If you had to put all your investment money in just one company before the London stock market closed down for ten years, would that company be HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US), the banking and financial services provider?
So, we are locked in the shares for 10years and we dont get to check the share price during that time at all. Thats a leap of faith and a demonstration of commitment to a firms business model that tests our confidence to breaking point.
If we cant do that with HSBC, should we be investing in the company at all? When it comes to HSBC, or the rest of the financial sector, I couldnt do that.
But HSBC is a play on emerging markets
HSBC is big in emerging markets with around 70% of 2013s profit before tax coming from Hong Kong and the rest of the Asia Pacific region. Surely, then, the firm is well placed to profit and grow as these up-and-coming regions flower. After all, its a bank, and banks facilitate just about all the economic activity in a region whilst skimming off a nice profit.
Not so fast. Banking, and all the financial shenanigans in which banks entwine themselves, is fraught with complexity. Heck, even HSBCs interim report took 28 RNS announcements to get out! Apart from the important consideration of whether its worth dedicating a chunk of our short lives to attempting to understand such feedback, the sheer density of operations maximises the potential for downside risk.
HSBCs CEO reckons customer activity is muted and regulatory and governance requirements continue to rise increasing the firms costs. Thats now imagine what trouble besets the firm when macro-economic conditions really tank. The big problem for the financial sector is its close attachment to general macro-economic cycles. Banks are cyclical to the very core, and thats what makes them dodgy buy-and-forget investments.
For the sake of our thought experiment, buying HSBC Holdings shares ten years ago means wed have picked them up for around 775p each. Today, they stand at about 628p. I know there have been a few dividends along the way, but thats a poor result for a 10-year investment.
Given the cyclicality of the sector, I have no confidence that the next 10years will work out differently for HSBC Holdings investors, so Im keeping away.
To me, banks are for trading and dont make good long-term investments.
However, there are many great opportunities available on the London market and I’m pleased to have a new exclusive wealth report from the Motley Fool, which sets out seven steps to serious riches on the stock market and signposts to some top-notch investment opportunities available right now, ripe for your own analysis.
“How You Could Retire Seriously Rich” is 100% free and without obligation, although availability is limited.
There is a chance to get a copy today by clicking here.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.