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Stocks B / Berkshire Hathaway


Subject:  Re: Maystery purchase Date:  11/4/2018  12:04 PM
Author:  mungofitch Number:  239435 of 243205

Here's one quality that could make the answer yes under the right environment: During inflationary times, well run banks don't have to have a prayer meeting in order to raise prices.
The cost of cars, boats, homes - all the things people borrow money for to buy will cost more over
time due to inflation. This allows the banks to grow their loan books along with inflation more or
less naturally due to the inherent traits of their business models.

I can see that.
But you don't really have to think about inflation so explicitly.
A simpler way of thinking of it is that, absent loss of market share, BAC's loan book will track GDP.
And the real loan book will track real GDP.
Loans might grow a bit faster than GDP if the overall debt-to-GDP ratio rises, but let's not go probably wouldn't be a good thing for a bank.
That probably falls in the category of something that can't go on forever, and its last throes won't be pleasant.

Will real profits then track the real loan book?
Probably so, to a first approximation.
I suspect there will be some kind of long run trend of costs that isn't linear with loans.
Costs of maintaining market share, systemically important bank costs, stepping in the proverbial doodoo each recession or crisis?

And will profits per share track the total profits of the firm?
Buybacks at low prices might help, issuance at low prices during crises would hurt.

Somewhere in there is a problem, though...if they aren't paying out a really large fraction of profits,
and real growth is only tracking real GDP, the retained capital other than buybacks is being largely wasted somehow.
Or rather, the costs of maintaining the market share are maybe a lot higher than they at first seem.

In any case, it still seems to be the "perpetual bond" investment case.
If you buy at a low multiple of the cyclically adjusted earnings, you'll get something like that forever.

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