Your Low-Risk Way to Book Gains

The Penny Sleuth Features: Penny Stocks, Options and High-Growth Opportunities! Your Low-Risk Way to Book Gains By Chris Mayer February 14, 2011 Dear Penny Sleuther, A couple of weeks ago I talked about what I consider one of the market’s best-kept secrets… I was talking about thrift conversions — As I am sure you remember, a thrift, or a savings and loan, is a special kind of bank. It is a bank owned by depositors. When a thrift goes public it is called a thrift conversion. As investors, thrift conversions are a great low risk way to book gains. Video Reveals Secret $200 Retirement Blueprint This “Secret $200 Retirement Blueprint” shows you step-by-step how to grow a monster-sized nest egg with a little time and a tiny grubstake. Plus, act before the deadline and claim 5 reports absolutely FREE. Click here now to watch the presentation. But there are no free lunches. Even here. That is to say you have to be careful which thrifts you buy. Some thrifts come with problems and risks you probably don’t want to take. Remember the 1980s? Charles Keating in handcuffs? The S&L crisis? Lots of thrifts got in trouble doing all kinds of stupid things. Greedy guys always manage to ruin a good thing. You can easily avoid the problems with a little attention upfront to some key details. Peter Lynch goes through some of his favorites in his book Beating the Street, and I’ve relied on his guidance when investing in these things over the years. There is a certain kind of thrift we want to own to increase our odds of success. Lynch calls them the “Jimmy Stewarts.” Surely, you’ve seen the classic It’s a Wonderful Life, in which Jimmy Stewart plays the part of a humble banker at an old savings and loan. Lynch wants to find the Jimmy Stewarts. The no-frills, low-cost neighborhood thrifts that make old-fashioned mortgage loans. They don’t have splashy advertising. They don’t pay to have their names on stadiums. Their branches don’t look like Greek temples. So the first thing we want to pay attention to is the loan portfolio. We want low-risk loans, like simple old-fashioned mortgages. We don’t want a lot of construction loans or anything that smacks of high finance. We also want to look a nonperforming loans (stuff that’s gone bad) as a percent of assets. Ideally, we want low numbers, like 2%. Second, we want to look at financial strength. We want lots of equity. This is usually not hard to find with recently converted thrifts because they just went public and have lots of cash. It’s pretty common to find ones with equity to assets of 13% or 17%, or even 20%. BREAKING: The Biggest Scam in American History! Mad men drunk on power and driven by greed are robbing YOUR retirement! Most sickening of all, Washington fully endorses this bold-faced assault on your wealth. But Chris Mayer is exposing this scam in his brand new video presentation. PLUS, he’ll show you how you could protect and even grow your wealth in spite of this scam, virtually spitting in the face of these elitist thieves. Don’t be a helpless victim... Click here to act right now. For perspective, the nation’s biggest banks — the JP Morgans and Citis — have ratios of 5% or 6%. (And that’s surely overstated, given all the off-balance sheet stuff. More likely, they have ratios of 1 or 2%.) This is why they are always getting in trouble. They operate with huge leverage. Thrifts are financially strong. We also want to look at book value. Ideally, we want to buy for less than book value for all the reasons I went through above. As Lynch advises: “Pick five S&Ls that fit the Jimmy Stewart profile, invest an equal amount in each of them and await the favorable returns. One S&L would do better than expected, three OK and one worse and the overall result would be superior to having invested in an overpriced Coca-Cola or a Merck.” This is the plan you should aim to follow. As I have said before, with thrift conversions, there are many new deals to choose from. Just last year there were 23 deals completed that raised 2.2 billion in capital. This year there are already 17 deals in the pipeline. Thrifts would be a nice place to park some cash that you don’t want to speculate with, but that you’d rather not let rot in a savings account either. Sincerely, Chris Mayer P.S.: I already have created a mini-portfolio of recently converted thrifts and am tracking them for my Mayer’s Special Situations subscribers. If you would like to learn more about this strategy as well as my other investment ideas, click here. Your Low Risk Way to Book Gains is featured at Penny Sleuth. 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