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Microcap Banks


Palantir
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I know some here are interested in investing in Micro banks, however, it's not always feasible to start a new thread, as information can be light, and frankly, I just don't have much to say about them. I have invested in two banks, AMB Financial (AMFC) and Bank of Bottetort (BORT). It would be great to hear what others are investing in.

 

 

 

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oddballstocks seems to be the resident expert on community banks - I presume community banks are what you are talking about

 

From what I have seen, they seem to entail not a lot of risk, but they are also very predictable without much growth prospects, therefore not much chance of big returns on their stock...

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From what I have seen, they seem to entail not a lot of risk, but they are also very predictable without much growth prospects, therefore not much chance of big returns on their stock...

 

I've made money on a basket of these, but I really disagree that there's little risk. For example, look at what happened to the top idea from this Manual of Ideas-related site:

 

http://www.beyondproxy.com/sifting-thrifts/

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From what I have seen, they seem to entail not a lot of risk, but they are also very predictable without much growth prospects, therefore not much chance of big returns on their stock...

 

I've made money on a basket of these, but I really disagree that there's little risk. For example, look at what happened to the top idea from this Manual of Ideas-related site:

 

http://www.beyondproxy.com/sifting-thrifts/

 

Sure, when you see something like this "Loan loss reserves were 4.2% at the end of 2013, and the percentage of nonperforming loans was at 11.3% at the end of 2012" it's not going to work out very well.

 

I strongly believe that low valuation provides a safety net, but a very low valuation doesn't protect an investor against a bank that is under-reserved and has a horde of bad loans.

 

My own view is that it's better to buy a cheap bank with alright assets rather than fishing at the bottom of the valuation pool.  I fish at the bottom of the valuation pool for non-banks, but with banks at the bottom of the pool often the risk is uncompensated and large.  If you want to fish at the bottom of the pool I'd recommend getting involved in the FDIC asset purchase program. 

 

You also want to invest in banks that have metrics that are improving, not declining:

 

516378-1.png

 

Or capital that's falling off a cliff:

 

516378-2.png

 

 

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From what I have seen, they seem to entail not a lot of risk, but they are also very predictable without much growth prospects, therefore not much chance of big returns on their stock...

 

I've made money on a basket of these, but I really disagree that there's little risk. For example, look at what happened to the top idea from this Manual of Ideas-related site:

 

http://www.beyondproxy.com/sifting-thrifts/

 

Sure, when you see something like this "Loan loss reserves were 4.2% at the end of 2013, and the percentage of nonperforming loans was at 11.3% at the end of 2012" it's not going to work out very well.

 

I strongly believe that low valuation provides a safety net, but a very low valuation doesn't protect an investor against a bank that is under-reserved and has a horde of bad loans.

 

My own view is that it's better to buy a cheap bank with alright assets rather than fishing at the bottom of the valuation pool.  I fish at the bottom of the valuation pool for non-banks, but with banks at the bottom of the pool often the risk is uncompensated and large.  If you want to fish at the bottom of the pool I'd recommend getting involved in the FDIC asset purchase program. 

 

You also want to invest in banks that have metrics that are improving, not declining:

 

516378-1.png

 

Or capital that's falling off a cliff:

 

516378-2.png

 

All good points.

 

Palantir -- you can try stealing ideas from Stilwell's 13-F

 

Oddball -- not to highjack this thread, but are you still following CIBL?

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  • 3 weeks later...

My dad has been a shareholder and board member of a small bank for 10+ years.  It's been interesting talking with him because the bank was affected by the real estate boom and subsequent bust in 08-09.  The bank survived while a number of others were taken over by FDIC. 

 

What I've learned is banking is a commodity business.  It's very, very competitive.  Like so many small businesses, the future of a community bank basically completely rests in the hands of the management.  You could extrapolate that out and say that its the same for every business.  True, but small local banks typically generate all of their good-will from management and the board who are probably community leaders or successful owners of other local businesses. 

 

I kind of liken it to a friend of the family who is an electrician and has had his own company for 30 years.  He's under no illusions as he plans for retirement.  He'd like to sell his company to someone but there really isn't anything to sell.  Aside from his tools and equipment, he is the goodwill.  He is the one with all of the personal contacts, relationships, etc. that make the business go.  Unfortunately, he can't sell his goodwill which is where all of the value lies. 

 

I think community banks are much the same.  However, size and location certainly can make a difference.  My dad has also told that smaller banks are at a significant disadvantage with their cost structure because of the huge expenses associated with compliance and technology.  Larger banks have a sizeable advantage due to economies of scale. 

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