With the subprime collapse of last year, and the shocking news from Bear Stearns a few weeks ago, the current state of financials is risky at best.
Jonathan Compton, of the firm Bedlam Asset Management, managed to avoid the current financial situation all together. How did he do this? As it turns out, Bedlam Asset Management has never owned a bank in the English-speaking world. Here’s why:
Mr. Compton: We have never held a bank in the English-speaking world. This has not been because we are smarter or dumber than other people, but because they were completely un-analyzable. We have talked to bank finance directors, big or small and told them how we construct five-year models- two-years forward and three years backward. When we then say to them, “We have done some work on your bank’s two-year model,” they all say, “We can’t model the next 12 weeks.” This was not the case 10 or 20 years ago, but if banks’ own finance directors can’t forecast three months out, how can we buy them for our investors? It would be a guess, a gamble, definitely not an investment. So there are no banks, absolutely none. This is not a new, fashionable thing; we have never had any.
For the complete interview with Mr. Compton, including a further exploration of his firm’s unique style and outlook for the rest of 2008, click here.
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