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People's United Financial Inc. Message Board

  • annonymous530 annonymous530 Mar 14, 2007 7:58 PM Flag

    Advice to a first time investor?

    Recently my mom got one of those letters from People's about their $20 no commission fee offer for stock. My mother, knowing even less about stock than myself, asked me for advice.

    Based on really nothing more than the fact that PBCT was in it's 40's and the offer was for 20, I instantly ok'd it and told her to put my money in too. Afterwards, I searched around for any confirmation that I made the right choice and I only stumbled around here a few days ago. Almost everything here screams sell, but as for myself, still unaware of what half of the information on a stock quote means, I thought it was supposed to be a good idea.

    My mom actually plans to sign the papers and buy the stock today and I'm still full of the naive optimism that this is an easy "get rich quick" plan. Can someone explain to me, as simply as possible, why this is a bad idea? Most of the stock lingo and statistics are lost on me and when I see that the CEO is buying 2 million in shares I can't imagine why everyone is voting "no".

    Can someone please explain to me, as simply as possible, why a second conversion would lower stock value when it's supposed to increase capital? I don't want to gamble away my money if I can't see the hand I'm playing with.

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    • I would not go to a broker who is a friend or a relative. If you should have any problems you don't want to end up losing that relationship. It's better to go to an individual who was recommended to you by someone you trust.

    • No one can predict how any stock will fare. Wall Street pays strategists and stock analysts huge salaries for their forecasts and they're often wrong.
      So the bottom line is to look at how much risk your mother is willing to assume in a worst-case scenario. Would she mind losing 10-20-30-40 percent? Stocks can drop that much in one day. If she has a long term investment horizon (her age is clearly a factor), that's another factor.
      How long is she willing to hold on to the stock? If the stock goes up and she's willing to wait a year to sell, she'll have a lower capital gains tax then if she sells before a year is up.
      There's a fine line between betting and investing. Hoping to make a quick profit on a stock is betting. Investing is looking at a company's track record and whether its well-positioned to benefit from local and industry trends.
      And one more thing: look at how much your mom has to invest. People's might be a good play as long as it's less than 1 or 2 percent of her total portfolio.

    • Never look at Yahoo Message boards for anything other than a few laughs.

    • Annonymous, Don't let the negative posters stop you from making a $1,000 investment for Mom. If you look back on this board, you will see there were few posters until the 2nd step offering. Due Diligence is necessary with any investment, but don't mixed up due diligence with these stock message boards.

      • 1 Reply to ignoranceisnotinnocence
      • The posters that are negatively inclined have some valid observations and there is no guarantee that you will make money on any stock investment you make. That is why on average stocks provide a higher return than CD's -reward for the added risk. All that said, People's is a well managed bank and if all of the concerns that have been raised come home to roost, there is adequate capital to absorb the shocks and still go forward. The probable result if some of the concerns regarding ARM's and loss reserve adequacy would be higher period writeoffs which would hit period income. They would work their way out of that in a few quarters. The branch footprint is very strong in Fairfield County which has one of the highest per capita populations in the U.S. The biggest concern by posters appears to be potential writeoffs hidden in the mortgages portfolioed by PB. The majority of their residential mortgages are in Connecticut which has not experienced the same level of speculative construction activity experienced in other parts of the US. While there may very well be a broad based softening in the value of housing, it should not be as profound in CT as some of the other parts of the U.S.

        PB is not going out of buisness anytime soon and the added capital being raised will put them in an enviable capital position relative to other financial institutions which will give them plenty of where-with-all if the doomsayers preditions do come true. I stand by my prior post that regardless of the short term prospects which are anyone's guess, over a 3-5 year period this investment should do just fine. I believe that the company will eventually be acquired because the Fairfield County branch footprint is very attractive based upon the aforementioned demographics of that population which should translate into some takeover premium for the then existing shareholders.

    • stidge4 Mar 14, 2007 11:27 PM Flag

      Tell your mom to go down to Stop & Shop tomorrow, and put her thousand into a 10 month CD which pays 5.10% guaranteed, no worries, no commissions. It is a much safer play here.

    • the existing stock will be reconstituted concurrent with the secondary offering so you will not be buying $42 a share stock for $20. The existing shares will be converted to some multiple. The upside on the new stock in the short term pertains to the demand for the stock when the company goes fully public. If they decide it is now much better equiped to compete in the marketplace or believe that a takeover will occur after the lockup period expires following the offering then it could be bid up.

      Despite some of the issues that are being voiced by posters, the company is fundamentally solid, management is conservative, and the added equity being raised will provide a variety of opportunities. I agree that the option program being funded with the $180 million of stock is quite rich and because the purpose is so open ended, senior management have the opportunity to enrich themselves excessively. However, as an investor, the ultimate question is whether or not you believe they can generate a solid return. My opinion that based upon a 2-5 year hold people will make a respectable return.

      • 2 Replies to dabbler101
      • This was a well-thought out reply.

        It seems to me that there are two separate questions. One is whether People's Bank in general is a good investment and the second is whether the offering is a good deal.

        If one is a depositor and wants to invest in the bank, there are two ways to do it. One is to buy through the offering and the other is to just buy existing shares.

        I sort of understand that this depends on the stock price of PBCT right before the offering and also depends on how many shares are purchased through the offering. What's the chance that the offering is going to be a good deal?

        There seems to be a Catch 22. If the minimum number of shares are sold through the offering, each share is going to be worth more because the offering as a whole gets a fixed percentage of the resulting shares, right? So if the offering looks attractive and people buy like gangbusters, more shares will be purhased and each will be worth less. Is that correct?

      • Alright, so besides their option program being a bit questionable, it's a stable company? Being a bank in a place like Connecticut, I never really expected bankruptcy or any severe downward drop but I was beginning to become worried with all the negative posting. It's not so much that I stand to lose much (only 50 shares or $1000 going in) but I'm investing for my mom and I wouldn't want to waste her money.

        You say that it should be ripe for selling off in 2-5 years, do you have a specific sell point in mind? Since I misunderstood the offer the first time I read it, I no longer know what I should be expecting. Should I hold it to 25? 30? Conversely, at what point should I cut my losses if the naysayers are right?

        I know I should be figuring these things out for myself, especially if I ever plan to invest in the future, but I feel pretty lost on what criteria I should be looking at. All I've found is that it had a high P/E rate compared to similar firms, but I assumed that was due to the expected success of the conversion.

        At any rate, it looks like I'll continue on with my original intention and buy, so thank you for the reassurance. I can only hope I figure out how to do this better as I go along.

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