Tuesday, February 5, 2008

Buy High, Sell Low

"The one thing Wall Street knows how to do is raise money. The proof: Even with financial markets threatening to melt down worldwide, four of the Street's biggest firms have attracted a total of $50 billion of investor cash to help cover losses on subprime-mortgage-related carnage past and on carnage yet to come. ... Didn't we learn in Investing 101 that the idea is to buy low and sell high? Yet the Wall Street Four, filled with financial geniuses who scarf up seven- and eight-digit pay packages, have done the opposite. The firms bought stock dear when they felt flush and are now selling it cheap because they need the money. ... The biggest loser in the buy-high, sell-low game are shareholders of Citi, which had raised a total of $20 billion in two deals when Fortune went to press and was looking to raise more. ... Why am I writing this, other than to rag on these firms? Two reasons. First, that capital is precious when you need it. ... Second, that stock buybacks aren't necessarily good for shareholders, current conventional Street wisdom notwithstanding", Allan Sloan at Fortune, 4 February 2008.

In my experience, whatever Wall Street is most willing to finance is overpriced. Further, that excepting insurance company executives, bankers are our stupidest businessmen.

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