If there is anything that the current crisis should have taught retail investors it is this: Do not invest in large financial institutions, ever.
Over the past year, we have seen countless large companies widely thought to be rock solid run into serious distress or go out of business. The distress is not merely the result of the bursting of a real estate bubble. It is also the result of fear of the unknown and unknowable entities that are the balance sheets of giant financial companies -- including insurers, like
, and hedge funds disguised as steady industrial conglomerates like
Still, I know there are people reading this article wondering if they should take a flier on
Bank of America
, or maybe a stronger player like
Those people are probably beyond hope, but in case they are not, let me point them to statements made Wednesday by Hamilton "Tony" James, President and COO of
The Blackstone Group
, possibly the largest private equity firm in the world and one of the savviest.
"The 19 largest banks that you're reading about that might need more money as a result of the stress test is probably not a place you'll see us," James told reporters during a Q&A session to discuss the company's first quarter earnings. "The ability to go in and do due diligence on a massive institution like
-- I'm not sure there's enough private equity people in the universe to spend a year doing it and really know what you need to know. All these organizations are so huge and so complicated and so global, and with financial institution investing you really need to get down to the individual asset, the individual liability, the individual counterparty level. It's a massively intensive diligence requirement."
So there you have it. Investing in any of the 19 largest banks is too difficult a task for Blackstone, which could afford to throw about two hundred more people and a few tens of millions more in lawyers and accountants fees into looking into the matter than you could. Not to mention that if Blackstone did invest, it would be able to do so below the market price that you would pay.
Are you still eyeing
share price looking for an entry level? Your odds may be better than they would be at the blackjack table.
But only slightly.