It's time to clear something up. Over the past year, I and certain of my colleagues at The Motley Fool have been highly critical of Bank of America (BAC -0.13%), particularly as it relates to its treatment of customers. If you read the disclaimer on the bottom of each article, however, you'd see that I own shares of the bank.

This may seem odd. Why would a financial writer who is critical of an institution at the same time own its shares? And if I owned shares, doesn't that mean I'm bullish on its stock? And if I'm bullish on its stock, why am I writing articles that contain negative information about the company? Am I being dishonest? Am I trying to game the system in some way?

These are legitimate questions, and they deserve a legitimate answer.

Criticizing a company that you're invested in isn't necessarily illogical
Let me start out on the most general level by saying that I believe it's possible to own shares in a company but still disagree with certain of the company's practices.

Take Wal-Mart (WMT 1.32%) as an example. The fact that millions of people are invested in the Bentonville, Ark.-based retailer doesn't mean that they support mistreating workers or bribing foreign officials. And the same can be said for JPMorgan Chase. That you're a shareholder of the nation's largest bank by assets doesn't necessarily serve as evidence that you condone cornering derivatives markets or manipulating energy prices.

It also doesn't mean, by the way, that you can't criticize these practices.

The inability to appreciate this nuance is known as cognitive dissonance -- I don't say this derisively, because I, too, fall victim to it. "Cognitive dissonance is a state of tensions that occurs whenever a person holds two cognitions (ideas, attitudes, beliefs, opinions) that are psychologically inconsistent, such as 'Smoking is a dumb thing to do because it could kill me' and 'I smoke two packs a day,'" explain Carol Tavris and Elliot Aronson in Mistakes Were Made (But Not by Me). "Dissonance produces mental discomfort, ranging from minor pangs to deep anguish; people don't rest easy until they find a way to reduce it."

The research on cognitive dissonance is fascinating, because it shows the remarkable lengths that we, as humans, are willing to go to in order to eliminate it. For instance, neuroscientists have discovered that the area of our brain associated with reasoning literally shuts down when we're confronted with facts that are inconsistent with our political beliefs. "So powerful is the need for consonance that when people are forced to look at disconfirming evidence they will find a way to criticize, distort, or dismiss it so that they can maintain or even strengthen their existing belief," say Tavris and Aronson.

It's this bias, in turn, that makes owning shares in a company that you criticize seem illogical, when, in fact, it may not be.

Getting back to Bank of America ...
With that out of the way, let me explain my position on Bank of America, and, specifically, why I own shares in it even though I'm often critical of some of its practices.

When I think of the banking industry, I think about cycles. Interest-rate cycles. Leverage cycles. Valuation cycles. Economic cycles. Business cycles. You name it. And one of the things we know is that buying banks at the bottom of cycles can be a lucrative investment strategy if you have the stomach to do so. That's why I bought Bank of America when I did, roughly two years ago. And that's why I continue to own it today.

I bought it -- as opposed to other banks -- because I think it has an exceptional franchise. It's one of only a handful of lenders that span the entire nation, giving it an entrenched competitive advantage of convenience. And even among its too-big-to-fail competitors, it's the leader when it comes to deposits -- and "core" deposits in particular. It's hard to quantify how lucrative this could be when the interest rate cycle turns, but rest assured, it will be lucrative.

At the time I bought it, I also believed (and continue to believe) that the still-ongoing hard times will pass. Over the past five years, it's racked up an estimated $50 billion in legal settlements and related expenses. It's also being hampered by astronomical expenses related to the servicing of toxic mortgages. But both of these will end -- the former because the statute of limitations will eventually expire for non-existing claims, and the latter because these mortgages will ultimately either default or pay off, being replaced presumably by better loans that are less expensive to service.

On top of this, I'm a big believer in the synergies of the Merrill Lynch transaction -- though this is not to say that I don't think Bank of America overpaid for it at the time (this, of course, is hindsight bias). As a Bank of America customer myself, my wife and I use nearly a dozen of their products, between retirement accounts, a brokerage account, checking and savings accounts for us and our twin sons, a credit card, and more. As a result, I both see and benefit from the value of these combined franchises nearly every day. Additionally, while we've had some issues with the bank, they're typically resolved quickly and to our satisfaction -- in large part, I presume, because we're Platinum customers.

My consternation with it, in turn, has nothing to do with its potential to be a remarkably profitable franchise or, for that matter, with how it treats me as a customer. It has to do rather with the fact that it's done, and continues to do, a bad job at managing its reputation. And specifically, it's now known for treating its customers very poorly. According to American Banker Magazine's most recent survey, it has the worst reputation among every major bank in the country.

Now, there are analysts and investors who believe that reputation doesn't matter, and particularly when it comes to a bank that's the member of a small oligopoly that effectively controls its industry. I disagree. There are many examples of why this is both naive and -- excuse my forthrightness -- completely ignorant, but the one that comes most readily to mind is Sam Walton's explanation for why Wal-Mart succeeded in the discount retail business when some many others failed (emphasis added):

I read in some trade publication not long ago that of the top 100 discounters in 1976, 76 of them had disappeared. Many of these started with more capital and visibility than we did, in larger cities with much greater opportunities. They were bright stars for a moment, and then they faded. I started thinking about what really brought them down, and why we kept going. It all boils down to not taking care of their customers, not minding their stores, not having folks in their stores with good attitudes."

While you could argue that Wal-Mart is now falling victim to this very same trend courtesy of Amazon.com and Costco, the validity of the observation remains as true today as it did when Walton wrote it more than a decade ago. And, notably, there's nothing unique about banking that immunizes it from analogous pressures. There are multiple innovative companies that are, right now, attacking Bank of America's flanks, many of which could very well succeed if the Charlotte, N.C.-based bank doesn't get back on the right track.

Tying everything together
Thus, to bring everything full circle: I am optimistic about the near term for Bank of America and its stock (by "near-term," I mean the next, say, five years or so). I believe that a multitude of cycles (interest rate, economic, valuation) will return it to a position of strong profitability and boost the multiple on its stock. At the same time, we would be foolish (small "F") to ignore the fact that its current practices are exposing the bank to a huge longer-term vulnerability that could eventually lead to complete obsolescence if not corrected.