Tuesday, October 11, 2011
Finance: BAC- A gold mine waiting to happen
So I am pretty sure almost everyone knows what the iconic symbol above represents: Bank of America, one of the largest financial institutions the United States has ever seen. And along with that, I am pretty sure that we all know about the sticky situation that they've been in since 2008, among other investment firms like now-deceased Washington Mutual, Lehman Brothers, and so forth.
To recap in simple terms, in 2008 a vast majority of home loans defaulted and the many banks that did not foresee the financial crisis did not have the liquidity to cover their liabilities; does anyone remember when Washington Mutual advertised 5% APY 12-month CD accounts? For perspective, the comparable standard CD rate at the time was just floating over 3%. Offering such a high yield meant something: WaMu was in big trouble. Luckily for them, they were bailed out as they were bought out as a whole from JPMorgan Chase, unlucky for investors whose share price plummeted from $40 to pretty much nothing.
For those who have not realized, playing with stocks is just like gambling, but only worse. Unlike holding $5 or $10 chips in your hand in a casino, your money in stocks is represented as a balance in small text in the corner of your browser. Furthermore, you have little control over the worth of stock aside from "buy, sell," and "hold." So that begs the question: Is it worth it getting into stocks when it is such a volatile (and potential) money pit?
The answer? It depends. What are your priorities and expectations when jumping into the exchange? Looking to make a quick buck with penny stocks? Are you in for the long run, investing in blue chip stocks and hoping for a 10% annual return until retirement? Well, that can be a discussion for later. I am here to talk about the potential of Bank of America (BAC) and what we can get from it.
Bank of America's share price is at an all time low, at just $5.22 a share on October 4, 2011. Disappointing to hear, as just a few years ago their peak was ten times that amount at $54.85. Their current financials are startling, as they leave the second quarter with a net loss of almost nine billion dollars in a trail of tumultuous profits and losses each passing quarter. It's time to jump ship, right?!
Wrong. Bank of America has proven that they can hold their ground; during the financial turmoil of 2008, BAC maintained liquidity and covered all its bases; the only reason why they received bailout funds was because the government "asked" BAC to bail out and purchase Merrill Lynch. And you can't say no to the government. So from there, investors grew scared that BAC would fail as well. But lo and behold, that same fourth quarter they showed profit and began to return the borrowed funds that they acquired. Again, all in the same year.
TLDR: Now is the time to invest in Bank of America's stock. They will not die off, they will not be bought out; they will survive, they will thrive once more and reclaim their seat as one of the leading Banks in the industry.