The Stock That Burned Me: Allied Irish Banks

Worldwide Invest Better Day 9/25/2012

The proverbial luck of the Irish was decidedly not with me the day I placed my buy order for shares of Allied Irish Banks (NasdaqOTH: AIBYY.PK).

It seemed so clear to me that brisk morning in January 2008. Here was Ireland's largest bank, conservatively run, well capitalized, and with blessedly minimal exposure to the sub-prime housing mess already engulfing banks here and abroad. Ireland's economy was strong and growing, although, yes, there were some concerns that the residential and commercial real estate markets were getting a touch frothy. Allied Irish Banks, however, had been around for over 180 years, management seemed prudent and cautious, and the company had expanded in a smart way into Poland, with a valuable banking venture in that country, as well.

What could possibly go wrong?

Trouble ahead, straight ahead
As it turned out, everything. Literally. But nothing that I could have predicted or imagined.

Despite its strong financial position, Allied Irish Banks was not immune to the financial crisis and the credit crunch that spread like bacteria in the fall of 2008. Ireland itself fell prey to the economic woes, creating pressure on Irish financial institutions weak and strong alike. Like much of what unfolded that fall and the following winter and spring, the situation for Allied Irish Banks was ever-changing and ever-worsening. And like many other banks across the globe, Allied Irish needed capital injections and, finding it difficult to raise money from anyone but taxpayers, had to accept help from the Irish government and on its terms. To say the company and its stock got walloped is something of an understatement.

(Or, to put it all more succinctly: I bought shares in a bank in January 2008 and was still holding it when the worldwide financial system collapsed nine months later.)

The 80% lesson
Thanks to Allied Irish Banks, I learned a valuable, albeit expensive, lesson. And no, I swear I'm not being sarcastic.

The truth is, investing involves risk, each and every time. I know you're probably rolling your eyes, thinking, "Yeah, yeah, we know that," but if ever there were an example of this for me, Allied Irish was it. As investors, we try to manage our risk, we try to limit it, we do everything we can to eliminate it. We can do all the research. We can have a solid investment thesis with a reasonable margin of safety. We can believe we've done everything right. And hey, we might actually have done everything right!

But a good process does not always equal a good outcome, unfortunately. Things go wrong you couldn't have imagined or planned for. Unseen risks abound. That's just part of investing, and something you've got to make your peace with.

In the end, I closed out my position in October 2009 with a nearly 80% loss. I wasn't alone, though. Allied Irish Banks had been recommended in our Motley Fool Global Gains service and in our Motley Fool Million Dollar Portfolio, with The Motley Fool itself even owning shares.

But know who else learned this "lesson?" None other than Warren Buffett, who reprimanded himself for losing a bunch of money on "two Irish banks" in his 2008 letter to shareholders, one of which is widely believed to be Allied Irish.

So, see? Sometimes even the Oracle's outcomes don't match his processes. But that doesn't mean we as investors shouldn't keep trying to limit our risk, do our research, and find companies with excellent economics that we can hold for the long term. You're not always going to get it right, but don't let that discourage you. That's just how it goes sometimes. Learn your lesson, lift up your head, and move on.

As mentioned, Fool contributor LouAnn Loftonno longer owns shares of Allied Irish Banks, thank goodness. You can follow her on Twitter (@LouAnnLofton) if you're so inclined. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 20, 2012, at 6:02 PM, mark516119966 wrote:

    Louann,

    Fortunately, you follow the MF recommendations and have gained 80% or more on the other stock.

    Just another reminder of how important diversfication balances.

    Mark

  • Report this Comment On September 21, 2012, at 3:08 AM, Acorn17 wrote:

    LouAnn,

    I still hold shares in AIBYY.PK -- they are worth less than the commission it would take to sell them and I plan to hold them indefinitely or until they delist as a reminder. A 99.8% loss and an expensive lesson. I followed your same rational buying in 2008. They were well run and seemingly rock solid (and by the standards for most banks at the time they really were and virtually NO ONE could have predicted such a fall).

    The big lesson I learned on this one was the importance of wide diversification. I'm a fan of having 70-80 different stock positions as opposed to 15 or so for precisely this reason. No you can't win as big on any one stock, but if it blows up because of something you could never have predicted it doesn't set you back years and years of saving. At the time I wasn't as diversified as now (more than 40 stocks), and I'd added extra to this one and it stung.

    Bad memories. Good lesson. Thanks for sharing.

  • Report this Comment On September 21, 2012, at 9:43 AM, bridomuga wrote:

    Same here Acorn my proceeds would get wiped out by the fees. Thankfully I also have Apple, Disney (via Marvel), Intuitive Surgical, etc to offset the losses.

  • Report this Comment On September 21, 2012, at 12:05 PM, TMFBling wrote:

    Thanks for the comments, y'all. Absolutely, the importance of diversification is another great lesson to take from this one!

    And yes, luckily for me, I've got some big winners that are other Fool recs in my portofolio, (AAPL and ISRG among mine, too, bridomuga) to offset things like AIB (and CX and CHK, just to name a couple more that haven't exactly turned out as hoped). :)

  • Report this Comment On September 21, 2012, at 12:44 PM, tbm575 wrote:

    Thank to the Motley Fool strategy for turning a million bucks into a billion, I invested into AIB. I really don't understand how an investment genius who studies this stuff full time could make such a pick. Luckily, I turned only $400 in about 2.5 bucks and it wasn't a bunch like some other investors surely did. I see some of the reasons above, but still don't understand how this stock was shown as an investment. By the way, I wonder where the million bucks stands now.

  • Report this Comment On September 21, 2012, at 2:58 PM, gkirkmf wrote:

    Well, There is another lesson here... I too followed the fools in AIB, but when they finally threw in the towel, I just couldn't bring myself to do it. The arguments they had made all along about how good the bank was still seemed valid to me, so I bought another big chunk of stock (for me that is) in Jan of 2009 at what seemed to me to be firesale prices. By September of 2009 I was back even on the stock having recouped all my paper losses. I then decided not to press my luck, I sold it, and have never bought another irish bank stock! The lesson by the way is.... Sometimes you just get lucky....

  • Report this Comment On September 21, 2012, at 6:01 PM, bretco wrote:

    I bought at the same time and still own it.

    Why sell it now ? Makes nosense to unload

    at this point. Miricles do happen. I'm also still waiting for my Krispy Kreme stock to come back.

    Bad calls Fools, fool me twice.........shame on me.

  • Report this Comment On September 22, 2012, at 6:40 AM, bmc007 wrote:

    I made great money on AIB (before the tumble) but I also lost some (got caught in the whole nationalisation, delisting situation). Bank of Ireland seems a better bet these days - but you'll need patience.

  • Report this Comment On September 22, 2012, at 6:45 AM, shamack wrote:

    Of course you are all right. I too lost a truckload of dosh on AIB. however, a little bit of hope may be on the horizon if the ECB buy up the irish government 99.8% shares for bonds with a view to selling on private market, refinancing & starting again without the huge debt burden caused by the runaway property fiasco. If that happens you might get a good return on shares bought now at knock downprices!

  • Report this Comment On March 16, 2013, at 12:23 PM, jjrbroker wrote:

    I think the bank is very solid and the stock will recover soon.

  • Report this Comment On April 10, 2013, at 12:29 PM, Cowsdream wrote:

    I am a proud owner of 50,000 AIB shares, at the cost of 30 years hard work .Still hold on to them. I am an old woman now and don't think I will see the stocks coming back in my life time. How ever, there is some thing about Ireland that give me hope that perhaps my future grandkids will benefit, some days

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