Stupid/brilliant investment move

Warren Buffet has some great guidance on stock investing: "Be fearful when others are greedy, and be greedy when others are fearful."

I'm pretty sure that the bank crisis is overstated, or, at least financial stocks are oversold. There will surely be more carnage like Bear Stearns, but I think there's a few companies with broad enough financial bases that with time will bounce back.

With that in mind, last week I took some fun money and invested it in extremely risky bank securities. I bought Jan 2010 LEAPs on Bank of America and AIG. My total investment in each is less than $750, but because of the nature of the options, I control 400 shares of stock in the two companies(total).

(Specifically, the Bank of America LEAPs (-WBAAA) have a strike price of $27.50. The options cost me $7.41 to buy, while BoA shares trade at $23.24. So, I win if BoA reaches $35/share by January, 2010. That would require a 50% increase in BoA's stock price, but consider that BoA was trading at $35 earlier this month, and was $50 a year ago.

I'm not sure if these specific investments will pay off. (They sure haven't yet, as they're already down 50% and 36%, respectively), but I intend to make a few more buys like this through the end of the year. My next purchases will be an S&P500 index, and a bank stock index.

I'm inspired to do this by two things:

1) the stories of folks who bought securities at the bottom of the Great Depression for pennies on the dollar. These turned out to be very prudent investments.

2) knowledge that while economic conditions are temporarily not favorable in America (and worse so in Europe), there are emerging markets where demand is increasing as locals escape poverty or climb the economic ladder. Whereas demand slumped worldwide during the Great Depression, there is no stopping the growth of the middle class in China. (For example.)

Plus, the American economy is still a good long term "buy and hold" opportunity. But don't take my word on it. Listen to Warren Buffet, who is buying.