Posts Tagged ‘investor’

Copyright 2006 Geoff Gannon

Wells Fargo & Company (WFC) is an important Western and Midwestern bank providing you with a diverse assortment of financial services to its in excess of 23 million customers. The corporation employs over 150,000 people at its over 6,000 locations nationwide. Wells Fargo has about $500 billion in assets.

While the company is constantly on the derive over half its revenues from interest income (about $26 billion), its activities are certainly not limited to collecting deposits and lending money. Wells Fargo partcipates in other businesses including brokerage services, asset management, and investment banking. The company also makes growth capital investments.

During the last several years, Wells Fargo has averaged a single.57% return on assets along with an 18.19% return on equity.

Location

Wells Fargo is closely associated with California inside minds of many investors. The corporation now operates in 23 different states. However, the concentration in California remains.

Mortgage lending in California accounts for approximately 14% of Wells Fargo’s total loan portfolio. Real estate loans in California take into account another 5% with the company’s total loans. Nothing else single state is the reason a similarly sized area of total loans. Actually, neither mortgage lending nor commercial real estate lending in any other state makes up a lot more than 2% of Wells Fargo’s total loans.

Cross-Selling

Wells Fargo’s concentrate on cross-selling is well known. The company has a stated goal of doubling the volume of products the normal consumer and business customer has with Wells Fargo to eight products per customer (from your current four products per customer).

Cross-selling increases customer stickiness. It assists to increase profitability by decreasing expenses relative to revenues. The requirement for a large physical footprint is reduced – along with the requirement of a huge number of bankers. Instead, the existing infrastructure has the capacity to provide additional revenue through the same customers.

Wells Fargo’s Chairman & CEO, Richard Kovacevich, explains the importance of the company’s cross-selling inside the “Vision & Values” portion of the corporate website:

“Cross-selling – or what we should call “needs-based” selling – is our most essential strategy. Why? Because it is an “increasing returns” enterprize model. It’s just like the “network effect” of e-commerce. It multiplies opportunities geometrically. The greater you sell customers a lot more you understand them. A lot more you understand about them the better it is to trade them more products. The greater products customers have to you the greater value they receive as well as the more loyal they are. The longer they keep with the more opportunities you will need to meet more of their financial needs. The greater you sell them the larger the profit considering that the added valuation on selling another product to a existing customer can often be only about 10 % with the tariff of selling that same product to a new customer. Thus giving us-as an aggregator – a large cost advantage on one product or one channel companies. Cross-selling re-invents how financial services are aggregated and sold to customers – just like other aggregators like Wal-Mart (general merchandise), Home Depot (redesigning products) and Staples (buy office supplies over).”

Mr. Kovacevich’s enthusiasm for your cross-selling model is well justified. It’s difficult to quantify value of meeting all the varied needs within your customers, because you can not appraise the opportunities you missed. However, it is obvious that reducing each customer’s involvement in considering a competitor’s services will greatly increase long-term profitability for just about any company involved in any occupation – besides to get a bank.

Later, from the same website section, Mr. Kovacevich addresses the importance of customer stickiness:

“(Cross-selling) is our most critical customer-related sales metric. You should earn Totally of the customers’ business. The greater products customers have with Wells Fargo the greater deal they get, the harder loyal they are, plus the longer they stick to the corporation, improving retention. 80 % of our own revenue growth comes from selling more products to existing customers.”

This target retention is an integral part of the long-term prefer to maintain Wells Fargo’s above-average returns on assets and equity. Extraordinary profitability originates from differentiating your items from those of your competitors. Increasing customer stickiness and reducing “comparison shopping” is usually a key part of maintaining extraordinary profitability.

Some businesses are blessed with enviable economics due to their product’s natural prominence in the minds of these customers. Most businesses are obsessed with share of the market. But, the number of think about “mind share”? Obviously, a product or service like Coke (KO), Hershey (HSY), or Snickers will have a good association in the minds of customers.

For many, they may also have a prominent devote each customer’s mind (relative to other products what is the best money can be spent). Other businesses have a healthy mind share minus the positive association; GEICO is considered the most obvious example. The company’s brand invokes outright the words “auto insurance”. Naturally, that’s each of the GEICO brand should do.

So, simply what does all of this are locked up in Wells Fargo? Mind share isn’t only the consequence of experience of advertising. Actually, generally, contact with advertising can’t duplicate the amount of results that a direct, differentiated experience creates. Entertainment properties are by far the leaders as the primary goal share. Folks who saw and loved Gi joe recall the film. The truth is, they don’t remember the film, they actually file it away (or, more precisely, cross reference it) in countless ways in their mind.

The evidence due to this particular example is abundant. There are countless references to Star Wars in other media. The name, the tunes, the opening text and countless elements are immediately recognizable. Including the films Star Wars fans hated made a higher price than almost any other movies inside reputation cinema – this also was decades as soon as the original became available. So, obviously The exorcist provides the style of lasting mind share any organization should wish to whether or not this hopes to continuously earn extraordinary profits.

Unfortunately, most businesses, however well run, are not able to attain this sort of mind share. Products and services they offer can’t be as differentiated and memorable as a motion picture. In the same way importantly, the positive associations aren’t going to be present, due to the fact this product or service just isn’t inherently exciting, entertaining, or pleasant. This can be clearly the truth in financial services.

So, so what can a monetary services company do today to improve its mind share? The most obvious tactic is merely to “wow” its customers. Actually, Wells Fargo’s CEO discusses this type of option from the “Vision and Values” area of the company’s website:

” We must ‘wow!’ them. We know what that feels as though because we’re all customers. We see a cleaners, the grocery store, a restaurant or whatever, so we locate a situation where we’re ‘wowed!’ We go out so we say, people really heard me and taught me to be get what I need. All of us hear stories about customers, say, who pick a certain line with the supermarket given that they know the one that bags the groceries connects with customers – smiles, greets regular customers by name, asks how their own families are doing. When a personal banker helps a buyer in one of our own stores, or each time a customer gets the aid of a phone bankers or does transactions on wellsfargo.com we’d like these phones say, ‘That was great. I can’t wait to inform someone.’”

Another choice worth pursuing is widening the associations seen in the customer’s mind. Financial services is usually a business where associations tend to be conscious, categorized, and hierarchical than the associations formed in many heavily branded businesses. To put it differently, the (potential) customer usually thinks about a “set” before thinking of an “element” within that set. Like many mental associations, the info can be returned in either direction. One example is, the purchaser may normally think “banks” then think “Wells Fargo”, but may also be in a position to return the term “bank” if prompted through the name “Wells Fargo”. This categorization is significant, given it provides (limited) permission for Wells Fargo to be expanded its mind share horizontally (across service categories).

Put simply, providing a diverse range of financial services doesn’t just make sense from the provider’s perspective, it also is a good idea from the user’s perspective, considering that the user of monetary services has grouped deposits, borrowing, bank cards, insurance, brokerage services, asset management, etc. together in an exceedingly loose way within his mind. As a result of this mental network, one positive knowledge about Wells Fargo will greatly affect a customer’s want to cover an extra service, set up two services aren’t in reality everything that similar.

The three important elements listed below are: a broader meaning of what Wells Fargo is (the place that does “money things”, really not a bank), a positive experience, and several sense of trust which the service quality will probably be consistent. The very last requirement will be the easiest to satisfy, because it’s natural for a customer to visualize the positive experience was not a fluke, much the way a diner assumes the excellent meal he previously at the particular restaurant has not been due to his picking the very best offering through the menu. The diner usually assumes the general quality of the restaurant’s various entrees is superior. Likewise, a fantastic exposure to one of Wells Fargo’s products will probably rub off on its other offerings.

Valuation

Shares of Wells Fargo currently yield just over 3%. The stock trades in a price-to-book ratio of less than 2.75 and a price-to-earnings ratio of under 15.

Conclusion

During 5, 10, 15, and 20 years shareholders of Wells Fargo & Company have fared better than the S&P 500. Since the tip of not too long ago, WFC’s total return throughout the last ten years was 17% vs. 9% to the S&P. Over the last 20 years, WFC outpaced the S&P 500 by a good wider margin: 21% vs. 12%.

Wells Fargo carries a stellar reputation with investors. The organization will be the only U.S. bank to earn Moody’s highest credit rating. Wells Fargo also possesses a well-known major shareholder. The largest who owns the company’s common stock is Berkshire Hathaway. Warren Buffett’s holding company has a roughly 5.5% stake in Wells Fargo. Berkshire’s last reported purchase occurred over the first quarter with this year.

Wells Fargo carries a stated goal of achieving double-digit growth in earnings and revenue while owning a return on assets over 1.75% plus a return on equity over 20%. Those both are very ambitious goals. The company has achieved a number of the highest returns on assets and equity from a major U.S. bank. However, Wells Fargo probably will should enhance the percentage of revenue it derives from fee businesses whether it’s to achieve these goals.

In the years ahead, the company could possibly be of your diversified financial services business. Actually, that’s some tips i expect can happen. The company’s commitment to cross-selling is not some fad. Eventually, this commitment changes the way investors consider Wells Fargo. Soon, it could be considered considerably more compared to a bank.

Wells Fargo’s CEO helps make the case that his company’s P/E is just too low. Wells Fargo carries a solid history of strong growth and profitability. So, why should it be possible valued much like almost every other banks? Shouldn’t it be awarded a multiple more in line with a growth company?

There’s actually some merit for this argument. Wells Fargo is unusually well positioned for just a bank. Often, those banks that seem likely to earn very good returns on assets and equity for countless years to return are poorly positioned for future growth. These banks are sometimes less space-consuming than their competitors and focused on a specific geographic niche. Any acquisitions would dilute the exceptional profitability on the bank’s niche.

Of course, there are many consolidators inside the banking industry. Unfortunately, many of these banks do not possess a medical history of earning the type of returns on assets and equity that Wells Fargo has achieved. More importantly, if you don’t differentiation between these titans of the banking industry and their national competitors. Therefore, their moats are highly suspect.

Wells Fargo is usually a different kind of bank. It provides a history of extraordinary growth and profitability. There are 2 obvious opportunities for future growth: geographic expansion and cross-selling. These two opportunities, it’s clear I’m more enamored using the latter. An eastward push is not required, and definitely not by using an ill-advised acquisition.

There is lots worthwhile in the Wells Fargo franchise plus there is plenty of room within that franchise for future growth. That’s on the list of advantages on the financial services industry. With the right model, limits to growth are almost non-existent. In other highly-profitable industries, there is certainly often nowhere to reinvest new capital at the similar rate of return.

If Wells Fargo is usually a growth stock, it is just a peculiar almost growth stock. Maybe it is precisely what attracted Buffett towards company from the start. Here’s a business using a strong franchise which could grow for several years ahead. Perhaps just remember, it is a growth business that frequently trades on the market at value like multiples, for the reason that it’s a bank.

In the niche price, Wells Fargo is the type of investment you will be making once and begin to forget. The valuation is not so cheap as to promise an excellent return when the business falters. But, the company is just not so suspect regarding need the margin of safety get offers for by a low P/E ratio. Sometimes, near certain growth could be the margin of safety.

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This is something that most people don’t even think about, but knowing what your risk tolerance and investment style are very important. This will help you choose investments that are more suited to you, and which the long run should do better as you will be less stressed and make fewer trading errors. 

While there are many different types of investments that one can make, there are really only three specific investment styles, and those three styles tie in with your risk tolerance, these are conservative, moderate, and aggressive.

Naturally, if you find that you have a lowish tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, and are relativily young, you will most likely be a moderate or aggressive investor. At the same time, your financial goals will also determine what style of investing you use.

If you are saving for retirement in your early twenties, you should use a conservative or moderate style of investing, but if you are trying to get together the funds to buy a home in the next year or two, you would want to use an aggressive style. Being an active stock market trader would be considered an aggressive style for most people.

Conservative investors want to make sure that they maintain their initial capital and make very modest gains per year, they want to sleep well at night. In other words, if they invest $4000 they want to be sure that they will get their initial $4000 back. This type of investor usually invests in blue chip common stocks and bonds and short term money market accounts. But remember trading stocks, even if they are blue chips can still be very risky as we have seen in the 2008/9 bear market.

An interest earning savings account is a very common approach for conservative investors.
A moderate investor usually invests much like a conservative investor, but will use a portion of their investment funds for higher risk investments. Many moderate investors invest up to 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.

An aggressive investor is willing to take risks that other investors won’t take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns – either over time or in a short amount of time. Aggressive investors often have all or most of their investment monies tied up in the stock market.

Again, determining what style of investing you will use will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should always carefully research the investment and never invest your cash without having all of the facts.

If you think you are an aggressive investor and intend to trade stocks activily, make sure that you learn how to trade by taking a good trading course such as Top Dog Trading before making your 1st stock purchase.

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If you are about to start, or are already in the process of learning how to trade, or day trade, you may have already been searching the internet using Google or Yahoo for day trading training education, tools, software or seminars, and have found that there is a lot on offer.

For example “trading course” brings up 758,000 pages in Google and “trading seminar” another 109,000 pages, the question is what should you be looking for when selecting a trading course or seminar. In this article I’ll point out some of the things to check before spending your hard earned cash on your trading education.

1. Becareful of the hidden costs involved in a trading seminar that is away from home, account for the expense of hotels, meals travel and car rental?, it may be much more than you expect.

2. What is the return policy, this can vary widely between trading education companies, for some you only have a 3 day cooling off period while for others you may have up to 12 noon or the end of the 1st day to ask for refund if you decide this was not right for you.

3. For a live seminar are you also given a set of DVD’s of the same or similar content?, so often live seminars fail to cover all the very important details involved in day trading. Having a set of DVD’s enables you to watch the content over and over again at home until you get it. Beware that some companies will charge you extra for the DVD’s even though you have already paid for a live trading seminar.

4. Check the internet for positive and negative feedback on the company and trading seminar. Use search terms like “company name review or “company name scam”. Often reviews are posted in trading forums, these can be found by searching for terms like “trading forum”.

5. A head of time try and find out exactly who will be presenting the seminar. The last thing that you want is a professional “teacher” presenting a seminar on trading, what you want is a “trader” who makes his living by trading and only does a few seminars a month out of interest and for personal reasons, not because they need the money.

6. If you are buying an online day trading or investing course where the content is 100% viewed online you should get at least a 30 day 100% cash back guarantee, if not stay away.

7. If you are buying a course or trading seminar in which DVD’s and manuals are being shipped to your house, again you should expect a 30 day 100% money back return policy, less shipping and handling, again if not stay away.

8. It’s very likely that you will have questions after taking either the live or online course or watching the DVD’s, make sure that you will be able to ask questions and have them answered, either one on one or in a forum setting.

9. Last, but not least, before buying do a lot of window shopping. The price for trading seminars, either stocks, options, Forex or futures varies widely from $47 for an ebook to over $25K for a comprehensive set of training. You may be able to find the same education much cheaper at a different company.

Also be aware that day trading education and seminar companies are always running specials and offering discounts, before you buy search the internet carefully for any deals and also call the company directly and ask for a low price guarantee. Make sure you are paying the lowest price possible for the course or seminar before you commit to it.

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This is something that most people don’t even think about, but knowing what your risk tolerance is and investment style are very important. This will help you choose investments that are more suited to you, and which the long run should do better as you will be less stressed about them and make fewer trading errors. 

While there are many different types of investments that one can make, there are really only three specific investment styles, and those three styles tie in with your risk tolerance, these are conservative, moderate, and aggressive.

Naturally, if you find that you have a lowish tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, and are relativily young, you will most likely be a moderate or aggressive investor. At the same time, your financial ambitions will also determine what style of investing you use.

If you are saving for retirement in your early twenties, you should use a conservative or moderate style of investing, but if you are trying to get together the funds to buy a home in the next year or two, you would want to use an aggressive style. Being an active stock market trader would be considered an aggressive style for most people.

Conservative investors want to make sure that they maintain their initial capital and make very modest gains per year, they want to sleep well at night. In other words, if they invest 00 they want to be sure that they will get their initial 00 back. This type of investor usually invests in blue chip common stocks and bonds and short term money market accounts. But remember trading stocks, even if they are blue chips can still be very risky as we have seen in the 2008/9 bear market.

An interest earning savings account is very common for conservative investors.
A moderate investor usually invests much like a conservative investor, but will use a small portion of their investment funds for higher risk investments. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.

An aggressive investor is willing to take risks that other investors won’t take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns – either over time or in a short amount of time. Aggressive investors often have all or most of their investment monies tied up in the stock market.

Again, determining what style of investing you will employ will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should always carefully research the investment and never invest without having all of the facts.

If you think you are an aggressive investor and intend to trade stocks activily, make sure that you learn how to trade by taking a good trading course such as Top Dog Trading before making your 1st stock purchase.

A767321456