In Focus: Banks and Buffett
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring banking stocks and Warren Buffet in focus.
The Banking Industry
Love them or hate them, banks and the banking industry are here to stay for the foreseeable future. Banks are everything that the cryptocurrency advocates use to scream about from their $18,000 per Bitcoin soapbox; too big, corrupt, all about profits no matter what, slow, bureaucratic, and not out to help the little guy. With all of that said, banks and the banking system are a part of the foundation on which this entire economic hampster wheel stands upon.
The Oracle of Omaha, the standard for good investing. No one hates Warren Buffett, not anyone I know at least. I think what makes him so likeable is that he often speaks about investing in a way that anyone can understand. There aren't a lot of yield curves this and weighted average cost of capital that when he speaks. A few years ago when he increased his stake in Apple (AAPL) it shocked a lot of professionals, because Buffett had steered clear of tech companies throughout his investment career. His reasoning for purchasing Apple, which I will paraphrase, was pretty simple to understand. Buffett, admitted to still not understanding the world of tech, but stated he understood consumer behavior, and Apple was a brand that consumers wanted. Simple right?
So how can one of the wealthiest men in the world, who no one ever brings into the conversation of being "too rich" like they do with Jeff Bezos and Bill Gates, be so heavily invested in an industry as hated as the banking industry? It's because the banking industry is a part of the foundation that makes this crazy world work. I know I've mentioned that foundation part before, I just want it to sink in.
Why Pick Winners
Right, left, black, white, yellow, brown, capitalist, socialist, peace-seeking, or warmongering banks will profit from you, and investors like Warren Buffett understand this. Also, unlike the average person who believes it has to be this or that, 50 Cent or Ja Rule, Nicki Minaj or Cardi B, iOs or Android, PC or Apple, Buffett doesn't care. He doesn't get caught up in picking one winner, he invest across the board in what he deems to be sound companies.
Berkshire Hathaway's13F shows that the company increased its stake in Bank of America (BOA), JP Morgan Chase (JPM), PNC Financial Service Group (PNC), Bank of New York Mellon Corp (BK), and US Bancorp (USB).
This isn't a new strategy for Buffett. Berkshire has an investment stake in American Express (AXP), Mastercard (MA), Visa (V), and Synchrony Financial (SYF). Buffett also held United Airlines (UAL), American Airlines (AA), and Southwest Airlines (LUV) in the portfolio at the same time. No matter what card you used to pay for that Valentine's Day dinner or which airline you chose to fly, Buffet still profits.There is no need to pick a winner, just get them all, if their business is sound.
A Trip on The Way Back Machine
Do you remember watching the informational cartoon in elementary school explaining how banks work? We the people deposit our money, the banks lend out our money and charge interest on the loan, which allows them to make money on our money, and then they share that profit with us by paying us interest on our deposits. If you are an investor in addition to bank customer, you not only have your deposits making money for you, but the share price benefits from the banks other deposits and business dealings, and banks have a lot of business dealings.
There aren't many things we the people can do without the inclusion of a bank. Student loans, car loans, buying a house, starting a business, funding a venture, whatever it is, the banks are every where.
For you crypto supporters, it may pain you to know that while the price of Bitcoin was plummeting and crypto enthusiasts were heading for the hills, major banks and investments banks moved in and set up shop. Should Bitcoin or crypto's as whole have another major run, the banks will be on board and profiting from it.
Be Like Buffett
My advice, follow Uncle Warren, buy banks when you can. We like Citigroup (C) and believe it offers value at the current share price. Also look at the local banks wherever you are. So much of my time is spent in Florida and I totally missed out on Sun Trust (STI), which is now being acquired by BB&T (BBT). I also missed Fifth Third Bank (FITB), which increased 116% between February 2016 and February 2018. If picking individual stocks isn't your thing consider an ETF tailored to track the banking industry, here is a nice list of ETFs.
This is where I leave you, with the advice to invest in a bank or two or three if you can.