RBS Signalling Recession

Today I have sold my remaining RBS stake in the value portfolio for a significant loss. Not good, but I feel that many lessons have been learned and this has prompted me to compose a rules section where I can list my findings that will hopefully prevent me from making the same mistakes again.

While on PE and yield terms RBS is ridiculously cheap, it is the general Credit Crunch backdrop that has caused me to change my view. My concern is that the banks earnings will be significantly hit by them having to write down their assets, in fact following the ABN acquisition, I’m not sure if they even know their holdings. In essence, I think they may have become a ‘value trap’.

TMFPyad in his excellent value articles once said that banks are often first into a recession (and first out) and this is the stage that I feel we are at.

The annoying thing from my point of view was that I came this conclusion a while ago and was looking to get out at around 520p but kept on holing to squeeze out a little extra profit. In the last two weeks the shares have progressed downwards recently being down about 4% every day. As each day went by I kept on changing my sell price, hoping for it to close a few percent above the previous days close which never happened. In future I shall sell as soon as I decide a share no longer meets my value requirements.

Today I decided to take the loss on the chin and sell at 420p, I feel it is important for an investor to reassess a situation and change their position if they think things have changed even if it results in a loss.

As I have been trading in and out of RBS, I am unsure as to my total loss but I would estimate it to be around 20% or so. Could have been a lot worse as I was considering doubling up at 500p, a good lesson not to exceed a preallocated amount regardless of how big and safe you think a company is (also look at Northern Rock shares)

I should add that I intend to maintain my RBS holding in my HYP Portfolio (I’ve just resolved to not look at the prices anymore!) and have also added GSK to the portfolio at 1222p as its on a historically high yield.

I intend to also sell my GSK value portfolio holding following the purchase within the HYP.

As I expect hard times ahead, I am going to cash and currently at around 60% cash which I will increase. Hopefully next year there’ll be a few bargains to be had. With banking shares shooting down and US aggressively cutting interest rates it looks like a recession could well be on its way.

To end on a positive note, my year to date return is still positive with my SOCO holding returns more than offsetting my RBS and GSK losses. With drilling results due in December they may well finish with a flourish. Lets hope so.