In this clip, Gaby Lapera talks with David Hanson, former host of Where the Money Is (which you now know as Industry Focus: Financials), about what has changed in the banking space since he left the show. Find out why he was bullish on banks a few years ago, what he's learned from seeing his picks fall despite a solid investment thesis, and why he's still bullish on them nonetheless.
A transcript follows the video.
This podcast was recorded on April 25, 2016.
Gaby Lapera: Let's talk about what the show was like when you used to be on it. What where some of the things you used to talk about?
David Hanson: It was Matt Koppenheffer and I, who has since moved to Germany and runs fool.de, our German site. Once Matt left, we had to reorganize the show and gave birth to Industry Focus. I'm sure many of the listeners listened back then, but it used to be five days of all financials, so I'm sure many people are happy that it's just one day now.
Lapera: That sounds really stressful. I was trying to come up with topics for this show, and there's not a lot of news in banking, which is good, because normally when there's news in banking it's bad news. It's like a college buddy who calls you up and they're like "Hey, how's it going ..."
Hanson: "It's 3 a.m."
Lapera: "I need you to bail me out." That's the only time they call you up. That's what it's like with banking news, so it's kind of nice. But it's also kind of stressful for me, because I have to come up with things to talk about.
Hanson: We tried to keep it fresh. We had a lot of games: "Investing Chicken," "True or False." "Fool in the Blank" was an audience favorite. We kept it fun, but it's really good to be back. I've listened to the show, all the different segments we have now, so I think it's really cool.
Lapera: Awesome, I think I'm going to have to talk to you later about ...
Hanson: "Fool in the Blank?"
Lapera: Yeah, I'm pretty excited about that idea. I hear that you were really bullish on bank stocks one and a half years ago. How has that changed?
Hanson: It really has not changed. If you go in and look at some of the large banks, I was more of a fan of the megabanks. I was a big bull on [JPMorgan Chase] (NYSE: JPM) a year and a half ago. Even further back then, over the last three years I've been a fairly big bull on the big banks, and when you look at the performance over the last year and a half you'd be like, "I'm glad I didn't listen to that guy."
I was looking this morning, and over the past 18 months almost every single big bank is either flat, up 5%, or down 5% to 10%. It's been a really boring year for those stocks and, I guess, my portfolio, which is heavily weighted toward the financial stocks. I was a big bull on them just from a valuation perspective. There was a lot of pessimism -- I still think there is a lot of pessimism built into the big banks.
Some of the catalysts I was building into my thesis in terms of rates moving higher, yield curve getting a little bit steeper to make more interesting comments; I know you and Jay talked about last week, it's been a been a tough environment for the big banks that rely ... almost half of their revenue or more is from interest from loans.
That has not materialized. We were looking this morning, and rates are lower over the past year and a half. That's crazy. Everyone is like, "Ten-year treasury can't go lower than 2." Now we're at 1.7, 1.8, 30-year Treasury is under 3%. These are catalysts that if they'd gone the other way would have really benefited banks, and you would have seen earnings tick up and the valuation multiples, hopefully, expand. Which is also part of the big-bank thesis.
Those things just haven't really happened. I still think they're going to happen, or I hope they will. For the sake of the stocks that I've been a bull on, that I own.
Lapera: Not just them, but for the economy in general, because those are signs that the economy is not doing great. It would be good if they went up, because it means that we're all doing better.
Hanson: Right, and we're judging this on a year-and-a-half basis, which can seem like a long time in investing for certain things, but you also have to step back and say, all right, it didn't happen over a year and a half, but that's a pretty short time in the banking cycle. We're not even to 10 years since Lehman Brothers and the financial crisis.
In the scheme of history, that may take another five years to fully wash out of the system. It's humbled me from the fact that you can be right on a thesis and it still happens, but getting the timing right and having everything line up exactly when you want it to does not always happen. I still am a believer in some of the things that guided my thesis a year and a half ago on the big banks, but it just hasn't happened yet. I still think maybe it's this next year or two years from now. Still a believer.
Lapera: Your fundamental thesis still hasn't changed.