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TMFPostOfTheDay (< 20)

Buying More Bank of America



July 19, 2011 – Comments (5) | RELATED TICKERS: BAC

Board: Bank of America

Author: B0BERT

After the recent $8.5 billion in charges, BAC has $12.50/share of tangible book value. Essentially $27.7 billion below liquidation value right here.

For some reason, people keep posting the exact same information, and people still keep selling. Like this.

We've known this. I've read this $50+ billion number over and over for a month, and people keep writing it.

There's no bankruptcy risk here, just frustration that BAC faces an avalanche of charges and won't be able to raise it's dividend or buy back stock. People forget they earn over $110 million pre provision EVERY DAY. They will live.

Ben Graham wrote in Security Analysis that the market in the short term is essentially a popularity contest, and right now NO ONE likes BofA. Remember A&P grocery store? in the 1930's, A&P was the largest retailer in the country, selling for less than it's cash. Why? Fears of new taxes on chain stores! Not much different than BAC today.. Different fears but the same FEAR that blocks peoples ability to think clearly. Fear of litigation, capital charges, foreclosures. History repeats over and over.

I also think people forget that in addition to earning capital, BAC can shrink itself to raise capital. Let assets run off, sell divisions, sell China Construction Bank, etc. It's simply not the end of the world, and everyone seems to think it is.

So, Congratulations to the bears. You've done well. Not sure how low this will go, but you've done well.... And I'm still buying.

5 Comments – Post Your Own

#1) On July 19, 2011 at 11:10 AM, MoneyWorksforMe (< 20) wrote:

Ouch. Really?

The problem with your reasoning is that in terms of both sentiment and valuation BAC has appeared to be a good play for months now, while its share price has continued a precipitous decline.  I challenge you to find what's really pressuring this bank and find out whether or not that has changed. If it hasn't, this will continue lower...

Also something to keep in mind is that prior to the financial crisis, many of the big banks appeared to have "great valuations," but as everyone soon came to realize, nothing could be further from the truth...Just some food for thought... 

By the way, beneath the surface BAC's report today was NOT good--not even close... 

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#2) On July 19, 2011 at 12:18 PM, awallejr (34.04) wrote:

I kind of like the idea of selling the Jan 2013 10 or 7.5 puts.  Worse case you get to buy the stock at even a lower price than now and you give it more time to work through its problems.   Or you get to keep that pretty hefty premium.  That was the play for C and BAC back in 2009 until all that dilution occurred, though BAC not as bad as C.

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#3) On July 19, 2011 at 12:31 PM, dbtheonly (< 20) wrote:

And where is A&P today?

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#4) On July 19, 2011 at 12:34 PM, dcgatlanta (35.59) wrote:

The problem with Bank Of America is the balance sheet holding $2.2 trillion in assets.  Since these assets are not being marked to market, we don't know what they are really worth.  My guess is that honest accounting would mark their assets down by at least 10% and thus make B of A insolvent.  With that, a stock price of zero is not off the table.

 If I ever decide to take a position in BAC, I'll do so via call options to limit my downside if the worst case scenario plays out.

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#5) On July 19, 2011 at 12:41 PM, TheDumbMoney (71.26) wrote:

The A&P example is right out of The Intelligent Investor.  I bought a LEAP for BAC, but I am also wary, having not looked through all the details.  Also, I would look to see a bit of a technical turnaround here before I put a lot of money in it.  Technically it is still going nowhere but down.  If/when the debt ceiling is resolved, we may see a turnaround. 

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