I really wasn't going to write about banks again for a few days after spending a lot of time on them over the past few weeks. But we saw two more takeovers in the space today.
Two weeks ago on Monday there were six takeovers and today I note that I have two more deals in my portfolio of little banks. One is a tiny little bank in Baltimore: Hamilton Bancorp (HBK) continues its acquisition binge in my old hometown. We also saw Yadkin Bancorp (YDKN) announce that they were buying NewBridge Bank (NBBC) in a deal valued at about $456 million.
I first suggested buying shares of Newbridge back in 2013 here on Real Money at a little more than half the takeover value. Readers who took advantage of the idea have earned about 90% since then. In the same article, I mentioned SimplicityBancorp, which has since been taken over by HomeStreet (HMST), and Mutual First Financial (MFSF), which has risen by more than 50% since.
When I talk about small bank stocks being the trade of the decade, I often feel like I did back when I was trying to get my kids to eat vegetables. Everybody in the room knows they're good for them but they're not fun. Why buy small banks for less than book value just to earn high returns on our money when we can have all this fun with charts and oscillators and other things that sound really cool? I know cauliflower is good for me, but I would prefer a cheeseburger.
I finally hit on the perfect analogy for most of the retail traders I have met. They are like all the folks signing up for these daily and weekly fantasy sports games. They think they have that special edge that is going to power them to victory and millions of dollars in short order.
Anyone who has looked deeper into these games realizes that a few guys with superior computational and analytical skills are winning all the money. Your deep conviction about your discovery that Joe Flacco always throws for 300 yards on days when it's cloudy and you had a crab cake the night before will not really carry you to victory. It is exactly like trading. It is fun, it is exciting and there is a dream of big gains. But in reality the computer nerds you beat up in high school are going to end up with your money.
I am going to let you in on a little secret about investing that I have picked up over the last 28 years. Successful investing is not exciting most of the time. The best investments I ever made I owned for almost a decade and they were never mentioned on TV or were a hot topic around the water cooler. They were bought at bargain prices and over a long period of time conditions improved, the company paid dividends, was buying back stock and the price went higher over time. I made enough money to pay for my bad habits.
On a day-to-day basis the small banks are pretty boring. The stocks do not move on any given day. We get flurries of excitement when a takeover is announced or a 13D is filed, but most of the time it is pretty boring. It is seeing the balance move higher as returns compound over time that is exciting and rewarding. Day to day, there are very few bells and whistles.
I understand how much fun trading can be. Back in my misspent youth, I traded futures for a while. I had a lot of fun. It would certainly get the blood pumping every day and I had some winning days that felt like I pitched my team to Game 7 of the World Series. After a few months of this, I noted that I had not made a dime out of all this activity. Meanwhile, the stuff that sat ignored in my stock account was actually making me money with very little effort on my part.
Trading is fun. I understand that. But if you are looking to improve your long-term returns. you will be better off thinking about small banks purchased below book value. Add to that other strategy long-term investments and using only a small portion of your assets to get your daily adrenaline jolt.
Even better, put all of your money into small banks and private equity-like investments and use your fun money for fantasy sports and trips to the racetrack! Those you can do with friends and there is usually beer involved.