington have now been shown that the one-stop shop marketing concept was really a ruse for management control by a small group who used their added power over shareholders to greedily pay themselves billions of dollars in annual bonuses.

Greed; it’s all around us, and in truth we need it, but clearly not too much.

Comments

[ANTON:]

It is my perception and speaking from the vantage point of a retired shareholder that your views are a trifle onesided. Greed is/was not the overarching consideration it was the third leg of the milk stool of retirement.
You need to put names like Weill and Rubin in you article. Yes specifically
those two names, not generalize and throw the baby out with the bathwater. They ""madoffed"" us perhaps legally on paper but not by much more..they knew..they killed off the pension plans for thousands! They will have blood on their hands if ever I have anothe medical emergency.. me, now retired to take an equity loan which I did. Unless
Messrs. Weill and Rubin start offering their billions for those of us that got fleeced and can't afford medical treatment at the famous Weill Cornell Center - or is it only for his friends --these people are without shame and decency and should be investigated.

We that made CITI - I spent 20 years there under John Reed had opted to participate in drawing on its then meager dividends. We were proud of what we did of what we accomplished in bringing change to former FNCB.

Mar 01 04:16 PM

[mangy cat:]

who says no sex?
reeks of rape, s&m and coprophagia

Mar 01 04:45 PM

[James Wilson:]

They are lucky the Government does not shut them all down until they clean up their mess in the consumers favor too..

Mar 01 05:30 PM

[User 367350:]

This article is simply cr*p. Greed..... that was only a variable in this equation. What about lack of regulation from the government. Irresponsible consumers who bought houses they couldn't afford, speculators that bought three houses without downpayment..... Be serious....

Mar 01 07:18 PM

[Fish Gone Bad:]

I am trying to think of when Citi was possibly a good buy. I know, Friday 02/27/2009. Now that the US is really really really stepping in to help, and calling in all kinds of favors, this dog with fleas might actually get up over $5 where it will become eligible to be shorted.

I absolutely detest Citi, BofA, and AIG. Time and time again we see BofA get hammered to a new low and then rally back almost to where it was. Perhaps that might happen with Citi as well and it will rally back close to $3.00.

Mar 01 10:55 PM

[Framkly:]

I don't understand, I am from the last city in the 50th state in education. If the dollar is getting stronger and fast, and these dollars bought about a third stake in "c" , Why is this stock crashing ? One with shares now co- owns with the United States of America. I am on Monday morning going to put the farm on Citi.

Mar 01 11:38 PM

[Gone Fishin':]

There was obvious fraud involved in this whole mess. No one can construct a mortgage based security where not even the Federal Reserve can deconstruct it and call it legal. It was selling smoke and mirrors, not securities. There was nothing behind most of this junk and they sold it on the bold face of their reputations as the biggest, the brightest and the best. No one in their right mind will buy anything from these clowns ever again. So how are they going to stay in business? You got it. They are already concocting the next swindle and it will sound just as sweet as the last MBS they sold. A few years from now we will be right back here, but America will be broke by then and no one will be around to bail them out. So capitalism will finally kick in and a tiny regional bank will buy out the assets of one or more of the giants and we will get back to a normal economy instead of this pseudo socialism.

Mar 01 11:46 PM

[Subhankar:]

The report about the death of buy-and-hold investing is also highly exaggerated!!

Mar 02 04:00 AM

[Sell Home:]

I always thought investing in citi was not good from beginnning.They just had this huge umbrella of financial portfolios that didn't make sense at the time.I was little optimistic with the new CEO they got but he had too much mess to clean within the short period.

Mar 02 04:39 AM

[ResourceWise:]

Buy-and-hold has been in a long drawn out death-spiral for many years. Ask any trader and they will tell you that they don't care if the market is moving up or down, as long as it is moving! Even the buy-and-hold investors like pensions funds lend their shares to speculators, so that they can 'short' stock, create volatility and make money. Where do the billions of dollars 'made' by these speculators come from? Without major reform of these markets, buy-and-hold cannot survive.

Mar 02 05:55 AM

[drevno:]

The buy-and-hold strategy MAY still have its place with those kinds of stocks that represent companies with a proven track record both financially and product-wise, are popular with the institutional investors and DO pay dividends (thus augmenting the overall return over a longer term). Such stocks may also suffer declines in shorter or longer cycles, but do exhibit a long positive trend. I believe that size (market cap) matters less than the position of the company in the actual, "real" marketplace.

Mar 02 06:30 AM

[pacman1947:]

Bill,
Don't you find it odd that buy and hold is the precise strategy held by Geithner and Co.? I believe in that strategy if you know the company, its market, its balance and cash flow sheets, its management, and its business ethics and reputation. I don't get good fuzzies thinking about our bailout babies, do you?

Mar 02 09:43 AM

[bobbobwhite:]

It will take at least until the next generation for buy and hold to become effective again, if ever. And, at least one third of today's retail investors will never return to the stock market, and possibly up to half of them. Most of these should have never been there in the first place, so that is actually a good and progressive thing that will actually help the stock market return to the health it should have, and not the diseased way it has been functioning for so many years.

Mar 02 01:29 PM

[Chickenpookie:]

This is quickly becoming a NINJA global economy. We'll be lucky to see only double digit unemployment judging by the rapid rate of economic deterioration we're witnessing. Already, California has double digit unemployment and the impact from the global slowdown has only just begun.

We'll be lower tomorrow and again the next day, I don't see many positive indicators on the horizon. Perhaps greed is now short the market, which could possibly bring about a quicker end to this nightmare.

Mar 02 01:36 PM

[Chris B:]

"The Citi case study, however, has an upside; it has led to the death of buy-and-hold investing, which is ultimately a good thing in that the public can now see that vested interests of a relatively small group of Wall Street connected insiders, acting without full transparency, some might say deceptively, can be ripped apart by free market patriots from Main Street."

----------------------...

How exactly does trading in and out of a stock provide greater protection against greed and malfeasance than buying and holding the same shares? I'm really curious about the rationale here.

Perhaps the recently superior results of various trading strategies vs. buy and hold can be explained by a simple observation: THE MARKETS WENT DOWN and traders held the shares for fewer days than buy-and-holders. When markets go up, you'd logically see the reverse.

You'll also see various pronouncements about how this is a trader's market and buy-and-hold is dead for good when stocks are going down. Then they go up again, and people start defending their investment theses by pointing to the gains you could have had if you held from the bottom until then.

Mar 02 03:23 PM

[decoflair:]

Well, well, I must say that there are more intelligent people today calling or the end of "buy and hold" strategies. Soon, there will be a magazine with a cover showing the death and burial o the securities industry. Tonight, Warren Buffet is speaking about our economy in a 'shambles.'
WOW! We must be close to the buying opportunity for the next ten years.

The last time there was so much negativism was the early 1980s when people were proclaiming that the United States was going to become a third world country (the rust belt mentality). Prior to the 1980s there was 1974-1975 when a major national magazine issued a report declaring "The Death of Equities."
Let's give ourselves some credit or our past achievements. Yes, we are in a jam, but we are working to find a solution. We will get ourselves out of this mess.

Mar 02 06:28 PM

[Moon Kil Woong:]

Just go to any broker. Buy and hold mantras still exist everywhere. It's what keeps you from cashing out.

When it dies, then you'll know. It's called market capitulation. In this downturn, it won't be because investors don't believe equities won't eventually rise. It's going to be because they can't afford to keep holding the position.

As for Citibank, we can learn a lot more from it than don't buy and hold a garbage stock forever (We can learn that from Enron and every other failed business). Here are a few: Don't let banks get too big. Don't let them regulate themselves. Don't let them gamble on things requiring no collateral and unlimited liability (derivatives). Don't let them keep losses off the balance sheet. Don't let government bail them out and keep the existing bad management. Don't let them bet trillions on contracts that are undtandardized, untradable, and undisclosed to their investors (derivatives). Don't let banks write contracts that are like insurance companies and brokerages or otherwise break down the barriers of Glass-Stegall. And most of all, don't depend on the government to fix a bad situation. Usually all they do is make it worse.

Mar 02 10:06 PM

[Cricketer:]

As a former Citi employee I agree with your article. The culprits are Weil, Rubin and Chuck prince. As a current poor shareholder I would say the following:

1. Break up Citi and sell the profitable Asia operations of Citi
2. Divest SSB completly
3. Go back to traditional banking and stop trying to be a financial hypermart. It does not work

Regards,
Cricketer

Mar 04 08:49 AM

[oldgoldbug:]

I first heard about Sandy Weill back in the 70's when he was moving up the Shearson ladder. Back in those days Shearson had the reputation of playing fast and loose and getting into lots of trouble. Sandy led the pack of thieves nicely. I suppose not much changed. So Sandy and friends put together the behemoth of Citi which IMO was just a way to continually cash out more and more money. This was all about Sandy and friends making lots of money - if employees and shareholders got hurt well then too bad. It all sounded really good and the regulators (and BOD's) went along with everything - I wonder how much money had to change hands and in what form to get such a hands off approach from the government. In fact, the "bailouts" could be viewed as belated attempts by the government to fulfill the regulatory function abdicated in the past. Unfortunately the cost to society appears to be extraordinary and all so a few could make an extra billion or two.

Mar 08 12:30 PM