Tuesday, March 5, 2013

Deutsche Bank

A German bank of systemic importance

By the look of it a lot of people woke up this morning and said: Hey, the stocks became a bit too cheap in the end of last week so now I have to buy some before it is too late. The focus on buy price is of course important but less and less important the longer you expect to be a shareholder in the company. Like Fisher said: Don´t care about eights and quarters. I think many people are missing a truly great deal due to that they place a too low buy price. The thing is however that if they have not realised that then they will on the other hand also not keep the stock long enough to see the gain so it ends up being the same mediocre result anyway.



Back to the real topic! The third stock that I bought was Deutsche Bank. I definitely do not follow the rule of know what you buy that Warren Buffett and Charlie Munger frequently refers to. Well, I kind of do know because I consider every financial institute to be if not fully crooks then at least half crooks. They will however always stay around and will always find ways to make a profit out of us. Since they are experts at cooking the books I don´t even really look at what was in there because who knows anyway? There were some aspects that I did look at when it came to Deutsche Bank. They will definitely survive the crisis, if considered too big to fail and being forced to split up then I will own a part of each divided part and can decide what to do then and probably the parts will be higher valued than the whole. The P/E was very low being below 10 when I bought the stocks the first time at 37,4 € and it dropped even lower. They then had a P/B of 55 € which even if one removed 20% due to cooked books or non realised losses then one was still paying 85 cents for 1 € worth of a big world wide acting financial institute.

Since I bought DB the first time it has dropped down significantly (down to around 25 €) and then started to increase again with the price today of around 34 €. Happily I managed to increase my shares on two occasions during this drop and have managed to dilute my price to around 31 € per share and I currently hold 188 of them.

Banks and bankers are fairly interesting topics. They do not generate anything of value and only take money from either their customers, their competitors or from the businesses that actually do generate something. I understand that they have ended up having their crazy bonuses. A few employees are being given too much money to speculate with. When they have 10 billion and generate 5% profit of 500 million to the bank I understand that they want to have a percentage of that because they think the profit was due to their intelligence, which, sometimes maybe it is but in many cases it will probably still be below index gains.

Maybe a good way to control the bonus system would be to regulate the sums that one person is allowed to work with. If they have only 10 million and make 5% profit (500.000) then they will not run around and cry about wanting to have a 2 million bonus. It would also lead to that the banks would be forced to employ more people working for less salaries for them to deal with the quantities of money that they currently do. It would probably also lead to a diversity which would create more stability in the market in comparison to having situations like the London whale that are pushing the markets and yes, did create a lot of profits but in the end paid a huge price to unwind. I even read that people in the company was betting against him. So the banks sometimes don´t even take money from competitors... they even do it internally to themselves.. and then I wonder... how can anyone even claim that they are not too big if they internally are taking money from themselves instead of helping each other out.

Either way... I´m sure that DB will do well in the coming years. And since these banks are poor in paying dividends I will sell the stock when the dividend drops to 1%.

No comments: