tag:blogger.com,1999:blog-7294165939647321702.post1639631491364855733..comments2024-03-28T13:45:43.362-04:00Comments on <center><a href="http://www.barelkarsan.com">Barel Karsan - Value Investing</a></center>: Value Investing In BanksSaj Karsanhttp://www.blogger.com/profile/04493152766022812984noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-7294165939647321702.post-21056837645248165962010-08-19T05:41:46.318-04:002010-08-19T05:41:46.318-04:00I've avoided the big banks for circle of compe...I've avoided the big banks for circle of competence reasons, both before and after the crisis.<br /><br />I do think there are occasions where an amateur (such as myself) can value a small bank. I was confident enough of my analysis of CZFS to make it my largest holding (of about 20 holdings) when I bought into it post-crisis.<br /><br />Essentially, what set this small bank apart from other small banks was<br /><br />1) Its ratios merely looked cheap, not super-cheap. Its P/E was around 7, while many of its peers had P/Es below 5 (if they were profitable at all). Its P/B was 1.2 or 1.3, while its peers often sold well below book.<br /><br />2) Unlike most other banks, it was not hurt by the crisis. There were several clues to this. The bank was turning in record profits. Non-performing-assets were not rising. The bank refused TARP funds. The bank raised its dividend while many others were cutting theirs. Insiders were purchasing stock.<br /><br />3) The bank was helped by the response to the crisis. Plunging interest rates sent its net interest margins higher, even though it was doing fine already. It also appeared to be attracting lots of deposits, perhaps withdrawn from shakier institutions.<br /><br />Perhaps most important, the solidity of CZFS under crisis showed the quality and conservatism of its management. CZFS is still one of my largest holdings, although its not as cheap as it was.Unknownhttps://www.blogger.com/profile/11394409575254934751noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-43480953249626636552010-08-18T17:44:23.498-04:002010-08-18T17:44:23.498-04:00Banks just have too many complex "products.&q...Banks just have too many complex "products." Lets be honest, if people really understood how banks ran, we may have avoided the most recent market collapse. And why are banks the source of soo many economic collapses? The holdings company in the 1920s where companies layered themselves and had debt at each layer. Then 1980s Ibanks and bond bubble. Now the housing bubble.akhttps://www.blogger.com/profile/13092464020591017021noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-71847258002082639572010-08-18T08:23:38.933-04:002010-08-18T08:23:38.933-04:00Agreed on this - one part that bothers me is their...Agreed on this - one part that bothers me is their accounting, it's just not something I'm good at understanding. Specifically, they setup accounts for loan loss reserves. Going into the downturn, they were limited on how much they could put in there because it can mask earnings and decrease their taxes. If they put too little, earnings are amplified and false.<br /><br />A lot of banks have been doing really well on the income statement and it might be because they were decreasing the accounts for loan loss reserves. I'm not someone with the knowledge to judge that and so I avoid it entirely.<br /><br />If I did make a play, it would probably be in the bonds just because it's much closer to the value.Ankit Guptahttp://www.selectedfinancials.comnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-84537696378362579682010-08-18T08:19:50.662-04:002010-08-18T08:19:50.662-04:00I totally agree with this. I believe a lot of valu...I totally agree with this. I believe a lot of value investors thought they knew about how to evaluate the banks, but in reality, there were very much off the mark. Many great firms lost a ton of money for their clients by investing in banks at the exactly wrong time, like Dodge and Cox, Davis Advisors, etc.Paulnoreply@blogger.com