disclosing that I sold
Bank of America
for clients because of the merger agreement with
. I have trouble believing in big mergers. It's as simple as that. A lot has happened since then, both in the stock market and to BAC's share price. Now that the merger has closed, a follow-up is useful.
The trade turned out to be the funniest I have ever made. About 10 minutes (intentional hyperbole) after I sold BAC at $29.22 on Sept. 16, the
banned short-selling, and the stock jumped to as high as $38.13 a couple weeks later. This led to a flood of emails telling me I was an idiot.
A valid email questioned my logic in doubting the merger because BAC has a good track record of acquisitions. The Bank of America we have today is not the old San Francisco bank. It is more Nations Bank from North Carolina. I felt at the time, and still do, that 2008 (and so by extension 2009 and the next couple of years) is not a good time for a complex bank with a lot of moving parts to become more complex and take on more moving parts.
The share sale was difficult in that I had owned the stock for years and hoped to hold it forever. As a matter of philosophy, I would love to hold every investment forever, a sort of "buy and
to hold," but, of course, that is not going to be the case.
In the article, I questioned how much due diligence could have been done over one weekend in a dramatically changing environment and why Bank of America didn't wait a day to let Merrill's share price drop with the news of Lehman's failure, which was announced at about the same time.
At the close of trading yesterday (Jan. 13), BAC was at $10.65, down 63% from where I sold it. And it got
to there via a 30% rally.
As I got heckled for selling right before the short-sale ban -- and obviously had I known that it was coming, I would have waited -- my reply was that a week or two is too early to know whether a sale triggered by merger news was correct.Now, with the merger freshly closed, it is still too early to know whether the sale was right.
From a short-term trading standpoint, it was wrong, and then it was right. I heard a comment on the TV show "Fast Money," saying the decline in BAC's share price shows the market doesn't like the merger. That might be the case but, of course, that argument benefits from the tailwind of a massive decline of the entire stock market and so cannot be proven.
I think it is crucial to realize that investment themes can take years to play out, especially the integration of two large companies. The merger will not succeed or fail for at least a couple of years, but success or failure will occur without my clients' investment.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
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