Rational Advisor

US Financial stocks are officially in a bear market. The financial issues in Standard & Poor’s 500-stock index were down 21.3% on the year putting the index squarely into bear territory.

The index has been helped along this year by E*Trade Financial, which had given up around 84% on the year, and mortgage lender Countrywide Financial, down 79%y. Dow component Citigroup, one of the largest stocks in the index based on market capitalization, was down 46% for 2007.

Part of the problem is that this is the so-called silly season, and moves are getting exacerbated by thin trading and a desire to bet on winners for “window dressing” purposes, and sell losers. Until the new year, it makes valuing the index difficult.

The steady spate of warnings and surprises that have frightened investors in recent days could be a positive, says Larry Adam, chief investment strategist at Deutsche Bank. He says it could create value for these stocks in the coming year, pointing out that “I think they’re tryng to get all that bad news into next year and that’ll help open up opportunities for next year.”

However, whether its a good timne to buy or not depends on one’s time horizon — with an eight-year horizon, that should be one of the prime considerations for looking at these stocks.

Some of the smartest investors I know of are buying the financials. Now, they’re blessed with job security and long time horizons, but Warren Buffett, Wilbur Ross, the Abu Dhabi Investment Authority – they’re all very sharp, and they’re buying the financials.

Rational

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