It was sometime in the middle of 2006 when I met the management of a banking company for the first time. It was HDFC Bank, and I met one of their top executives along with my banking analyst colleague.
The bull market in banking and financial stocks was just beginning to pick up pace and, in hindsight, there we were at the right place and at the right time. We ended up recommending a ‘Buy’ on the stock, which turned out to be a big wealth creator for our clients. Trusting the analysis skills of my colleague, I wanted to buy the stock a month after she recommended it to clients, but stopped at the last moment.
Why? I did not understand the head or tail of HDFC Bank’s balance sheet (I still don’t). Of course, I understood how it made money – by earning interest on its loans, advances and investments – but my competence ended there.
I had no clue on how the bank priced its loans, how it tested credit abilities of borrowers (do they really test that?), and how it accounted for its investments and liabilities on the balance sheet. I knew that if India were to do well, banks would be a direct beneficiary. But it was a tough nut to crack for me, and I gave up there and then.
So, unlike our clients, some of whom would have made a 10-bagger in the stock, I missed this bus. Only that, unlike Warren Buffett who talks about sucking his thumb while missing such obvious opportunities, I had all my fingers tied behind my back, and it was my own choice.