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Investors Avoiding Bank Stocks: What You Need to Know

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What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
Financial Times is reporting that investors are shunning European banks en masse. The term "uninvestable" is actually being brandished.

Some context
Eurozone banks as a whole hit a peak in February, and have fallen in value by more than 50% since then. Since the start of the 2007-2008 financial crisis, they were lower only for a few days in March 2009.

There's no great mystery here. European banks are much more likely to be exposed to high levels of distressed eurozone sovereign debt than, say, American banks. Add to that worries about increased capital requirements and the threat of another recession, and it's no wonder European bank stocks are getting knocked around.

What you need to know
A sovereign-debt crisis overseas that's still getting wound up. A mortgage-debt crisis here that still hasn't wound down. Big banks as investments are tricky devils even in the best of times (which these aren't). Compared to your straightforward company that makes an easily understandable product and sells it, banks are very complicated, with arcane assets and accounting wizardry at work that makes their balance sheets notoriously hard to read.

I'd suggest avoiding European banks at all costs, even those that might appear to be bargains on the surface. There's even talk of nationalization, which is rarely good for shareholders. And the big American banks, such as Bank of America (NYSE: BAC  ) , JPMorgan Chase (NYSE: JPM  ) , Goldman Sachs (NYSE: GS  ) , and Morgan Stanley (NYSE: MS  ) ? I’m not interested in giving them a try either.

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Fool contributor John Grgurich loves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above. The Motley Fool owns shares of Bank of America, PNC Financial Services Group, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.

Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On November 29, 2011, at 2:40 AM, blueboy76 wrote:

    Many years ago I bought a book "The Motley Fools investing guide" by 2 brothers. In this book they say never to buy mutual funds! Now these same brothers are selling mutual funds.

    Verrrrry funny!!

    Or am I missing something.?

  • Report this Comment On November 29, 2011, at 5:41 AM, dbtheonly wrote:


    You're off topic, but please look at the fees for the various funds. The MF funds (generally, I don't want to get into the issue too deeply) charge smaller management fees, smaller (or no) redemption fees, & smaller "account maintenance" fee limits. You are right that the Brothers were "down on" mutual funds in the books; but I think you'll see that they were not opposed so much to the concept of a mutual fund; but to the charging of high fees for failed performance.

    They're trying to "do it better".

    Mr. Grgurich,

    IRE was up over 10% yesterday. Comment?

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