Thursday, August 27, 2009

Citigroup's Recent Performance

I recently witnessed a discussion of Citigroup's recent total return, and whether it was now a legitimate investment vehicle. I can't recall the exact timeframe, but the price change cited was something like +300% or more.
Being curious, I produced the nearby Yahoo-sourced price charts for the ailing, government-owned bank and the S&P500 Index prices for the past 6 months and 2 years.

For the former, Citi's return looks to have been about +150% since early April. From the 2-year chart, it's clear that the low was prior to that, in March, which would boost that return a bit.
But looking back only through early this year requires an investor to have been engaging in speculation and market-timing.
The 2-year chart, more to my preference in terms of duration, shows the S&P to be a far superior investment, with Citigroup losing between 70% and 80% of its value. Additionally, with a background of the prior two years, the last few months don't look quite so stunning.
To me, Citigroup's recent performance is all too typical of the many companies capable of beating the S&P by a wide margin for any single year. The causes of such returns can be many, but I learned years ago, from my proprietary performance research, that one year of outsized total return performance does not an investment make.
That's why I look over a longer term. It's just not statistically significant to look at one-year, or less-than-one-year returns and pronounce a company to be a desirable investment.
Between the government's continued ownership of much of Citigroup, and the overall weakness in both business and consumer lending, plus the largely-intact, dismal management team at Citigroup, I'd stay far away from the company as a candidate for consistently outperforming the S&P for the next few years.


Anonymous said...

..and yet the stock continues to fly. Up another .40 cents today. You just keep 'staying as far away from the stock as you can'. It obviously does't need your investment as a catalyst to ever higher trading levels. Good call..

C Neul said...

Yes, it well may.

Evidently, you cannot comprehend the terms speculation or consistent.

How sad for you.

For years, my equity selections have beaten the S&P without holding one-year wonders like government-owned banks.