I have a question for you, based on an upcoming article I've written for Money Magazine. What do you reckon was the average share price return for Australia's Big Four banks over the five years to December 2020?
While you're thinking, I'll give you a hint: The ASX 200 gained about 24% over the same timeframe.
Still not sure?
Here's an alarming stat: The worst performing Big Four bank, over that time, was down 48% (yes, fourty-eight!).
Still thinking?
Want the number for the best performing back to help you frame up your guess?
-4%
Yes. Minus 4.
Here's the tale of the tape:
Westpac: -42.3%
NAB: -25.2%
ANZ: -18.8%
CBA: -4.0%
Bottom line: Not one of the Big Four Aussie banks delivered a positive share price return between January 1 2016 and December 31, 2020.
And if you held all four in equal parts, your return was -22.6%. Remember, the ASX was up 24.4% over that same timeframe.
You would have underperformed the index by 47 percentage points.
Ouch.
Now, I don't want to pile on, here.
I know many of our readers and some of our members own banks. Some of you own a lot of them. For many long term bank shareholders, they might make up 40%, 50% or 60% of your portfolios. Maybe more.
I'm not here to kick an investor when they're down.
And I'm not revelling in your misfortune.
But I do want to give you a little tough love. See, I've been saying, for a long time, that I think the banks' best days are behind them. Industry consolidation is done. Interest rates are as close to zero as any of us should hope to see. House prices are through the roof.
The length of a standard new mortgage has increased from 25 to 30-year terms. Second incomes have inflated our ability to pay. Innovators and disruptors are nibbling away at the most profitable products.
…
The banks have had a stellar run.
They've done wonderfully.
But I think we've seen the best. Famous last words? Maybe. But ask yourself: Where does the next decade of profit growth come from? Which of the above tailwinds, now stopped, will start blowing again? What others will turn up? Because I'm buggered if I know.
I just can't see it. Maybe I'm wrong. But ask yourself what's more likely: Will the three-decade-long tailwinds suddenly start blowing again, just as strongly? Or will the good ship SS Australian Banking be sitting, listless, in becalmed waters in future?
I think it's probably the latter.
And let's take this a step further.
Even if I'm wrong, are they really likely to be the ASX's best performers over the next decade?
Nah, I don't think so either.
(And if you're thinking 'yeah, but the Capital Gains Tax', have another look at the difference in gains from those banks and the index between 2016 and 2020. You could have essentially paid CGT at the top concessional rate in 2016, bought an index fund, and you'd have had a lot more, five years later, even after paying the taxman.)
Look, as I said, I'm not here to rain on anyone's parade.
And I've made my share of investing mistakes, so I'm sure as hell not throwing stones from my little glass house. I'm just asking you to imagine what the future might look like, based on the prevailing economic and business conditions, for banks in particular, and the rest of the market in general.
Don't you, deep down, think I might be right? Should you sell the banks? That's a call you have to make for yourself. But I think it's a question you need to ask.
You don't need to suddenly buy speculative rubbish. You don't have to abandon sensible, thoughtful, long-term investing.
In fact, quite the opposite.
You need to embrace it.
And you need to look for tomorrow's winners, not yesterday's. The Big Four banks were certainly among the latter for many years. But I don't know they'll be atop the list of the former. The economic and market recovery of the past few months has been good to the banks.
Maybe… just maybe… now is the right time to think about what you should own, instead…
