Citi - C - A study of herd mentality

Citigroup Inc., ( C ) has some two hundred million customer accounts and does business in more than hundred countries, providing consumers, corporations, governments, and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Major brand names under Citigroup's trademark red umbrella include Citibank, CitiFinancial, Primerica, Smith Barney, and Banamex. Are they a case of too big to fail?

Sometimes the herd just loses it's way. Every day Citi ( C ) seems to be on the top or near the top of the highest volume list. On certain days over a billion shares have traded hands. Wall Street has 8 buy, 10 hold and only 3 sell or under perform recommendations published.

Next year, the same Wall Street analysts that are recommending a buy are saying that the stock will lose .30% in earning per share and they predict that the stock will continue a 5 year downward EPS "growth" of an 8.00% loss for at least 5 years. How can this be??

Herd mentality over on Motley Fool is just as bad with the CAPS members praying that the stock will beat the market by a vote of 8580 to 1703 with the All Stars in the same pew with a vote of 1570 to 313.

Technical price action hasn't been there with the stock losing 34.88% in price in just the last month. The stock hit 11 new lows in the last 20 sessions and 3 lows out of the last 5 days. Barchart shows a technical sell signal on 6 of it's 13 technical indicators for a 24% sell signal.

Folks, let's look at the facts. Obama still own 27% of this company and will slowly sell his share and for public relations reasons that will always be done at a price higher than he paid. This selling will dilute the upward potential for awhile.

There are still a lot of bad assets on the books that need to unwind that will drive down EPS for quite some time.

If I gave you a stock to buy with the following points to consider what would you do?

• The company almost went bankrupt by giving out loans with very sloppy underwriting
• They still have a lot of garbage on the balance sheet that will be written off against future earnings
• The largest stockholder who owns 27% of the outstanding shares has publicly announced he wants out but will sell only at a price higher than his acquisition price
• The company is expected by Wall Street analysts to have a negative earnings growth for the next 5 years.
• Big money, hedge funds and programmed trading groups are churning this stock on a daily basis for short term trading profits so if you buy you'd better think you can out smart the big guns
• Even though the stock is selling for only 7% of its previous high there is still normally a short interest of around 500,000,000 shares a day.

And those are the good points about this stock!

For the average investor I'd recommend you pass on putting Citi ( C ) on your buy list. There are just too many other worthy stocks out there. I think that this stock is just one of those double down plays you should stay away from and is not a sound investment.

Please follow these rules and you won't go wrong:

• Look for consistient and recent upward price action
• Make sure Wall Street is recommending the stock based on expected increases in sales and earnings
• If there is positive investor sentiment is it based on an improving future for the company
• Let your winners run their course and cull out your losers while you still have most of your capital left

Remember: A fool and his money are soon parted and a lot of poeple want your money.

Jim Van Meerten is an investor who writes on investing on Financial Tides. Please leave a comment below oir email JimVanMeerten@gmail.com

Disclosure: No positions - long or short in Citi at the time of publication