Why I've bought Barclays
Filed under: Investing
The news about banks is as bad as I think it has ever been. Reading through the press at the moment, bankers can't seem to get anything right. According to most journalists, the Libor scandal seems to be just more proof of this.
Twelve rounds with Klitschko
Bankers have taken so many punches, they must feel like they've gone 12 rounds with Vitali Klitschko. And that was before the Libor scandal broke.
And yet, you might be interested to know, I have just bought into Barclays (LSE: BARC). Not a huge position, I must admit, but this is where my latest dividend cheques have gone.
Really? Let's put this into some kind of perspective. For its role in the rate-fixing scandal, Barclays has been fined a total of £290 million. In contrast, BP set aside some £26 billion to cover the Gulf of Mexico oil spill -- some 90 times more!
The numbers are enticing
Yes, there are nebulous rumours of further litigation, but at the moment that is all they are. Now look at the share price. From its 2012 high, the share price has fallen over 35% -- that's a fall of around £11 billion.
On the day the news of the rate-fixing scandal broke, the share price fell 15%. At its current price of 165p, Barclays is now on a trailing price-to-earnings (P/E) ratio of around 4, and is valued at under half its tangible book value.
Instead of comparing Barclays with BP, I would draw a comparison with a maker of a different kind of black stuff.
The Sage and the black stuff
In 1988, Coca-Cola had been put through the wringer. It was in the midst of a brutal price war with its arch rival Pepsi. Sales were under pressure as more and more people seemed to prefer Pepsi. This culminated in the fiasco of the launch of 'New Coke'. The mood music was awful, and the brand looked to be in decline.
Yet in 1988, a certain Warren Buffett started buying up Coca-Cola shares like there was no tomorrow. Wall Street thought Buffett was nuts, but that didn't stop the Sage of Omaha. The company turned out to be Buffett's greatest ever investment.
Buffett's skill was finding companies which showed great promise, and then waiting, very patiently, for bad news to hit the company, sending the company's shares lower. When the news was at its worst, Buffett would then seize his moment and buy in.
I feel we are at a similar moment with Barclays. The company currently seems to be swallowed up by troubles, but these are just like clouds passing over the sun. Take your chance to buy, and then wait patiently for the sunlight to burst through again.
Have I moved too soon?
Could I be wrong? Well, of course. It is entirely possible that Barclays' shares could fall further. I don't have to tell you how volatile banking shares can be, and there are likely to be more bumps along the road.
But I'm willing to make my bet, steadily collect my dividends, ride out the volatility and wait patiently for Barclays' strengths in retail banking, credit cards and investment banking to shine through.
Have you bought in, too? Or do you think I have moved too soon, and that the company will get cheaper still? Please share your thoughts in the box below.
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