Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
Every quarter, I take the time to review the conference calls of the biggest American banks.
I don't own the stocks, of course, and in most cases, I never will.
See, I am a huge fan of small banks. And I've made an unreasonably good deal of money there.
But we all have to live in the world, and the big banks have come pretty close to blowing up that world several times during my decades in the market. I don't trust them. It's like the guy sleeping next to the elephant. You don't have to be married to the elephant, but every twitch and grunt is going to impact you severely.
Oh, these bankers talk a good game about "building trust" in "the community," but at the end of the day, they'd securitize Mongolian horse droppings, package them together with North Korean nuclear industry futures, slap a AAA rating on it, and sell that "product" to every pension fund and grandmother from sea to shining sea if they thought it would boost their return on equity by 40 basis points.
Their valuations are completely opaque, too. I remember in the 1990s, Warren Buffett said that if he were teaching a course on value investing, he'd ask the class to value an Internet company. Anyone who turned in an answer - any answer - would fail, he said.
I feel exactly the same way about these "too-big-to-fail" banks with trading operations. So many of their assets are valued at mark-to-model, or "mark-to-anyone's-best-guess," that it's impossible to tell what they're worth.
The footnotes of these banks' filings would make a rocket scientist weep.
Still... the fresh memory of the financial crisis should tell you: Every investor ignores these elephants - and the $11 trillion in assets they control - at their own peril.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.
Thank you for this website
credit risks can be real risks, but derivative risks are greater and the big banks have more derivative exposure today than in 2008. that is what should be analyzed and reported. My understanding is the big banks have been borrowing money so they have some liquidity for the next crisis. Even more important recent regulations give the derivative counter parties first lien position on the banks assets ( as collateral)…..so much for being a bond holder or a stock owenr of the big banks
I want to invest asap