Banks are the oil that lubricates the economy. An understanding of how they operate is essential for analyzing any part of the economy since banks represent a large investing universe and control a sizeable portion of assets. With over 800 public tickers representing over $3 trillion market cap, banks are larger than several other industry groups. Banks are the largest financial intermediaries in the U.S., controlling $15 trillion in financial assets. Their relative size can amplify effects. For example, a small regulatory or environmental change can cascade and ripple through financial markets and have a major impact on the economy.

As fintechs gain in prominence, a fundamental grasp of topics related to banking will help enhance understanding of fintech.

Bank investing can be a fruitful pursuit:

• The most successful investor of our times, Warren Buffett, has had a sizeable investment in banks over time (close to a third of his portfolio weight used to be in banks).
• Banks allow you to make macro-economic bets since they are highly levered to business cycles.
• Bank investing allows you to scale your knowledge, as they have relatively homogenized business models...
• ...at the same time, banks are diverse enough to drive meaningful dispersion in price performance. This divergence of performance can be taken advantage of by an astute and prepared securities analyst.
• Banks are good vehicles to make specific investment plays on geographic regions, demographic trends (suburban to urban migration, aging), industries (agriculture, tech, energy), news flow (trade/tariffs, weather), real estate subsectors (NYC office, bay area apartments), and investing themes such as ESG, cryptocurrency, and venture capital.
• Finally, fintech disruption is creating an investing opportunity to play the digital divide between banks that embrace technology successfully and those that get left behind.