Oh pricey! Warren Buffett says individuals ought to solely put money into corporations they perceive

After I was wanting on the Barclays (LSE:BARC) outcomes final week, I used to be reminded of the words of Warren Buffett, who as soon as stated: “By no means put money into a enterprise you can’t perceive.”

As a shareholder within the financial institution, I used to be taking an curiosity in its 2024 outcomes, which have been launched on 12 February. Particularly, I used to be reviewing the corporate’s in depth 536-page annual report.

What’s inside?

It’s a powerful doc. It comprises 226,195 phrases – sure, I checked! Primarily based on a median studying velocity of 238 phrases per minute, it’d take me practically 16 hours to learn all of it. However this leaves no time for breaks. And it’d take me far longer to know all of it.

I’m an accountant so it’s the numbers that curiosity me most. Nonetheless, the financial statements don’t start until page 423. Earlier than that, it’s essential to wade by way of all kinds of different data, together with a enterprise evaluation, local weather and sustainability report, and a piece on company governance.

Danger is clearly an enormous concern for the financial institution. The phrase – and its derivatives – seems 3,846 instances. Certainly, the chance evaluation runs to an astonishing 134 pages. Studying the potential challenges, I’m stunned the financial institution’s administrators need to get away from bed within the morning.

After which there’s the bit on the local weather. Don’t get me incorrect, all of us have to play our half in saving the planet. However over the course of 78 pages, Barclays goes into an enormous quantity of element. Do I really want to know that £42bn has been lent to properties with an Vitality Efficiency Certificates score of D?

Stepping again

Warren Buffett claims that traders don’t must be notably shiny to make cash. He reckons an IQ of 130 will do. Sadly, mine isn’t excessive sufficient to deal with this data overload.

However there’s a hazard of over-complicating issues.

I’ll admit I don’t perceive “franchise-viability threat” or Basel 3.1 requirements. 

However I do know Barclays makes its cash by incentivising prospects to deposit their financial savings, after which lends this money to others at a a lot greater rate of interest. Easy. I don’t have to learn all 536 pages of the financial institution’s annual report to know this.

And impressively, regardless of rates of interest beginning to fall, it managed to extend its internet curiosity margin, in 2024, to three.29% (2023: 3.13%).

I do know the earnings of banks will be unstable. And there are not any ensures that Barclays will meet its targets.

However I personal the financial institution’s shares as a result of, once I first invested, I believed they supplied good worth. Additionally, its progress prospects regarded promising. Right now, my view hasn’t modified. Primarily based on its 2024 earnings per share of 36p, the inventory trades on a historic price-to-earnings ratio of 8.3. That is under the FTSE 100 common.

Encouragingly, its 2024 outcomes beat expectations and the financial institution plans to extend its return on tangible fairness considerably over the following couple of years.

For these causes, I believe it’s a inventory that traders may take into account.

However I reckon the time’s come for a re-think. The oldest annual report I can discover for the financial institution is from 1990 — it runs to simply 68 pages. If the Chancellor is severe about getting the UK financial system rising once more, perhaps she ought to let corporations give attention to rising their earnings, relatively than their annual experiences?