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Why Banking Isn't Like Other Sectors

By Motley Fool Staff - May 5, 2016 at 11:26AM

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Stocks in banking often take the stairs up, but the elevator down, which is why no news is good news in banking.

Investing in banking is nothing like investing in most sectors -- especially tech. 

In this clip from the Industry Focus: Financials podcast, Gaby Lapera and David Hanson explain why the space is so slow and steady, and what investors should be looking for instead of the huge breakthroughs they like to see from tech companies.

A transcript follows the video.

This podcast was recorded on April 25, 2016.

Gaby Lapera: That's one of the things that banking is -- banking is not tech. Things move so fast in tech, and it just doesn't in banking. There's tons of banks that don't even have a mobile app yet, which seems crazy to me. There's a lot of banks that, they're not on the Internet. Those are typically the smaller banks. I was actually looking at a statistic today, apparently between 2010 and 2015 only three new banks opened in the United States. Which is crazy, because on average it was around 100 banks a year for a really long time. It's a sign of what the financial crisis did, but it's very reflective of the sluggish growth we've been having in general in banking.

David Hanson: That's a good point that it's just a very different industry. If you're going to be invested in big banks, small banks, whatever, it's just very fundamentally different in terms of what drives the stock price as opposed to healthcare, or energy, or tech, or these industries that can have huge catalysts. Look at a biotech stock that they talk about on Healthcare Industry Focus -- you can have a 50% pop in a day based on some reading or finding in the process there. That's just not going to happen in big banks. It's going to be a slow march up. I know one of the things that Motley Fool founder David Gardner says, is that the stock market takes the stairs up and the elevator down. When it goes down, it goes down very quick and fast. I think banking may be very similar to that. The financial crisis took the elevator way down, and then the stairs are going to take a lot longer to get back up. You're not going to get the huge catalysts that you do in other industries.

Lapera: Yeah, and that's OK. Banking is not the sexy sector, unfortunately. I don't know what we could do -- maybe have some of the CEO's wear bikinis during conference calls, maybe that would help.

Hanson: That's terrifying.

Lapera: [laughs] That's a bad idea.

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