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Look beyond generalisations

December 08, 2007

I'm always surprised by the sweeping generalisations made by financial commentators during times of market distress. To say that in the current environment shares of companies in the financial sector are "oversold" or "already discounting a recession" or "poised to fall much further" is a simplistic view that doesn't reflect the diversity of businesses, companies and risks present among financial firms.

Out-of-favour sectors, of course, are great places to prospect for investment ideas - precisely because of the market's tendency to make broad generalisations. The fact is that within any giant sector such as financial services, there will obviously be companies in better or worse competitive positions, with stronger or weaker balance sheets and more or less capable management. In times of uncertainty, the less discriminating the market is of such differences, the more opportunity for smart investors to take advantage.

This state of affairs was in clear relief last week at the Value Investing Congress, the investment conference I co-host twice each year, in New York and Los Angeles. Not surprisingly, financial firms were hot topics of discussion among speakers, although there was certainly no clear bullish or bearish general outlook. The ideas offered - both long and short - highlight the breadth of opportunities that can arise in times of turmoil in a given sector. Here is a sampling of well-thought-out, excellent ideas I suspect will work out well.

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