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My recent article, A Simple Investment Approach: for your low income earning bank accounts (March 17, 2021) has certainly drawn a lot of attention from frustrated investors. Three out of every five readers who have taken the opportunity in recent months to come in and meet with me, are searching for a return of 4-5%, with safety, on unproductive funds they have sitting in bank accounts and deposits.
Over the last three decades I have constantly advised that investors are far better off buying equity in the Big Four banks, rather than leaving money in savings accounts or term deposits. From the time the banks consolidated and then listed on the share market, all of the Big Four Banks have done wonderfully well, growing their earnings, paying fully franked dividends, and making solid capital gains on their share prices.
Company earnings growth
In my article It’s all about Company Earnings (October 14, 2020) I provided an analysis of one of the Big Four banks. Between 2005 and 2015 the bank’s earnings grew by an average of 8% pa, while a $100,000 investment grew to $175,525 over the 10-year period.
But something changed with this bank five years ago – their earnings growth fell to just 1.1% pa and their share prices followed. The $175,525 value of the bank’s shares five years ago is now worth just $100,358.
This decline in wealth is not limited to one bank. Between January 2016 and December 2020, the share price returns on the Big Four banks has been -4.0%, -18.7%, -25.2% and -42.3%. Over the same period the share market was up 24.5%. The Big Four banks are now ‘yesterday’s winners’.
Tomorrow’s Winners
In my article Standout Companies in Australia (October 22, 2020) I provided a list of six standout Australia companies who are projected to grow their earnings by a combined average of 16.1% pa over the next three years. They are all in Australia’s Top 50 companies, are familiar names, and are ‘tomorrow’s winners’.
I am still very keen on one Big Bank, as their earnings growth forecast is 7.9% pa, but the other three Big Banks have only 2.3% pa forecast earnings growth, and given their recent share price movements to around 8% above their fair value, we may see little share price growth over the next three years.
Comparing the future returns on tomorrow’s winners against yesterday’s winners is telling. On a $1 million investment the difference in share price returns over the next three years is likely to be more than $100,000 pa. This estimate is based on each company’s forecast earnings growth over the next three years and may well be higher, or lower, depending on earnings surprises.
Astute investors bought equity in the banks several decades ago, but three of the Big Banks (and Telstra) are unlikely to be the share market’s best performers over the next decade. The recent share market recovery has been good for the Big Four banks’ share prices, so it is an ideal time to review company’s earnings growth with me, and enhance your future wealth by investing
in tomorrow’s winners.
An Invitation
If you are:
- receiving next to no interest on your bank accounts or term deposits;
- taking risk with high yielding mortgage investments; or
- too heavily reliant on bank shares (or Telstra);
then please come in and meet with me to discuss how our Earnings Growth Approach to buying equity in tomorrow’s winners will provide you with the returns and income stream that you desire. Your initial discussion with me will be provided without cost or obligation.
Disclaimer: This information is general advice only, & has been prepared without taking into account the objectives, financial situation, or needs of any individual. It is not a specific recommendation to buy, sell or hold any product or security. Readers should seek financial advice before making a decision & should consider the appropriateness of this advice in light of their own objectives, financial situation, &needs.
Peter Lanham
