I generally find it hard to evaluate banks because banks operate by borrowing money (deposits and other forms of debt) and lending or investing it. They have highly leveraged balance sheets, typically employing significant amounts of debt relative to equity. Small errors or adjustments in assumptions about assets and liabilities can result in substantial swings in valuation, amplifying risks for investors. Nevertheless, investing in banks can still be highly rewarding—Warren Buffett’s success is a testament to this.
I agree, I was surprised to find that after the last couple of weeks 2 Banks were the only Mega-cap stocks that were high quality AND oversold. I assume this has to do, at least in part, with the large run up in market caps prior to the pullback.
I generally find it hard to evaluate banks because banks operate by borrowing money (deposits and other forms of debt) and lending or investing it. They have highly leveraged balance sheets, typically employing significant amounts of debt relative to equity. Small errors or adjustments in assumptions about assets and liabilities can result in substantial swings in valuation, amplifying risks for investors. Nevertheless, investing in banks can still be highly rewarding—Warren Buffett’s success is a testament to this.
I agree, I was surprised to find that after the last couple of weeks 2 Banks were the only Mega-cap stocks that were high quality AND oversold. I assume this has to do, at least in part, with the large run up in market caps prior to the pullback.