A smarter Citigroup play

By Felix Salmon
April 2, 2009

Joe Bel Bruno has a good piece of reporting in today’s WSJ, saying that Citigroup shares have been bought in large numbers by retail investors looking for outsize returns.

Some discount-brokerage firms report a surge of individual, or retail, investors buying shares of Citigroup during the past five months, amid the New York bank’s stock-price slide…

“We’re speculators, and that can be really risky, but it’s worth it to take a shot,” said Jin Chen, a 22-year-old Rowland Heights, Calif., resident who recently bought 10,000 shares of Citigroup at $3.10 a share. “This is my opportunity to make some money.”

“Most brokerage customers are looking at a portfolio down 50% from a year ago, and thinking that they have to get even,” said Don Montanaro, TradeKing’s chairman and chief executive.

Citigroup stock is highly volatile — as is any stock trading on option value — and it’s tempting to look at the history of Citi’s share price and decide that if you’d bought at the bottom in March, you would have more than doubled your money right now.

But no retail investors should be going anywhere near Citigroup stock right now. Yes, you might have lost a lot of money in the market, but it’s not smart to try to get it back by taking wild gambles. And a glance at Citi’s preferred shares is all you need to see that the market is still pricing in some massive dilution of Citi common.

If you really feel the need to express the view that the government will always bail out the banks, then Bruce Kelly has a much better idea: buy PFF, the ETF of preferred shares. It’s chock-full of financials, which means that you’re not exposed to idiosyncratic Citigroup risk, it’s yielding a juicy 14% right now, and its expense ratio is very low. If the preferred does end up getting swapped into common equity, you’re better off buying common stock this way than buying it directly today. If it doesn’t, then you get a very nice yield on your money.

Then again, if you’re a 22-year-old making $30,000 bets on Citigroup, perhaps all you’re interested in is excitement. But there are surely cheaper ways of finding that.

Update: Peter Eavis is thinking along similar lines.


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Ever played poker? Double down when things are bleak, and when you have the extra money to throw around on potential unheard of returns, you do it. The catch, is that you have to be in and out quickly, and you could easily lose your shirt. But hey, risk is excitement, and its what Wall Street is built on.

Posted by G | Report as abusive

I made 150% off of Citigroup. It is easy to play very, very short term, selling at significant moves in the market.

The catch is, only invest what you are willing to lose.

Posted by Shmendrik | Report as abusive

This is the best time to be investing in Citi, invest only what you can lose, but if you wait you will get it back probably. I bought in when they were 2.90 around Oct and sold when they were 6.5 and then bought again around 1.0 and sold at 3.10. Keep you eye on AIG for the short term investment

Posted by Anthony | Report as abusive

Bank of America is much less sketchy, but with all the volatile fun. Of course they’ll fire Lewis. Of course they’ll hit 22.00 before the end of the year. B of A stock has already tripled in the last two months. If this kid is really looking for a gut-wrenching bargain, he should also look at AIG. 0.93 for a fify dollar stock, and bankrupt-proof. Go for it, kid. Getcha some. I’ll take the BAC slow train back.

Posted by ShortView | Report as abusive