-The Date I wrote this 24 Jan. 2010-
President Obama said he planned to work with Congress to prevent banks from investing in or sponsoring hedge funds of private equity firms, or to engage in "proprietary' trading (When a firm trades for direct gain instead of commission dollars. Essentially, the firm has decided to profit from the market rather than from commissions from processing trades), unrelated to serving bank customers. He also proposed new limits on the size of financial institutions, based on the market share of their liabilities, in addition to their share of deposits. Proprietary trading at commercial banks will be banned. Banks are banks, trading is trading. No more intermingling of the two. Banks can't own hedge funds (An aggressively managed protfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns), or private equity vehicles. Period! The size of banks will be limited. Details of how any of this will work are nonexistent. This uncertainty is what the market (investors) don't like, and there are lots of questions to be answered. Because of the uncertainty of how the Obama adminstration plans to control banks, and to what degree, the stocks of the major banks lowered.The DOW is composed of thirty corporations, with the banks of (BAC), and (JPM), included. The other banks I listed are also affected by Obama's proposed bank requirements.
(BAC) Bank of America, (GS) Goldman Sachs, (MS) Morgan Stanley, (USB) US Bancorp,
(JPM) JPMorgan Chase, (C) Citygroup, Inc,
(Most of the corporations in the DOW lowered in price, because of the uncertainty)
The President's plan to split up big banks accelerated the disturbance yesterday (Friday 22), sending fears of a new wave of regulation through the markets (investors). Companies have been reporting results (earnings reports) that match or beat estimates, their stocks aren't moving higher - a signal, analysts say, that Wall Street forecasts may have gotten ahead of results (the prices we see today are higher than they should be).
What you just read is an example of the thinking that goes on in the heads of investors on Wall Street (The Market / investors). The market is constantly evaluating world events, products. earnings reports, and anything that may influence a product, service, or growth rate of corporations. As you read earlier, the market doesn't like "uncertainty".
Because we can expect that things will happen all the time that may effect our investments, we need to do our homework on the stock we're thinking of putting our hard earned money on. When we know that the companies stock we are buying is worth more than what we paid, then we can take comfort knowing that we will be making money with our investment.
If the price of our stock lowers, as it will from time to time, then we can take advantage of the opportunity and buy more on the way down (like a professional). The best part of this, is that before you invested, you learned that the stock you were looking at is the best stock for you to put your money into.
The chance of losing your money is not a worry to the person that does homework before buying a stock. 1) You know the quality of the company you're buying. 2) You know how the company makes its money, and 3) You know you invested in a company that has a history of good performance. You will sleep well at night without worries.
You Can learn more about investing by going to http://www.youcontrolinvesting.com/ . For a very low tuition fee, you will receive a textbook, instructor by email, and on going information about Wall Street, stocks, funds, ETF's and other information you may ask about, or we believe is important to you.
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Good Investing,
Bruce Cortez, instructor
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