Not all simple questions have simple answers.
A perfect example is any question about the best-performing stocks over an extended period of time -- say, two or more decades.
While it seems as if anybody should be able to draw up this list for the past 30 years, the reality is that few investors have access to databases with a sufficient breadth of information to actually do so.
It's for this reason that I found a recent presentation by the chief financial officer of M&T Bank (MTB 0.19%) so enlightening.
Among other things, it included two tables related to stock performance. The first contained the best-performing stocks since 1980 irrespective of sector and industry. And the second consisted of a list of the top five bank stocks since 1983.
Here's a look at the latter.
|
Company |
Closing Price on 3/31/1983 |
Closing Price on 6/30/2013 |
Stock Return (CAGR) |
|---|---|---|---|
|
M&T Bank |
$1.34 |
$111.75 |
15.8% |
|
State Street (STT 0.32%) |
$1.06 |
$65.21 |
14.6% |
|
US Bancorp (USB -0.20%) |
$0.92 |
$36.15 |
12.9% |
|
Northern Trust (NTRS 0.22%) |
$1.51 |
$57.90 |
12.8% |
|
Wells Fargo (WFC 2.73%) |
$1.18 |
$41.27 |
12.5% |
Source: M&T Bank.
Now, obviously, the ship has already left the port in terms of analogous growth for investors today. But this doesn't mean we can't draw lessons from the success of these companies going forward.
There are three that come to mind immediately.
First, the commercial banks on the list (M&T, US Bancorp, and Wells Fargo) are all boring banks -- that is, ones that have largely confined themselves to the activities of traditional banking: collecting deposits and making loans. By comparison, none has a robust investment bank comparable with a JPMorgan Chase or Bank of America.
Second, the two noncommercial banks (State Street and Northern Trust) have almost entirely avoided credit risk by specializing in peripheral financial services -- namely, asset management and custodial services.
And finally, as I've written recently, all of them avoided the same siren song of subprime mortgages that cast many of their competitors against the proverbial shoreline. This has allowed these banks -- and the commercial lenders in particular -- to both avoid losses and exploit the misfortune of less conservative lenders on the business end of asset bubbles.
Reducing these three lessons to one, in turn, the takeaway for investors is that boring banks are almost always better than the sophisticated, sexy ones that now dominate Wall Street.
