What would the great Hugh Brown say about bank share performance charts today?
BNN’s Catherine Murray asked a question yesterday about the stock market being rigged against retail investors. The driver was a WSJ op-ed piece written by Charles Schwab, who was protesting the leg-up that institutional investors seem to have at every turn:
High-frequency trading, flash crashes, policy uncertainty. There are ways to fix this.
Our firm was founded 40 years ago on the belief that all Americans should have the opportunity to invest in the stock market with the same advantages available to institutions and the big guys. But looking at our capital markets today, we should all be concerned. It’s becoming increasingly difficult for individual investors to compete on a level playing field. The system seems rigged against them. And they are responding by walking away.
He’s right, when you consider that even today, when transparency is expected from all corners, data providers have been selling “early peeks” at certain key economic releases to big firms, while the little guy only gets to hear about it once Bloomberg or the newspaper prints or broadcasts the report in question.
I made the point to Catherine that despite all of this, Joe/Jill Retail could have bought a basket of dividend-paying stocks pre-financial crisis, tickers that were understandable and let you sleep at night — and they’d have been up handsomely today. Names such as BCE, Bristol Myers, Merck, Royal Bank, Spectra Energy, TD Bank, etc. The very things I put into our Kevin O’Leary-busting Decade of Daddy Mirror Fund (see most recent post “Decade of Daddy Mirror Fund Q1 report” Apr 7-13) and I bought for my own modest RRSP. I added that if you weren’t comfortable picking your own stocks, Investment Advisors were trained to help you pick and choose, or direct you to a mutual fund or ETF that suited your investment horizon and risk tolerance level.
It got me thinking about Canadian bank stocks, since they make up such a large part of the index, and as a result are in every pension plan and dividend mutual fund in the nation.
There was a time when it didn’t matter which bank stock you held as long as you held it through the complete cycle or two. Certainly in the mid-1990s, the delightful and canny former Nesbitt Burns bank analyst Hugh Brown would observe that one bank name might underperform the rest for several years, but in the end it’s shares would catch up to the overall performance of the pack.
As such, it didn’t really matter which bank stock you bought, as long as you held it for at least 10 years.
I’m wondering if that’s still the case, based upon the bank share price charts since he and I last had that discussion circa 1996-97.
Over the past 5 years:
TD Bank: +43%
Royal Bank: +38%
Over the past 7 years:
TD Bank: +45%
Royal Bank: +31%
Over the past 10 years:
TD Bank: +121%
Royal Bank: +110%
Since January 12, 1995 (as far back as Yahoo! Finance let’s me go):
Royal Bank: +800%
I’m going to try to find Hugh and see what advice he’d have for us all today. Based upon the performance charts of the “Big 5”, it seems that on an 18, 10 and 7 year basis anyway, the days of it not mattering which bank stock you picked are behind us.
(disclosure: we own all of these stocks in our household, either directly or via dividend mutual funds)
Thanks for your post Mark. Do your return calculations include dividends or just the gain in the stock price.
Those are merely the basic share return figures. Although the dividend yield are somewhat similar, obviously the better performing banks would have done even better with a dividend reinvestment program at work over the 10 or 18 year horizons.