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.