What to do with JP Morgan?
I just closed my JPM outperform pick. Interestingly, I have had an out perform on it for over a year and I am closing it as a winning pick with a 4 or 5 percent relative gain. What bear market in financials?
This is only a move to boost my accuracy since the stock could dip further. If it moves too far below $25.00 a share, I will probably put an out perform on it again.
In my real portfolio about 30% of my net worth is in JPM. I’m a little uncomfortable with the 30% number and would feel better if it were around 15%. Mainly I have so much of the stock because I worked there and it is in my 401k account and stock purchase plan account which allowed me to buy the stock a few years ago at a cost basis of $24.00 a share.
What do I think the future holds for JPM? They avoided disaster in the sub prime mortgage meltdown but now everyone is worried about massive defaults on credit card balances. Let me reassure you that of all the things that could destroy JPM, credit card defaults are not one of them. See, I was a customer service rep from 2000 to 2006 in Bank One/JPM’s credit card department. Sometime around 2002 or 2003 shortly after the Bank One/JPM merger, the company got serious about reducing risk in its credit card portfolio—and I mean very serious! We did wave after wave of nasty reprices on credit card accounts (the kind that the media loves to rant about) in which interest rates on some of our riskier customers’ credit card accounts went up from a normal 12 or 13 percent to unreal heights of 24, 25, even 28% depending on where the prime rate was at the time. The effect this had on the customer was anything from him/her transferring the balance to a different bank to going to Consumer Credit Counseling to filing bankruptcy to sucking it up and paying the higher rate. Basically the company made the decision that those high risk accounts would either take their business elsewhere or compensate for their higher risk by paying a higher rate. This repricing was not just a phase but a way of life for the rest of my tenure at JPM. Some days it seemed the only calls we were getting were about rate increases. Let me tell you, this was a stressful job!
I think the stock will outperform the market over the next five to ten years. Warren Buffett doesn’t like it because of its derivatives. But we don’t have to make exactly the same decisions as Buffett to get ahead in this investing game. However, if its derivatives at some point become an issue, even the great Jamie Dimon won’t be able to save the company and the stock could greatly under perform. But, if the derivatives never become a problem, the stock will do very well.