17 February 2010

Banking on the Banks

I’ve been a stock market player from the early 80s when the UK government started selling off the phone, electricity, gas and water industries it owned. In addition, the building societies converted themselves into ‘normal’ banks and gave their ‘loyal’ customers shares in their businesses so after a few years I had built up quite a portfolio. Although I monitored my shares on a daily basis, I rarely, if ever, sold any, preferring to hold for the long run.

Along the way, there were a variety of successes and failures. The successes however were more than offset by some spectacular failures. Railtrack, the railway lines and stations business was taken back into public ownership after the Government declared the business bust and it was only after a long court battle and a few years, that investors got their money back. Similarly, British Energy went ‘bust’ and again was taken back into public ownership. This time however, I lost the lot.

One of the spectacular successes was a bit of a tax fiddle to say the least. The government offered to pay you back the tax you’d paid on money invested in social programmes and when I read a particular prospectus about the refurbishment of nurses homes, I simply could not believe it was true. You sent them say £10,000 and a month later you got a cheque back for £16,000 – a 60% gain, which if extrapolated over a year would equate to a return of several thousand percent – incredible. I tried to talk the guys in my office into going for it but they simply believed it was ‘too good to be true’ and I was the only one who invested.

Then there was the time I pressed the wrong button and bought ten times as many shares as I intended and sweated blood all day until I could sell them again, unfortunately at a bit of a loss – even then I was lucky – it could have been a blood bath!

These days I’m a bit more careful although having invested all my spare cash in the UK banks, some people would say not. It’s a bit of a long shot but I reckon the UK banks are creaming it and hopefully some of that cream will come my way. The spread (difference) between what they’re borrowing money for and what they’re lending it out at is at historically high levels and although I believe they’re artificially keeping their profits low because of the public outrage at their recent behaviour, sometime soon, when all the hullabaloo dies down, their publicly stated profits will soar. Also – the UK government will want the billions it ploughed into the banks back, so I assume that they will ‘help’ the share prices climb so they can sell their stakes. As I say, it’s a long term bet but one I reckon will pay off.

PS – Barclays announced record profits yesterday.

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