Day 17: Kevin O'Leary is Wrong

If you followed yesterdays post you know that I pulled the trigger and bought all the companies that were on the 'Time-Out' list. Mom is very happy I did that. The rally today gave a nice boost to the portfolio and sent us into the three day weekend solidly in the black. The best part about today's rally is that it was fairly broad based. All that means is that we saw companies in several market segments rally. The best performance came from the banks who had a terrific quarter due largely to increased interest rates, increased deposits and loans. That's money flowing and that's good for the economy. It's okay to like your bank again.

The doom and gloom report as told by Kevin O'Leary, one of the hosts of Shark Tank and founder of O-Shares, his own ETF says that regional banks are dangerous. "I take issue with the regional banks, I think those are dangerous," O'Leary said on CNBC's Halftime Report Friday afternoon. "What is going to happen somewhere along the line in Q1 we are going to see a 10% correction in the regional banks," . Yet O'Leary likes the big money centered banks as do I. But I disagree with his assertion that regional banks are dangerous.

Below is a 10-year chart comparing the overall market as indexed by the three primary funds that track each segment. The S&P 500 (SPY), the regional banks (KRE) and the financial sector (XLF) which is made up of the big money center banks and Berkshire Hathaway. It's pretty obvious that the place you want your money over long periods of time is the overall market in an index fund that tracks the S&P 500. I prefer the Vanguard VTI or VOO exchange traded funds, or a Wealthfront.com account for superior index fund investing, but the SPY is used universally to track the market.

Even during the financial crisis you would have done better to be invested in the regional banks than in the big banks. If you had put equal amounts in the XLF and the KRE 1 year ago, the regional banks outperformed by 150%. Basically the regional banks, your home town bank wants your deposits, car loans and home loans more than the big banks do and they're willing to compete for that business. But look at the spike the regional banks had after the election. In any rising interest rate environment or when investors think rates are going up the regional banks will outperform the money center banks. Why? because deposits increase faster and loans get made more often. Even if the regional banks have a correction of 10% they will still be outperforming the money center banks by a wide margin. Buy and hold the big banks for long term gains and dividends. Buy the regional banks for growth during 1-2 year periods like right now. But always be well invested in index funds.

Stay Invested

Clay Baker

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved