The Pillars Of Banking (Issue #53)
Banking is an industry like no other. I’ve begun to study some of the greatest bankers and banks of our era and here are some pillars I have found. I split them into two categories: How To Play and Where To Play.
How To Play:
Be Purposeful
Banking is a precise and calculated industry. Many of the bank failures in history have been due to negligence. Banks should be just as purposeful about what they do as what they don’t do.
Keep It Simple
Looking at history there are infinite things that can go wrong in a bank. Don’t make it more complicated than necessary. Over complication by management in anything is a major red flag in any business, but especially in banks.
Avoid Stupidity
Warren Buffett and Charlie Munger (and many others) often talk about being “not stupid” as opposed to trying to be smart. Trying to seem smart or being perceived as smart can easily to breaking rule #3 (Keep It Simple).
Cultivate Culture
When talking to some of the best bankers of our time I have found that company culture is what banks live and die by. Done well the culture can be their greatest asset and moat. Done poorly and it will be the reason the bank fails. This is a place where rule #1 (Be Purposeful) comes in again this is not something to be left up to chance.
Where To Play:
Stick To Your Strengths
There are ~4,800 banks in the US that span all kinds of banking in both the loaning and depositing fields. This gives banks the optionality of how to choose where they play. There are two parts to choosing. First, what are the best places to make returns and the degree of safety that accompanies those areas? Second, how well do you know each sector or type of market/loan? The goal is to optimize both of those. Find the best combination of profitability, safety, and mastery. This is simple, but it is difficult to be well.
Know Your Weaknesses
Similar to not being stupid understanding what you don’t know is often more valuable than what you do know. There are markets you or banks you are investing in don’t know as well as others. Find out what you don’t have expertise in and avoid it.
Portfolio Update:
Watchlist Update:
For the full spreadsheets shown above and their linked deep dives go here.
Newsletter Of The Week:
If you want to “beat the dead horse” then take a look at PETITION’s newsletter on WeWork’s balance sheet restructuring. Not an investment (in my opinion), but a fun read. Go here.
Tweet Of The Week:
Until Sunday,
Soren