Here’s the deal on the recent panic that seemed to be sweeping this board as a result of one of the more prolific posters to the board. Just to be clear, I am not attacking the poster! I am simply offering some suggestions on how to react to future similar instances…
The new accounting rules will absolutely have an impact on these financial service companies as well as the financial markets in general. The one thing that most people ignored (or forgot) as Nye and his friends were beating their chests and joining Henny Penny telling you that the sky was falling, is this: Markets are efficient.
Here’s what this means… Any news that is out there for the world to digest is already reflected in the stock price. Most people who invest in these stocks are not people at all, but institutions. The individual investors for the most part do not drive the market or stock prices. The fact is that mutual funds, institutional traders, and similar organizations are the driving force in the markets. These investors are also the most sophisticated and have the best information at their disposal. It doesn’t mean they don’t make mistakes, it just means that they are superbly informed with information most of us would kill to have when making our investment decisions!
Therefore, all of this news about accounting changes, rules, and compliance, and the resultant impact it would have on the market was already reflected in the share prices of these companies. These investors know about FAS rules, the pending changes, and how it would impact individual companies. They assessed the impact of these changes on the stocks of these companies, and adjusted their positions accordingly. Bottom line, they assessed the situation, their exposure, and made their trades well in advance of TODAY, before the alleged “blood bath,” and the respective share prices reflected it. They did this long before most, if not all of us, knew about this issue at all.
That being said, there is likely going to be more downside pressure on these stocks, especially as the true value of these CDOs become available. Remember however… just because there is no static market price for these investments, doesn’t mean they are worthless; it just means there is no active market for which to price them. So, some CDO values will adjust up when pricing is properly assigned, and others will adjust down. As a result, the stock prices of these companies will also adjust accordingly. As a practical matter, given what we know right now, there is far more downside risk in the market right now; just not quite catastrophic!
So invest wisely, but watch carefully when people tell you the sky is falling. Most of them simply want to show the world how smart they are. They are the first to say “I told you so,” but the last to say they made a mistake!! Be careful with your money, and be careful whose advice you follow.
If you are here on this board, it means you have a bigger problem much, much closer to your front door! I urge you to reach out and get help, offer help, and fight the issues that can make a difference for you. Marking CDOs to market is probably not your biggest concern right now.
So, how can we on this board help you? How can you help the people on this board? How can we help each other beat the bums that are trying to steal our homes and our equity from us? That is the good fight, if you want to get right down to it!!!
In my humble opinion!