When it comes to banking, or investing in bank stocks, few things are as important as history. It's my opinion, in fact, that a deep and visceral appreciation for the historical swings of the credit cycle is a necessary competitive advantage for practitioners and investors seeking to outperform their peers.
Prior to the financial crisis of 2008-09, investors with a knowledge of history would have been well aware of the risk associated with owning shares of Bank of America (NYSE:BAC), which has been hobbled by every major downturn in the credit cycle since the Panic of 1907. They could have thus either prepared for or avoided the slaughter that followed -- Bank of America's share price is still approximately 70% below its pre-crisis high.
By the same token, investors would have known that the safest and most profitable bets in the bank industry were on lenders such as Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM). Not only are these companies run by two of the shrewdest executives in the world -- Wells Fargo's John Stumpf and JPMorgan Chase's Jamie Dimon -- they also have long histories of prudence and profitability.
I created the brief slideshow below with this in mind. Using a simple chart, it traces the history of the U.S. bank industry from the Civil War to the crisis that surfaced in 2008. It arms investors and practitioners with the necessary context to profit from the industry's best and brightest -- banks like Wells Fargo and JPMorgan Chase -- and to avoid future Bank of America-like blunders.