Banks are the most complex, important and powerful organizations of the World. They are considered to be more powerful than some governments too. The reason is simple. Governments usually borrow from banks to fund infrastructure, health care and education projects like roads, ports, airports, schools, colleges, research facilities and hospitals. It is the bank which actually funds State and Central Governments for all their projects. Apart from this, they are also responsible for funding projects and businesses of private corporations. A bank is always said to be on the winning side as no matter what happens, a bank is always the first to get paid. A bank is the first to get the EMI from your salary or from sales that a company makes.
However, understanding the business of a bank is extremely complex. A bank also invests its monies in different companies, the share markets, the bond markets, startups, etc. This makes analyzing the businesses conducted inside a bank very very difficult. Every investment is different than the other as every industry is different than the other, with each company having a different management that may or may not be successful. These investments that a bank makes may or may not be successful and could actually hurt the interests of the bank with them not getting any return of their investment and possibly not seeing any return of their investment.
Understanding a bank’s balance sheet and its various investments is not an easy task. Only someone with years and years of experience in reading financial statements of different companies in different industries is capable of actually doing a proper analysis. In order to be an ace investor, having bank stocks in our portfolio is considered to be extremely important. The only way out of this to keep studying the financial statements of industries that are poised for growth or that have received investments from banks.
With the various technological changes that happen everyday, it is important to stay updated about the various new developments in the industry. Many good investors keep attending refresher courses on investing to help them stay updated and in sync with the changing times. BSE Institute Ltd offers multiple short term and long term courses for investors to stay updated and in sync with the industry.
An important trait of good investors is that they tend to focus on one industry and get all the information available about that industry. They keep in touch with other such investors who are focusing on any other industry other than their own. This lets them gather insights about multiple industries all at the same time. Networking is an important trait that helps people get ahead of their competition in each and every industry that we talk about.
Having said this, banks are evolving everyday. With the advent of Fintech, the very essence of banking has been threatened. Many people are afraid that the entire business model of a bank is threatened due to these startups that are offering better business solutions for customers. However, that is still a small part of what banks do globally and it is important to spend time (years) to understand how banks operate!