Chungst

How To Buy a Bank (and Other Beaten-Down Stocks)

I remember the banking crisis in the early 1990's -- back when NYC has numerous money center banks such as Manny Hanny, Chemical, Chase, etc. and Chase traded under $10 a share (back then Chemical was too big to fail). As I look at Mr. Davis' investment thesis on banks, it's clear to me he is a gunslinger -- shoots first and asks questions later -- since there is no analysis of a bank's stock price in relation to its book value, respectively.

There's nothing wrong with taking risks or using options (a levered product) to employ these risks. But once you factor in frictional costs, i.e. wide bid-ask spreads, commissions (especially for the rolls), and short-term taxes on any gains, there's not much return left to justify the risk taking in the first place.