BAC and WFC - when to sell??

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slabinja's picture
slabinja
Status: Bronze Member (Offline)
Joined: May 27 2008
Posts: 46
BAC and WFC - when to sell??

An aquaintance of mine owns some preferred stock in both Bank of America (BAC) and Wells Fargo (WFC).   WFC is down 50% from where they bought it while, BAC is down 75%.   They know that they need to get out of these stocks, but the stocks have been gaining a little value in the last few days. 

 At what point would would you sell, and what would you look for before selling?

Any input or comments would be appreciated.

Thanks

 

 

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
Re: BAC and WFC - when to sell??

Sarcastic Answer:  Last year.

Correct Answer:  Difficult or impossible to say.

My Answer:  Tomorrow when the market opens.

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: BAC and WFC - when to sell??

Those stocks are worth 0 on a fundamental analysis basis.  Govt now effectively owns their future cashflows...shareholders get nothing.  If the govt wasn't propping them up, BAC and WFC would have already gone to bankruptcy, so even preferred shareholders would have received 0 for their investment.  It's a totally immoral government policy, but your friend is lucky that we taxpayers are going to pay him something more than zero when he sells.

Though fundamental analysis says 0, bottom feeders are playing with the stocks and driving significant volatility.  So somebody who understands technical analysis would be the only person that could help identify a good selling point.  There are probably a few on this site, but they probably won't give specific advice on a trade.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: BAC and WFC - when to sell??
slabinja wrote:

An aquaintance of mine owns some preferred stock in both Bank of America (BAC) and Wells Fargo (WFC).   WFC is down 50% from where they bought it while, BAC is down 75%.   They know that they need to get out of these stocks, but the stocks have been gaining a little value in the last few days. 

 At what point would would you sell, and what would you look for before selling?

Any input or comments would be appreciated.

Thanks

Slabinja -

I understand strabes' sentiment and frustration, but correct fundamental analysis says that BAC is worth $5.16 and WFC is worth $13.44, not zero.  Those were today's closing prices, the stocks are still being traded and they are both moving.  Dire predictions aside, the stocks are what they are and none of the scenarios strabes talks about have played out - yet.  Rather than worry about what might happen, focus on what is happening and try to turn that to your advantage.

Couple of general questions:

How many shares of each?  Does your friend have sufficient shares to sell covered calls against?  What kind of time frame are we talking about here?  I'm assuming your friend doesn't have his life savings in BAC/WFC so he/she doesn't need them to completely recover.

If your friend thinks that the government feels BAC and WFC are too big to fail, then it might be worth watching for awhile.  Temper that with Obama's comments at 3:57 today (just before the market close) about increased oversight and regulation - might want to watch and see how the markets digest that good news overnight.

I'm not a certified broker so I can't and won't offer specific advice, but I would watch both over the next couple of days and see how much more they run.  The problem with trying to determine when the run is going to end is that financials are so sensitive to news today - those recent gains could be wiped out in hours by what the floor sees as 'bad' news.  Conversely, 'good' news could put them in a nice pop to the upside.

SamLinder's picture
SamLinder
Status: Diamond Member (Offline)
Joined: Jul 10 2008
Posts: 1499
Re: BAC and WFC - when to sell??

Another one of old Sam's old sayings, "A bird in the hand is worth two in the bush".

slabinja's picture
slabinja
Status: Bronze Member (Offline)
Joined: May 27 2008
Posts: 46
Re: BAC and WFC - when to sell??

Thanks for your reply, DIAP

 

To answer your questions:

The person has 700 shares of BAC and 1,000 shares of WFC.

These are a sufficient number of shares for a covered call, but that probably is not an option. 

This doesn't represent their life's savings, but, of course, no of us like to lose money.

The original investment does not need to be entirely recovered, but, of course, as much as possible would be preferred.

I personally agree with your outlook (I am not a professional broker as well).  The stocks have gone up a bit this week while the people who sold last Friday took a huge loss.   However, as you said, some bad news can wipe out any gains very quickly, so there is definitely a lot of risk to holding on to these stocks and hoping that they will rise.  BAC appears to be in much worse shape than WAC, and it doesn't help that their CEO went in to testify under subpoena in NY this afternoon.

Thanks again for you comments.

 

 

 

 

 

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: BAC and WFC - when to sell??

slab -

Email me off line and we can continue the conversation there.  17 contracts worth of stock inventory can be put to good use.

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