Banks, buy-and-hold and where are my billions
When I express caution towards investment in Bank stocks, someone from my family enlightens the dark corners, “Invest in Bank stocks and retire rich. How many Indian Banks have you seen go bankrupt?”
While financial institutions may be cautious with lending to reliable businesses, it could be the macro factors that can sink them. I make no assumption of when and if that will happen. Reading page 30 of 172 from JK Banks 2013 annual report: Bank carries Contingent Liabilities of 32,282 Crores.Further on Page 79, Schedule 12 explains it as Liability on account of outstanding Forward Exchange Contracts and Other Obligations. Not only JK Bank but from Andhra Bank to HDFC Bank carry similar levels of contingent liabilities.
With Munger’s admonishment that 2008 was just an aperitif, and that assets-good-until-reached-for in balance sheets of Banks (if not India) amounting to trillions of $ would blow up on us, I am not sure that Indian Banks would get a free pass to progress as the counter parties go down.
Some of this is reflected in valuations but a lot of it isn’t. This makes banking overall unattractive from investing retirement funds.
It makes sense to buy those companies whose only fault is being too small, too remote where is institutional mandate is not to touch them. Other investment schools like single decision investing in Unilever/Nestle will also work sufficiently well but if your goal in life be on Forbes 100 (not that it is a laudable motto), I don’t believe you can buy sufficient Nestle, Unilever and Coca Cola with your combined family’s wealth in 2013 and still get there. You may have to do things differently! You can buy land in Zimbabwe which goes up by 10,000 times, or buy a Monopoly in Tonga Islands. But you can’t buy Unilever India and expect to be on Forbes 1000 either (unless you are starting with 1 Billion $ to begin with.)
That is one terrible mistake people make when they equate Warren Buffet’s 50 Billion USD = COCA COLA. Warren Buffett did not get rich by investing in these companies, he got rich by his business of taking 25% profits out of 100s of other people’s money.