Six long years have passed since the financial crisis of 2008.
Times change and the stock market moves faster than you can blink. As circumstances alter the very nature of an industry, it pays to think twice before assuming the status quo will always remain intact.
This was true on the way down for banking stocks, as investors lost their shirts betting on the revival of the likes of Lloyds (LSE: LLOY) (NYSE: LYG.US) and RBSbefore massive dilution caused serious perhaps permanent loss of capital.
But the same could be true, and has been true, on the way back up for Lloyds. The market, in my view, has been too quick to damn banking shares for eternity a lingering pessimism thatpersists to this day.
Ive been guilty of this too, so bearwith me!
I think investors have been quick to dismiss or cast aside Lloyds as uninvestable over the past few years, despite the recovery in the share price, pointing to the seeming inevitability that another crisis could cause investors even more hurt. How could a business model that has periodically destroyed value be trusted with your hard earned money as a long-term investment?
(Not just during the crisis, but in the decade prior, Lloyds did not delight shareholders)
But investors betting on a brighter future for Lloyds have been rewarded tremendously since 2011, with the shares gaining 121% in the last three years. And now that the bank appears to be on a more stable footing, I think its time for long-term investors to take an unbiased, fresh look at the new and improved Lloyds.
Lloyds is no longer the lumbering, troubled bank it once was its financial strength, measured by its Tier 1 Capital ratio, has improved from a weak 8% in 2006 to almost 15% today. Lloyds is Britains biggest mortgage lender. It is cleaner, leaner and is on track to become a profitable, dividend-producing enterprise far removed from the toxic wasteland it was once considered.
Theres a lesson here in my view, and one that Ive learned myself in recent years you can miss so much by judging a business solely on its past. You can avoid many common mistakes by responding better to change as it happens and make better decisions, too.
In my view, Lloyds is well worth a closer look through fresh eyes. Its not so simple to apply Lloyds previous pitfalls to itself and it might in fact be more worthwhile comparing the new companys model to Wells Fargo in the US.
Wells, the leading lender in the US (with a reputation for common sense practices), has a history of creating value for shareholders through tough times, and has delivered a total return of 3,500% to shareholders since 1990. Its clear that this type of model can produce satisfactory returns for shareholders could this be the future for Lloyds?
If you want to see whattheMotley Fool is buying itself, though, then you’re in luck — throughout October,theMotley Fool Champion Shares PROservice is admittingnew members for its Autumn reopen. And for a limited time only, we’re offering a free tasterwithout any commitment! For the next month, you’ll getone FREE shareidea per week. Now that’s an opportunity you do not want to miss!
Champion Share PRO is run by the Fool’s top analysts, whose job it is to help you beat the market. The real-money portfolio run by the Champion Shares analysts has returned 37.1% since 2011, outperforming the FTSE All-Share by 9.3%. To readmore about the service and to receive your first bonus small-cap share idea,click hereto check out Champion Shares PROfor free today!
Mark Rogers 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.