Making Money Minute with Ron Hiebert - The Cockroach Rule

If you have ever had cockroach’s in your kitchen, you will know there is never just one. The same advice holds true with loan portfolios of financial institutions like banks and trust companies. When a particular institution starts writing off aggressive, high risk loans, it is often a signal that there are more to come. Mistakes are seldom solo. If a lender likes a sector, they will green light staff to approve more loans in the same line of business. When a bank has to write off a bad idea, investors need to beware. Just like cockroaches, there are usually more than one.

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