Did the headline grab your attention? If so, then sit back, and enjoy this story, as I unveil what I believe to be the greatest opportunity to build wealth not seen in many, many years.
Over my lifetime, I have been fortunate to meet many individuals who have built an amazing level of net worth following a very simple plan of owning banks. This can be evidenced by portrayals of the rich in movies. There is a good reason the old miser in “It’s Wonderful Life” was a greedy old banker. Not flashy by any means, these folks have built a fortune by simply gathering deposits and using the capital for loans. It is all very quite simple and compared to other asset classes over time, owners of banks have made out like bandits.
That is until the “shucksters” of Wall Street concocted a surefire way to increase returns without any risk: slicing and dicing loans that would be repackaged, rated and sold to institutions. In a nutshell: Wall Street ultimately sold a bill of goods that they could not deliver. For years, the game of collateralized debt obligations (or CDOs) was played to perfection. The money was rolling in as promised as the market for these derivative securities exploded.
It was all well and good until the underlying mortgages became more rotted than a termite-invested two-by-four. With a boom in real estate, and the race to capitalize lending restrictions became nonexistent, anyone with a pulse could get a loan and mortgage lenders were happy to comply. With a pool of unlimited capital behind them, why wouldn’t they? Unfortunately, we now know how that story ended and it was not pretty. The collapse of the financial sector as a result of bogus loans that could not be repaid resulted in a credit crisis that we are all still reeling from (by the way, if you want to read more about what is really happening behind the housing and credit crisis, you’ll want to also read, "The Real Deal on Real Estate").
Fannie Mae and Freddie Mac
This week, the focus has been on government surrogates Fannie Mae (FNM) and Freddie Mac (FRE). Share prices of both have plummeted as fears of illiquidity grip the market (see, "Fanny Finally Gets Off Its Fanny?"). Even with the government guarantee, it cannot prevent current shareholders from complete decimation of value. These problems with FNM and FRE reignited fears across the entire financial space. As such, the market is taking no prisoners, as traders sell stocks across the board. There is no safe haven for those wishing to own anything having to do with banks, lending or brokerage.
What had been a nice recovery off the March lows has now taken an abrupt turn straight into bear market territory. Prices in the banking industry have fallen so far down, that they now represent the absolute greatest way to build wealth for long-term investors today. Ironic, huh? Bank stocks, those available for us little people, have generally been reliable, steady performers. They grow some, while paying a nice dividend along the way. Today, because of the mass exodus from the sector, owning bank stocks should produce the same result as owning the institution outright. That is to say, you can get rich just like many others did in the past by owning bank stocks. I understand the contrarian nature of my statements, but I cannot overemphasize how certain I am about investing in this sector today and what it will mean for you in the future.
Bank Stocks Rising From the Dead
The laundry list of stocks that have risen from the dead to deliver huge returns over the long term is quite long. And adding banks in that list is quite easy to do. Investors only need to muster the courage to commit at a time when the skies are dark dreary. Just a few short days ago, bank stocks experienced a snapback rally (see also, "Snapback Bank Stocks to Buy Now!") that saw many shares explode by 10% or more in just one day of trading. To me, such volatility suggests that we are very, very close to a bottom here.
Nobody can tell you the exact bottom, (even me, see “Where Oh Where Is the Bottom? ”) but what I can say can be summarized best by my headline: banking stocks are simply the single best sector to own moving forward. Some of the bigger names I would consider are: Wells Fargo (WFC), U.S. Bancorp (USB), and Wachovia (WB). Some of the smaller names that made my list include: Frontier Bank (FTBK), Tier One Financial (TONE), Macatawa Bank (MCBC) and Twin City Federal (TCB).
As soon as the balance sheet issues clear, it will be smooth sailing ahead for the entire sector. Don’t miss this once-in-a-lifetime opportunity to join the old miser club. Buy bank stocks before it’s too late!
Be bold and plan for the inevitable recovery! Demand for mortgage-backed securities and bank stocks will soar.” Those are the words straight from the mouth of John Dessauer, editor of Investor’s World, whose 30 years of practical, hands-on, global-oriented investing expertise has made thousands of his subscribers better off. John Dessauer not only believes that banks will survive this economic downturn…they’ll thrive once it’s over! For the last 25 years, John Dessauer’s Investor’s World has averaged an impressive 12.1% returns per year through good times and bad! Sign up for your risk-free trial subscription today!
