Bank of America, one of the hardest hit of the major U.S. banks still standing, has taken advantage of a remarkable recovery in U.S. financial stocks to tap the market for $19.3-billion (U.S.).
The record equity financing prompted a flurry of trading Friday, as more than a billion of the bank's shares changed hands. The stock rose nearly 3 per cent.
It was the sort of news that once would have gladdened the hearts of value investors everywhere: A downtrodden company redeeming itself in the eyes of stock players and returning to its proper place in the pantheon.
Indeed, Michael Price, one of the celebrated members of the value fraternity, waxed enthusiastic about the bank's dramatic return to raising capital the old-fashioned way and its plans to get out from under Washington's very large thumb.
"When banks are being refinanced and they're replenishing their old balance sheets with new capital, it's very attractive," the head of MFP Investors told Bloomberg News.
As the massive equity issue shows, the U.S. banks are bouncing back with a vengeance.
Since the March market bottom, the remaining big banks still paying a dividend - Bank of America isn't one of them - have tripled in value. And the regional banks, long a favourite of value hunters, are up 130 per cent. The entire financials segment of the S&P 500 has climbed more than 140 per cent.
Value types have historically flocked to financial stocks, because of their perceived stability, traditionally lower price-earnings ratios and the protection they used to afford investors during economic slowdowns.
But as such famed value fund managers as Bill Miller can attest, that strategy proved a disaster during last year's global meltdown.
The financials they snapped up at seemingly rock-bottom prices plumbed even lower depths. Some disappeared or became wounded wards of the state, which was Bank of America's fate.
Mr. Miller and others did what a value maven is supposed to do, which is stick to their view of what constitutes fundamental value.
The problem, Miguel Barbosa says, is that conditions in the marketplace had changed dramatically; banks were exposed to unknown risks, often hidden outside their balance sheets; and the odds of extreme events occurring were not properly taken into account.
"I personally steered away from all those companies," Mr. Barbosa says. "But I'm a young guy and a small guy. If I don't understand it, I stay away."
Mr. Barbosa is the founder of SimoleonSense.com, one of the more cerebral of the many blogs devoted to the art and science of value investing and the latest trends in behavioural finance research. At the tender age of 24, he also represents a new breed of value investor.
"There has been a change in value investing," Mr. Barbosa says from Chicago, where he is currently based. "Because of what happened, some people have decided that what they thought was value maybe wasn't."
A lot of investors "have really learned to examine the credit" underlying their investments, Mr. Barbosa says. "They have also learned to look at the macroeconomic situation and consider more probabilities and unknowns."
Traditional value investors have tended to be wily veterans who have lived through more than one market bubble and bust.
Their patience, discipline and focus on long-term stock performance were forged through hard-won experience in the trenches. This enables these modern-day Ben Grahams to soldier on when faced with the painful consequences of staying in the game while everything comes crashing down or when short-term speculators drive prices out of their range.
"It's hard to be a value investor at any time," Mr. Barbosa says.
Chasing hot stocks or running from the markets when things turn sour are not attributes of the value persona.
"Some of the value guys did pretty well last year, even though they may have lost money in relative terms. But the [clients' fund]redemptions really kill a lot of them," says someone who was still in junior high during the Internet stock craze that drove many a value-oriented sort to look for other avenues to making a living.
Mr. Barbosa doesn't have to worry about losing fickle customers, because he only manages his family's money.
Why choose value over sexier investing styles that offer more instant gratification (or pain)?
"It just made sense. Buying something undervalued on the cheap really made sense to me."
The onetime student of psychology and neuroscience might like the succinct description of his investing approach that was offered up by another value investor during the Internet mania: "Call it sanity."