Bank Stock Investing

Bank Stock Investing

Bywww.CandlestickForums.com

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With all of the bank bailouts last year bank stock investing did not seem like a

very good idea. However, a strong portfolio often has a bank stock.

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There are pros and cons to bank stock investing.



A well managed bank is a money making machine and a bank with a portfolio of

bad loans is a disaster waiting to happen.



If you want to get into stock investing in banks you will want to know how banks make their money and what the stock

market risks are for banks.



The basic money maker for banks is the difference between the interest that the bank pays and the interest that the bank

receives.



The bank’s job is to attract savers with sufficiently high interest rates and good

service.



The bank’s other job is develop a loan and/or mortgage business with

sufficiently high interest rates and reliable loan payers so that there is more

money coming in than overhead plus what is paid out in interest.



The price of bank stock shares and their dividends depend very heavily on how banks handle their loan portfolios.



Traditional bank products include savings accounts, checking accounts,

and certificates of deposit.



Banks receive money from their customers and then lend it out. The key

factor for banks is to develop a loan portfolio with borrowers who reliably

pay on their loans.



In addition to savings accounts and loans banks offer services such as trust

departments, credit card processing services, payment services for

merchants, and various service fees.



To invest in stocks of banks it is wise to have a clear idea of how the bank whose

stock you want to invest in makes its money.



Banks carry a reserve against expected loan losses.



If the bank has a substantially larger percentage of non performing loans than expected they will experience

losses.



A recurring problem in picking stocks in the banking industry is that when interest rates are high and the

economy is booming,



banks may tend to write loans to borderline customers. Stock shares go

up but when the economy goes bad non performing loans increase.



Bank stock investing is about stock dividends and, in some situations, bank

growth stocks.



Investing in banks can be a good idea if a bank offers a good dividend yield, has more than adequate loan reserves on

good quality loans, and has reasonable prospects for growth.



A well managed bank may demonstrate excellent growth with multiple takeovers

whereas a poorly managed bank may look strong with takeovers and end up disappointingshareholders with losses.



When one sees large banking receiving Federal Funds to help maintain credit in

the economy it is not reassuring to individuals interested in bank stock

investing.



However, one might argue that the bailout money was meant to keep the

overall economy going, not to keep individual banks afloat.



The economy was in trouble and the stock market looked like it was

collapsing.



However, there were still stock picking opportunities among bank stocks

during the panic to sell and get out of the market.



Bank stock investing is susceptible to the same investing and trading

psychology as all stock market investing.



When things look bad all stocks drop, including banks that are really in good

shape is often a good time in bank stock investing to pick up a good deal or two.



Much of the appreciation in bank stocks comes with buying at the bottom of an economic cycle instead of at the top.



Picking stocks among banks with strong balance sheets, loan reserves, and

performing loans will pay well as the market rebounds.



Investing in banks, like all stock market investing requires that you do stock

market analysis and that you continue to do stock analysis in your portfolio.



It can be very lucrative if you learn what makes banks tick and pay attention to

detail. Often times doing your homework is everything.



Bank Stock Investing

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