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It’s Been a Bad Year For Bank Shareholders!
By JLP | November 27, 2007
That’s a chart of this year’s performance of the Dow Jones Bank Index, which is a wieghted index of 88 banks. Looking at the chart, it appears that 2007 is going to be a horrible year for bank stocks.
Consider this:
Of the 86 remaining banks* in the Dow Jones Bank Sector Index, 80 have negative returns for 2007 (not including dividends). What’s worse is the average return for those 80 banks was -31.04%! The index itself is down 28.6% in 2007. OUCH!
The worst performer?
IndyMac Bancorp with a -82.68% return so far this year. Indymac began the year at $45.16 per share and is now trading at $7.82. OOPS!
The best performer?
Northern Trust with a 22.52% return in 2007. This is slightly misleading since Northern Trust isn’t a bank like all the other banks in the index. In other words, it was shielded from the subprime mess.
The moral of this story is DIVERSIFICATION! Don’t own just one sector or subsector. Instead, own the entire market. As the graphic shows below, a portfolio of the Dow Jones Total Market Index allocated equally among the ten sectors would still be up nearly 6% so far this year:
The results are even better if you add international into the mix.
Diversification is the key.
*The Dow Jones Bank Sector Index had 95 constituents at the beginning of the year. Some banks were dropped from the index and a few were added, bringing the current total to 88 constituents. I did not include the new additions in my research.
Topics: Index Funds, Investing | 5 Comments »
November 27th, 2007 at 1:04 pm
Time to buy IYF…
November 27th, 2007 at 1:10 pm
I hear you, JLP. My bank stocks and bank fund are in the toilet. It is depressing to see them drop. Fortunately, other stocks are doing well. Thank goodness for diversification.
November 28th, 2007 at 12:28 am
I agree, time to buy!
November 28th, 2007 at 10:32 am
So is IndyMac (IMB) a great bargain now (for example, it fits Buffett buying criteria quite well) or is it headed down the toilet? I’m still buying but I could be mistaken.
November 28th, 2007 at 6:51 pm
You’ll have to talk to their management to see if it’s a good buy. Buffett doesn’t just buy beaten down stocks, he seeks out beaten down companies with solid business and good management.
From IMB’s website: “Today Indymac announced its third quarter results. In a nutshell, we reported a loss of $202.7 million, or $2.77 per share. ” Oops. They say it so casually, I feel like they may have just misplaced the $200M when they got home, put down the car keys, and pet the dog.
To be fair, they’ve given me great rates on CD’s and their branch offices always have free coffee!