Avoid Banks Like the Plague, Buy Tech

At dinner parties, I generally avoid talking finance. America’s looming funding crisis doesn’t make for good small talk — according to my wife, anyway… Apparently the sheeple would rather shove their fingers in their ears and chant nah nah nah . But this past Saturday, we were at a friend’s house for dinner in Bethesda. The typical D.C. business crowd was chatting over drinks when I heard someone talking about how cheap bank stocks are… I probably should have kept my mouth shut, but I couldn’t resist. The bank-bull turned out to be a young broker from a big investment firm. When I joined the conversation, he was explaining to the group how cheap Bank of America (BAC) stock is. “BAC is a $25 stock,” he told the circle of D.C. suburb-dwellers. The fact that it’s trading at $12 means it’s a bargain, obviously. “What happens if banks are forced to use mark-to-market accounting? What about that big subprime portfolio?” I asked. Deer, meet headlights. It was clear he had no idea what I was talking about. I brushed off my questions as insignificant accounting stuff, and changed the topic to something easy: football. (My wife breathed a sigh of relief.) He turned out to be a decent guy, and we had a nice chat about recent NFL action. He was a Patriots fan, and I was willing to overlook that. The thing that bothered me was his bullishness on bank stocks, combined with the fact that he knew zilch about shady accounting practices and loan books. Who knows, Bank of America may be a good deal at these levels… But that’s not the point. The point is that we don’t know, really. U.S. banks are a big fat unknown. And I’m fairly certain one of the first lessons in Investing 101 is don’t buy what you don’t (…

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Avoid Banks Like the Plague, Buy Tech

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