Citi and the car mechanic

I love this story from Goh Eng Yeow's blog:

It is exactly a year, almost to the day, since I wrote a blog to highlight the fact that a share of then beleaguered US banking giant Citigroup cost less than a bowl of wonton noodle after breaking US$1.

In the financial world, it was equivalent to an earthquake of the scale of the major tremor that rocked Chile last month.

The plunge in its share price was a grim reflection of the massive seizure suffered by the global financial system, as major lenders such as Citi struggled to re-capitalise their battered capital base, after losing billions in the sub-prime crisis.

One year later, the difference could not have been more stark. Citi surged over 7 per cent last night to close at US$3.82. This followed a spate of bullish analysts’ report that it is "now back from the brink and back in business as usual".

Citi shares are cheap, they say, as the bank benefits from its powerful Asian franchise and improving liquidity.

Big hedge fund managers like John Paulson and George Soros had been heavy buyers of Citi
shares in the fourth quarter of last year.

Still, they had not been as quick on their feet as my humble motor mechanic.
On the same day that I wrote the blog about Citi’s travails last year, I had my car serviced and while I was waiting to collect my vehicle, I struck up a conversation with the mechanic who served me well the past few years.

As expected, the conversation drifted to the stock market, and I found myself relating to him the unusual phenomenon of Citi costing less than a bowl of wonton noodles.
I was pre-occupied by the broader implications of it – the impact it would have on the local stock market and etc. But to my mechanic, it was the buying opportunity of a life-time.
Since when had the shares of a major bank cost less than a bowl of noodle at a hawker centre ? he asked. It was a salient question. I could not recall when something like that ever happened to a major US commercial bank in recent years.

To someone who spent all his time cooped up in a workshop, occasionally serving a smartly-dressed banker driving a fancy car, Citi just seemed too big to fail. As he observed, Citi is a big employer in Singapore with branches at the best locations in town, and plenty of highly-capable employees.

Buying the shares of any local bank, even during those depressing times, would have cost several times more than Citi.

I saw the wood, but he saw the trees.
That night, he bought some Citi shares online. It is a testimony of how much the playing field in the stock market has levelled over the years that even ordinary investors like him with a bit of financial know-how can get access to Wall Street at the click of a button.
From time to time, I would relate this story to my friends in the financial sector to highlight the point that if we are too close to the market, we might end up hearing all the noises and miss the signal which a stock might be sending us.

At a recent Chinese New Year Lo Hei lunch, an old friend gently reminded me of the story when we discussed where the market might be headed this year. She gently teased me on the profit my mechanic must have made from his Citi shares, while I was busily writing about the end of financial civilisation as we knew it.

Smart fund managers have been caught wrong-footed by the huge rally since March last year. But ordinary investors like my motor mechanic are richer for it, as they acted on simple observations from everyday life.

Never under-estimate the power of observation of the ordinary investor. The insight they provide is sometimes a lot more valuable than all the buy and sell calls made regularly by analysts.