Few of my friends (Yes- I do have them) were asking me to clarify what I meant by the term Binary which I used to describe the investment stance on some of the financial institutions.
Binary means composed of two parts or a representation of a number that has only two digits, usually 0 and 1. Meaning that there is only two likely mathematical outcomes from any decision or action. Another way to explain is any action that has only two arguments.
How this relates to the banks is easy. An investment in some or most financial institutions currently such as a Royal Bank of Scotland, Citigroup, BOFA, or Barclay's will in the end have only two likely outcomes. Its really like a lottery ticket. You pay a buck for it (Dollar and a Dream), you either lose it all or win it big. The outcomes are the following:
1-Total Equity Wipe out resulting from a Nationalization or:
2-The significant upside stock performance potential that would exist if these banks can some how survive and the economy moves to a more "normal" environment.
I was reading that some of these banks are good gambles at such low expectations. For Example the following UK Banks could represent some value as a "gamble" as the odds of full nationalization of RBS & Barclay's are at anywhere from 60% to 85%.
1-RBS - Royal Bank Of Scotland - roughly 70-80% owned by the British Government. Trading at
.35 of Book Value
2-Barclay's - Trading at .60 of Book Value.
Both of these institutions have nearly doubled from their lows from a few weeks ago.
Take it for what that is worth.
No comments:
Post a Comment