I continue to believe that buying and holding a weighted basket of banks might be the trade of a decade. When an entire industry sells off and becomes the most hated sector of the stock market it is time to take a close look. I’ve made a lot of money in the past buying hated industries and eventually banks will recover to some level of normalized earnings.
My strategy with banks is to buy the overcapitalized ones with strong balance sheets, on weak days with insider buying. It has always been hard for me to tell what true tangible book value with banks is, since loans are not mark-to-market. And now that banks are starting to take massive losses in their security portfolio, tangible book value has gotten even more convoluted.
To offset the risk of a complete capital loss I have focused my time on the banks with significant insider buying that are trading at all-time lows. An insider buy at a bank is close to perfect insider information. When a bank is trading at distressed levels and insiders are stepping up to buy the stock in the open market, the insiders are signaling to the market that everything is fine, deposits are not fleeing and things will be ok.
I continue to track insider buys on banks on a weekly basis in this newsletter. In the Telegram there is an entire channel focused on community banks. We talk daily on banks we like and what we are doing to make money in the sector.
I also chat a bit about banks I like on Twitter. Today I bought Metropolitan Bank (MCB) after a backward looking short article was dropped on Seeking Alpha. Metropolitan Bank proceeded to drop an update on their financial condition after the close — the stock is up 20% — easy money.
I think bank stocks are compelling here and offer a great opportunity for investors willing to do their homework. There are thousands of them and not everyone is going to go bankrupt. From my discussion with community banks across the country, none are seeing deposits flee. I think most of this is overblown and buying banks that are trading significantly off with insiders stepping up to the plate is a good strategy.
With that being said, here is the recent list of insider buys at banks. Hope you enjoy.
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