Despite the ongoing financial crisis it seems that bank shares are still a popular investment, and Barclays’ shares may be the most popular of all. However, there’s more to investing than simply looking for what’s popular.
Of the UK banks, Barclays (LON:BARC) has –so far – coped with the crisis relatively well. It hasn’t suspended its dividend, which for income investors is at least something.
But just like the other banks, Barclays’ shares have taken a colossal hammering. Before the crisis the shares were about to reach 800p, while at their lowest in 2009 they almost touched 50p.
Investors who were brave enough to get in at the moment of maximum fear have had a good run back up to around 300p or so. But the shares have been falling again for the last 3 years, and we are of course still well below the old highs. Does this in itself signal a great bargain?
What is an investment anyway?
First of all let me define what I mean by an investment, or perhaps what I don’t mean. What I don’t mean is the purchase of some shares in the hope that the shares will go up in the next year.
You may be surprised but generally I’m not looking for anything much to happen at all. Actually I prefer it when things are relatively uneventful. Instead of looking for excitement, I’m focussed on buying good companies at low prices. Companies which – over many years – can be expected to sell more, earn more profits and pay more dividends back to me.
If at some point down the road Mr Market decides to get excited about the company and bid the shares up excessively, then I’m happy to sell and bag the additional profits. But that is not my intention at the outset.
The reason for this oh-so-dull approach is that history and piles of academic studies have shown that pretty much all investors are very bad indeed at knowing what will happen to any given company and its shares in the short-term (which I class as anything less than 5 years). On the other hand, the long-term may be far more predictable.
Looking beyond the share price
Looking at Barclays’ share price and how it’s changed in relation to itself is pointless. What really matters is…
