About Banking Business
For most banking business, assets are commonly twenty times of equity. Thus, mistakes that involve only a small portion of assets can destroy a major portion of equity.
Because of this 20:1 leverage, any managerial strengths or weaknesses will be greatly magnified. Warren Buffett has no interest in purchasing shares of a poorly-managed bank at a “cheap” price. Instead, he prefers buying into well-managed banks at fair prices.
Attitude Towards Investments
What attitude should investors hold towards market fluctuations? If you will be buying businesses – or small parts of businesses, called stocks – year in, year out for as long as you live, declining prices for businesses benefit you, and rising prices hurt you.
Pessimism in a certain company or industry is one of the most common causes of low prices. This is a good time to buy stocks, because of the price it produces. Optimism, on the other hand, is the enemy of the rational buyer.
However, care has to be taken as a stock purchase is not necessary intelligent just because it is unpopular. A contrarian approach can be just as foolish as a follow-the-crowd approach.
At the end of the day, independent thinking is key.