Happy 2009!

Hello there!

After a few months off to pursue my career as a budding chess player it is now time to start think about securities again.

I was hoping that by now my bank shares would be on the rise and my faith in the UK banking system would be vindicated. Ha! Yesterday Barclays hit a new low amid fears that it would need a bailout from the government. And there I was thinking it had already been bailed out by Arabs.

The chart below demonstrates why I recommended UK bank stocks in summer 2007:


The only things I can say in my defence are that I didn't recommend Northern Rock and even Fred Goodwin didn't predict the extent of this crisis. Sir Fred is now undoubtedly licking his wounds on some sunny island whereas I would still like to see my bank shares worth something one day.

So am I still buying banking shares? Yes!

Stubbornness is a very bad quality for an investor. However I do have a theory.

If the banks collapse completely then so will the UK economy. Therefore the government cannot allow names like Barclays and RBS to disappear. It has already bought most of RBS and I guess will do the same for Barclays if it needs to. Therefore while there is still plenty of risk involved in buying banks like Barclays and RBS there is little chance of the shares becoming worthless.

I am only having occasional nibbles at Barclays anyway. The serious money is going into Tescos which will no doubt weather this crisis.

So I haven't given up on investing but I have been taught a very good lesson on the importance of diversification. Thankfully my main portfolio was reasonably diverse and thanks to Genzyme and the strengthening dollar that portfolio did no worse than the market last year. Considering that it contains RBS and HBOS that is a result!