More economic ramblings...

So if you have looked at the news today, most of the financial stocks have tanked, Bank of America announced another $20 billion in funding from the government along with a significant loss, Citigroup is splitting into multiple institutions, and mistrust of the financial institutions of America, probably the world, can't get much higher. If you look at the number of shares traded in these institutions, it is staggering. BAC looks like it may hit 500,000,000 shares today.

If you read my last blog, I said BAC would probably hit $8.45 and then would bounce to $20 by the end of the year. $8.45 didn't seem so audacious a call when the stock was at $10-12 range, but I was telling some of my friends that prediction when it was trading closer to $17. Why am I bullish on these institutions that are currently so terrible? In a lot of ways, I am not bullish on the financial institutions, but the American and world economies. These institutions are so big and hold so many assets that if (really when) the economy starts turning around they will do well. It will take some time. Again, I suggest at least a 5 year window on these financial stocks. It will take time for them to make money, buyout these government loans, correct themselves as far as the amount of risk associated with them, and then make the investor some money. The problem is that if you invest when they are ready to make the investor some money, it is too late. The stock should have rebounded well by then.

Of course, one of the biggest lessons for me as an investor at 29 years of age are the lessons learned to prepare for the next recession and the next one.

One way to prepare for when the market begins its rebound is to set a stop purchase prace. A stop purchase is the purchase of a stock once it hits a certain price. For example, BAC trades at $7 a share today. It will probably hover and bounce between $5-10 a share for a while until the economy starts to turn around. After it goes up to a certain price level, hopefully, it will be trending upward without the extreme volatility. This would also remove some amount of volatility from the equation which most of us can handle much better. So given my range, maybe you make a stock purchase when the stock hits $12 a share.

Thanks for reading and as always, only time will tell.....