What in the world happened to my stock?

Q: I own shares of Wachovia Corp stock that were worth $57,113 in August and are now worth just $29,811. Can you tell me what would be the cause of this?  I read about Wachovia acquiring all these banks, trying to become the largest bank in the nation. How can this be when its own stock is dropping in value?  Would I not be better off collecting the dividends now instead of reinvesting them?

A: Pretty much everybody invested in the financial sector shares your pain. You may have seen an article or two about problems in the credit markets. The problem is not just people defaulting on their mortgages, but the fact that the future doesn't look especially rosy for financial services right now. Further writeoffs of bad loans are likely and we have to figure a way out of this mess without further damage to our markets. Then, assuming we do, banks simply aren't going to be making the same kind of profits on mortgages and home equity loans that they did in the past. One analyst says Wachovia could become a takeover target. Stock prices have fallen so much that some people think financial stocks may represent a buying opportunity. However, that's only something we'll know in hindsight. You have to be brave to stick your neck out.

This problem points once again to the importance of diversification. Having a lot of eggs in one basket doesn't work out so well when something happens to basket.

Comments

hang on to it.rebound is here !

On the other side of the coin if you recently bought SKF, an ETF that SHORTS Financial stocks you would have been hurt also. It's dropped over 30% in less than a week!