You may know Bank of America (NYSE: BAC) As one of the world's largest financial institutions. This is a famous consumer bank with over $ 3.2 trillion assets today. You may also know it for the controversy and your colleagues following the 2007 and 2008 financial crisis.
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Bank of America can also be associated with famous investors. Warren BuffettWho owns inventory Berkshireha Saway For years. Bank of America is the third largest holding in Berkshire and accounts for about 12 % of portfolios.
In any case, many people (including me) invest in the companies they know and have been hot topic about Bank of America. Probably, Bank of America is not a rich stock. The company is already huge and costs $ 350 billion Market capitalization today.
But Bank of America can make you rich slowly? Is it possible that you may make you billionaire in the process of your investment life for decades?
Major bank boom and bust nature
Bank business is easy at first glance. Banks are interested in the money you have deposited. The bank receives your money and lends it to someone else at higher interest rates. Banks earn money (net interest income) from the difference between the interest earned by the loan and the amount paid in the deposit.
Major banks such as Bank of America are much more complicated. They touch almost all the economy, including individuals and business banking, mortgages, student loans, commercial real estate, and financial markets. Banks are very advantageous if the economy is firing in all cylinders and if people and companies are borrowing greatly.
But that is the opposite. If something goes wrong in the financial market or economy, it usually affects banks. Do you remember the housing crash and financial crisis from 2007 to 2008? It was partially due to a subprime mortgage bubble. Their major loss has prompted the government to intervene.
The US economy is a jaguar note in the long term, but sometimes things are broken for some reason. When this happens, Bank of America and their friends tend to feel it. It comes with the area that is deep into the world's largest economy. This creates a boom and bust properties in major banks, and its size and inf name can be a regulation goal.
Bank's meltdown is a long -term performance of stocks
As time passed, occasional crisis and recession have reduced Bank of American stocks.
The chart below shows that Bank of America's 2008 to 2009 crash has wiped out the decades of investment revenue. Most bank stocks are not so serious, but Bank of American stocks are not accustomed to the rapid decline. Sometimes it takes several years to recover.
BAC total revenue price Data data YCharts.
There is still a potential risk today. With the rise in interest rates, $ 100 billion has been piled up in the bank's balance sheet due to the unreasonable loss of the securities from the amount held. Now, you don't need to achieve those losses unless you forced Bank of America to touch these securities. Eventually, those loans mature in harmlessness.
Still, investors should not completely reject their risks. Who knows what will happen in the future? Who predicts the world pandemic in 2020?
Can Bank of America make you a millionaire?
Bank of America has been a great stock for Warren Ba Fett since investing in 2011. But don't buy Bank of America just because he did it. Warren Buffett has a unique contract Priority stock and warrant A time when a big bank is needed. It's not the same as buying ordinary stocks in today's open market. Bankshire remains core holding in Bank of America, but Berkshire has reduced its company's shares in the past year.
lesson? Do not purchase (or sell), even for legendary actions like Buffett, based on other people's actions.
Bank of America has a lot of things you like. It is still one of the largest banks in the world and can continue to grow with the US economy. Analysts expect an annual revenue growth rate of about 10 % in the next three to five years. The company has paid a stable dividend that produces 2.2 % today, and has been firmly retained in a variety of portfolios. Also, if all the ups and downs were purchased and held, the stock price returned to more than 3,000 % from the early 1970s.
But today's billionaire manufacturer? Probably not. Major banks are more susceptible to disasters, Bank of America is too large and mature, and does not bring the explosive growth necessary for investment revenue to change your life.
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Bank of America is an ad partner for Motley Fool Money. Justin Pope There is no position in any of the mentioned inventory. Motley fools are in Bank of America and Berkshire Hathaway. For Motley fools Disclosure policy。
