Our largest bank, Commonwealth Bank of Australia (ASX: CBA), is a company that I've never owned, and don't have much interest in owning. Like many other large caps, this is partly because I perceive the potential growth in its shares is minimal, however, there are several other reasons:
- It'll never deliver 5x my money
There's extremely long odds against a Commbank investment delivering 5x my money, including dividends, in the foreseeable future. This is Australia's largest and most profitable bank, and without expanding internationally (something our banks have been bad at) it's simply too difficult for it to grow rapidly.
- It has a weak record of customer service
I subscribe to the crusty old notion that companies must be good for customers in order to justify their existence. A recent history of Commbank including its life insurance and financial planning scandals suggests that the bank is mostly incentivised to extract profit from customers.
(This is also an effective bull case for the company, as Commbank uses its high fees and loyal customers to generate a top-tier return on equity, a key measure of banking performance.)
- It's a hard business to understand
There are many moving parts in the banking business. Wealth management, insurance, retail banking, lending, foreign exchange, plus the access to overseas funding and probably a few more I'm forgetting. Most of Commonwealth's businesses could be a company on their own and it requires a lot of work to understand the industry each operates in and its potential for growth.
That's not to say that Commonwealth Bank is a bad business, indeed shareholders have done quite well out of it over the last 20 years. However, because of the above reasons and a few more (price, exposure to Aus economy), I'm unlikely to be buying any shares in the foreseeable future.
