Developing industry knowledge
There's no shortcuts to learning about an industry. Here's how you could go about it for banks.
Assessing investment opportunities typically requires an understanding of a company and its industry. That's easier to do when you have the relevant industry familiarity. But at some stage, an investor will want to develop knowledge about one they're unfamiliar with.
How best to do that is often not explored as much as the notion that investors should stick to what they know.
It can be a daunting process, even for experienced investors. Knowing where to start, what to focus on and where to find relevant information are all hurdles.
So what should one do?
The short answer is that there are no shortcuts. Developing a good understanding of a business or industry is challenging. Usually, it's a process of finding a vast range of resources and slowly sorting through them.
When I started learning about banks, I spent much time doing just that (though I had the benefit of my colleagues' experience and guidance). Banking is one where there's plenty of material, but not often catered to those new to the industry or investors seeking a comprehensive overview.
That's why we recently compiled a special report on Australia's banking industry, including prospects for the Big 4 banks. It provides an introduction into how banks work, as well as delving into key industry issues such as housing market risks, technological disruption, and the changing regulatory landscape.
Investors wanting to learn more the banking industry could start with The Bank Analyst's Handbook and The principles of banking. Both are challenging (and long) reads, but they provide a great foundation.
As a regulated industry, the Reserve Bank of Australia and the Australian Prudential Regulation Authority are important sources. Their publications and speeches provide the latest industry information, often backed by their unique data.
Successful investing involves avoiding pitfalls, including industry failures. History is littered with banks that have gone bust. Some great recent case studies are these of the UK's HBOS and the Royal Bank of Scotland.
Learning about an industry isn't easy. But for those inclined to spend the time and effort, it can be highly rewarding.
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