I don’t, but I can promise you that when it happened, I was probably not very happy about it. And I probably threw some kind of tantrum but then by next year I really only cared if there were still presents under the tree. Life is funny like that, the things we think are important at the time end up being inconsequential in the long run. Almost insignificant.

And what does that have to do with bank investing? Well, quite a bit actually.

A few years ago I built this thing called the Relative Growth Score (RGS). A mythical, magical screener that would bring gifts of bank stock alpha to those who believed in it, just like Santa. It looked at trailing revenue per share, earnings per share, and tangible book value per share growth over different time periods and ranked banks by who was on the nice list and who was on the naughty list. If your RGS was better than the rest, you got the presents. And if your RGS was worse than the rest, you got coal in your portfolio.

And for a long time, I thought this was true. But it isn’t, my version of Santa is not real. And if you read on, you’ll see the data behind this claim, but more importantly you’ll see that investing in banks can be far easier than it seems.

A quick note on how I did this. RGS ranks banks on how much revenue per share, EPS, and tangible book value per share grew over the prior three years, then averages the three rankings. Claude and I tested whether the highest-ranked banks performed better over the next one and three years by buying each bank equally and repeating the test every quarter. We used only numbers investors could have known at the time, waited at least 45 days after each reported quarter, included dividends, and left every valid extreme in. The test runs from March 2013 through March 2026, with 278 banks in the broad universe and about 240 with enough history for an RGS.

At the end of the post are the full double-checked results, you’re more than welcome to poke, prod, and run your own analysis on it.

Now onto the 6 truths, an M&A question, and some odds and ends. I personally think #6 is the biggest source of alpha in the space.

Bank investing truth #1:

Sorry to Claude and all my work, but growth in per share metrics is like a picture of an Olympic medal ceremony podium. It tells you who won, by how much, and who looks good, but it will not guarantee that the conditions or decisions made by management will produce those same metrics into the future. And trust me, I tried cutting this list a million different ways. Top-tier, backward-looking RGS did not reliably mean one- or three-year TSR outperformance which I suppose is why they say past performance is not an indicator of future results.

If you want to play around with all of this it’s on The BID Terminal which you can pay for separately or by upgrading to paid here.

To the top of the heap? A massive congrats. You deserve it.

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But the question really is, should you be buying investment banking stocks this deep into a revenue and earnings boom and at these prices? I’m not, but you’re more than welcome to. People that know me would tell you I’m better than most within financials, and this comes not from arrogance or hubris, but from making countless little bad decisions that accrued into my stubborn brain as wisdom.

As for investment banking stocks the economy is good, deals are flowing, and optimism is high. Technically speaking the charts also look good. They’re incredibly hard to short in good times because you end up playing a time the recession game, but reading this should give you some breadcrumbs to follow if you’re one of the institutional types following.

GS and MS have absolutely dominated the tables with exposure to the AI financing boom and equity issuances. C and JPM (not on here) have also benefitted from the computer chip financing cycle within the mega caps. But all has not been well down cap with names down anywhere from 33% in HLIs case to 22% in LAZ. And somewhere my friend Cluseau is sitting on piles of OPY gains which I didn’t include here since they’re not covered and have funky SARs on balance sheet which distorts some of the data below.

Answering the “to buy or not to buy” more academically, the question really is, are next year’s earnings estimates, which ironically are written by the very investment banks themselves, true or false? My lean here is that I truly don’t know and 15-22x next year’s earnings can be cheap or rich depending on what happens to actual EPS flow through. Investment banks are optimistic types. They’re paid to be. So whether or not they’re right projecting their own industries forward EPS is a challenge I also don’t need to undergo.

The facts below outline the biggest investment banks, their forward P/E, their estimated EPS growth in 2027, and roughly how they get paid. Names like RJF carry wealth units that temper the earnings volatility, names like MS do mega equity financings and wealth which also make this not apples to apples, and then you have the more boutique advisory names that are pure plays like MC.

What you see here broadly is a group where things seem fair.

But the three points I’d like to get across for this blog are here.

One revenue growth is declining in some boutique names. Two revenue growth and EPS growth are non-linear. Read as: due to the structural operating leverage in these names, a decline or increase in revenue produces big changes in EPS. And three, if or when the tide turns these have negative convexity. They sell off more than the industry or SPY because of the point above.

First things first. The second derivative of revenue growth is in fact turning over for some boutiques. And the market rightly sniffs this out in stock price. Revenue is typically a backwards looking metric, with announced deals, completed deals, and other pipeline metrics being forward looking ones. Getting long these declining top line names though means you need insight into pipelines that I don’t right now, and don’t care to figure out. If you’re going to get long, you should investigate this.

Getting to revenue growth though, in some cases it’s strong. In some cases choppy. And in some cases rolling over. This is the TTM revenue growth on a QoQ basis to strip out the noise of deal closings intra-quarter. MC, HLI, and LAZ all in a decelerating revenue trend.

Before reading on, would you guess that those stocks performed better or worse than the rest of the field?

If you guessed worse, you are right.

The ones kind of bucking the trend being PIPR and EVR, who have sold off despite accelerating revenue growth. My sense here again is that the markets being forward looking see either a pipeline that is slowing, price has a way of doing that in the short run.

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Onto the next point, one that bull markets make us all forget. Operating leverage cuts both ways. This one should be obvious, but it’s not. And I have seen a constant stream of operating leverage posts about every sector out there. From cyclicals here like UBER to cyclicals in Brazil in MELI, naïve investors love to point out the magic of operating leverage. When times are good, and revenues go up on fixed cost bases somehow companies have discovered the holy grail of perpetual returns. But the truth is, this can cut both ways.

Look at 2023 revenue growth vs. 2023 EPS growth. 2023 was a bad year for IB revenues and and even worst year for EPS growth, somewhere around 3x the impact. Those fixed costs that created leverage on the way up created operating de-leveraging on the way down. 2025 obviously being the inverse of this and what we’re all feeling now.

Which brings us to the third point: investment banking stocks are high beta in down cycles. I’m not calling a top. I’m saying the risk/reward is now skewed downward. Revenue and EPS likely need to beat expectations for these stocks to outperform the market, while even a modest miss could produce magnified downside. The actual growth rate matters less than the gap between results and what the price already assumes.

Looking at the above, 2022 was a weird year. Rates went up, tech was slaughtered, some banks were midway through failing without knowing it, but I use this to show you that when the market turns, these stocks turn. And if you’re paying attention, the boutique ones sell off the worst. I do not think a recession is coming. I can’t predict when a recession is coming, but not realizing levered cyclicals go down more in down cycles is fatal flaw number one of investing in financials.

There’s a whole bunch of nuance in these names which I don’t mean to overlook. First on what they do. EVR is large cap M&A; healthcare, tech, and industrials. LAZ power and energy infra. MC the private capital focused bank with a record pipeline according to their Q2 call, with a backlog up 80% YoY. PIPR the leader in financial institutions M&A and ECM with biotech also a speciality, consider them the middle market experts. And HLI the restructuring and middle-market M&A shop that serves tech and software. From the price returns above and the narratives I gave you here you can connect the dots.

It’s always most tempting to buy cyclicals when times are good, but this is precisely when the risk/reward shifts on you. Hope springs eternal within the walls of investment banks and also when you buy investment banking stocks in bull times.

If you forced me to buy these now I would not be sizing up and I would look to neutralize some of the market risk. I would probably push back and not buy and instead look at less cyclical pockets of the market like the beaten down data/exchanges space. Or even the cards & networks space within fins.

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But the lesson for today is simple.

What I’ve learned from experience, is that friends don’t let friends buy levered cyclicals when things are great. They buy them when things are terrible.

The best is ahead,

BID

PS - if you like financials you should go to this link and sign up: The BID Terminal. Everyone of the tickers mentioned in here has a <5 minute write-up on the risk/reward of each and the things you need to know before buying them. It’s made with institutional quality, but real person talk.

First, I want to say thank you. From first hand experience there are too many Substacks out there and so the fact that most of the 2200 of you or so are actively reading these means a lot to me.

Second, I posted to the premium chat & The BID Terminal (TBT), a writeup on the Russell Shuffle. Link to the full post with tickers is behind the paywall and remember paying here = full Terminal access. One price, access to both and I’m up to 150 companies written up.

Onto Intuit.

Three reports linked below all valuable and all included. The Back of Napkin: the two-business math. The Moat Dive: whether QB's switching costs hold. And the Proxy Insights: what management gets paid to do about it.

I think it’s cheap, but I’m passing. Evoking two investing idols here. One Buffett in that it’s too hard for me to underwrite winning. And Nick Sleep in that they’re literally running his Costco playbook in reverse.

First of all technically it looks horrible.

Fundamentally here’s how I think about it. And again, you don’t need me to give you AI generated “insights” on the stats, the quarter, the numbers, or any of that. You pay me for judgement. And for compression of lots of info. That’s what is below.

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Over the past 12 months all financials have lagged EWZ as high rates and FX issues plus an election and El Nino weigh on credit and returns. STNE and INTR in particular getting hammered.

To the more positive side, social media has been all over NU and MELI as the mis…

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This is a borrowed idea, but not a borrowed thesis.

Borrowed idea because it sounds like a friend of a friend, Gator Capital’s Derek Pilecki, posted it as a long. I have a huge amount of respect for Derek, not just for the performance he’s posted, but for what I believe to be his mental frameworks and attitude towards investing. From what I’ve heard/read it looks like he is a good human having fun, we need more people like that.

I know banks & fins well, but I remember him most because I thought I was smart buying HOOD in 2025 around $40, only to learn of him being on HOOD somewhere around an $8 cost basis. A humbling reminder that someone’s always got a lower starting price than you.

But this is not a borrowed thesis, because I haven’t read his thesis yet. I’ll read his once I’m done but I’m stubborn like that and I want to make up my own mind.

Everyone is gushing about bottlenecks, semiconductors, and hyperscaler capex right now. And if you are one of those people you’ll probably miss this. In my mind, this has about 10% to 20% of further downside in it and a range of upsides going from 50% to a 3x over time.

Most financials investors will discover this after the earnings situation changes. This is for the people that want to see it before that happens.

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Everyone knows MELI by now, Brazilian e-comm giant building a bank in real time.

Bulls love it, bears hard to find. Michael Burry allegedly just went long, and FinTwit loves to act like the Company’s emotional support dog. Total return wise, they’ve lagged other digital EM names and also EWZ and SPY.

Fundamentally though, they just posted an absolute monster of a quarter. Around $10B of revenue growing 50% YoY, GMV of roughly $22B up 36% on an FX-neutral basis, and TPV of $101B up about 56% YoY.

But on the bottom line, operating income was down 17% to $680M or so, and operating margin came down from 12.2% in Q2 of 2025 to a not so robust 6.7%. Sequentially stair stepping down from 12% to 10% to 7% to 6.7% over time. But the key here is that each step down has been narrated as deliberate.

That’s the debate. Big growth and thinning margins, but is it deliberate or defensive?

I notice that MELI bulls almost universally say a few things. They say this is on purpose. They say this is investment to grow their network. And they say MELI can stop the spend whenever they want. All of them perfectly confident, which is logical, because that’s consistently how management has framed it - that it’s deliberate investment.

They use lines like:

“the result of a deliberate choice to continue prioritizing investment in long-term engagement, growth and scale over near-term profitability." - Q2 2026

“We can dial margins up or down... we've chosen where to set the dial." - Q1 letter 2026

“If we wanted to improve margins in the short term, it would be fairly easy for us to slow down certain investments.” - Q1 2026

But this quarter they removed the dial language and wouldn’t commit to trade-offs if the environment changed. And for what it’s worth, they’ve described a lever they’ve never actually pulled.

Remember Mark Twain (allegedly) though:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

So my question to the bulls is, what if the margin sacrifice isn’t temporary?

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Because MELI is now fighting large battles on two fronts with very capable, well funded, and very successful competitors. Literally some of the best around.

On commerce: SE/Shopee, Amazon, PDD/Temu.

On finance: NU, and increasingly SE/Monee.

And note, a sharp bull may say they DID pull this lever in the past, margins went from low single digits in 2021 to l/m teens in 2023, but that coincided with Shopee retreating from LatAm.

But it’s hard enough to win one war. Students of history will tell you that fighting multiple wars on multiple fronts rarely works. And if you’re wrong then $1,800 may be closer to fair value than a floor.

I don’t hate the name, but I think there’s more risk than bulls would have you think. And here’s why.

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The best public speaking advice I’ve ever been given. Yours for free today.

I’m going to tell you about three things in this post and one north star. Sourced with data from all the other “hard times” sell-offs that have happened within the bank sector.

One, buying the dip in bank stocks that have bad or “blow up” quarters historically has done well on median, provided the bank doesn’t fail. But as dip buyers you don’t ever get to experience the median.

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Two, none of these banks look like banks that will fail. Quite the opposite right now, and this is clear when looking at the balance sheets.

Three, forward returns depend on a lot. My thoughts on these are below. The likeliest price ranges for them over the next 12 months and the what the data says about the path.

And one more thing. Be very, very careful buying banks that “dipped twice”.

Buying the Dips In Banks With Bad Days

Here’s what the data says. As long as the banks don’t fail, the data says you’ll be fine. And by fine I mean that the backwards looking data says that your forward returns, on median, will likely be positive 12 months down the line.

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But that's not the world we live in now friends. Over the past 2 years, mortgage rates have stayed stubbornly high despite efforts to jawbone them down lower. In fact, I see mortgages as approaching their "rubicon" of 7%, which will bring countless articles, doom calls, and the harsh reality for young people that you may never afford a home.

On top of this, Fed Funds has come down but long rates have leaked higher. A lingering effect of the "temporary" inflation that we've been dealing with and a Fed that dropped forward guidance. Nobody knows what’s going on, only that higher long end rates seem to be a certainty.

I Don’t Know Where Longer Term Rates Will Go

Let me just say it. And I don’t know how much more directly to say this. I don’t have a crystal ball.

A Good Risk/Reward Doesn’t Mean It Will Win

A fundamental truth in investing and money management is that good risk/rewards can lose. And bad risk/rewards can win.

A good risk/reward is one where you have a small “left tail” or downside, and a convex or higher upside “right tail.” You should be able to measure both, within reason.

And as opposed to just buying bonds for rates down exposure, to clarify rates down on the long end and not short end, this post outlines a way to get convex exposure with a defined, knowable downside.

This is a name I’ve tracked for years as a proxy for rate moves, it’s one many people know, but that has changed a bit over the years.

Rocket (RKT)

The Company I’m talking about is Rocket, Dan Gilbert’s mortgage machine out of Detroit. And since a full back of the napkin write-up and moat dive is in the Terminal if you’re a paid member, this will be a simple overview. Short and to the point.

Rocket is #1 in the refi space and continued growing their advantage by absorbing two companies recently: Redfin, the search site, and Mr. Cooper the biggest loan servicer in America. They’ve put together a vertically integrated behemoth where people search for their homes on Redfin, the loan is written by Rocket, and the Mr. Cooper arm collects payments and servicing for about 9 million households.

Recent earnings for RKT had a small adjusted EPS miss, in what is likely the worst spring housing market in years. Compare that with UWMC who just needed a $2 billion rescue, and every originator I follow having a horrible time right now. But in the face of that RKT kept growing anyway. Record share in purchase at 6.2%, record in refi at 14.3%, and their best profitability in four years. And for me, one of the bigger things most people skipped past is that merger savings got bumped to $500M.

When you zoom out, the whole industry is guiding Q3 below Q2. First time that’s happened since 2022. Right now, RKT’s around $13.76, call it 14x next year, and it’s sitting right on its 200 week moving average so not a horrible place to be interested.

Rocket’s Moat

I think RKT passes the “will it be around in 20 years test”. In what is basically a commodity world, mortgage refi and origination, Rocket is building a real, durable, moat. Their servicing book means it has a 9 million borrower file that they can monetize via refi opportunities if rates fall. Being one of the few companies I’ve seen in finance able to quantify AI impact, as of the last Q, their voice AI has handled a million-plus servicing calls, over half with no human needed, and lead conversion is up roughly 30% in a year.

On top of this, RKT says that on its legacy balances it keeps about 83% of customers who refinance versus industry stats that get roughly 25%. Mr. Cooper ran around 50% historically before getting acquired for context. In Q2, that Mr. Cooper book that was bought hit a recapture record, with conversion getting better and better. All of these things to me say that people are loyal to the company, or at least captive to their ecosystem despite mortgage brokers calling them non-stop the second rates tick lower.

And on top of that $320B of Rocket’s loans sit above a 6% rate, which is a lot of stranded borrowers with no ability to refi. That to me is untapped revenue potential. But you still need rates to come down on the long end for that loaded spring to pay off.

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UWMC, United Whol…

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And before proceeding, know that I love what a d…

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If, however, you’re interested in learning about the global bank stock universe, then you’ve found your happy place.

I did have time to write a shorter letter so I will keep it to the point here.

The Meta Read

The median global bank right now earns about 14% on equity, trades around 1.9x tangible, 13.5x earnings, and returned roughly 40% over the last year, compared to SPY at 20.7%. This brushes past the fact that the median bank sits in the 94th percentile of its own valuation range since the great financial crisis, the one that most investors nowadays know only as an acronym or through The Big Short and Margin Call.

Read that again, globally banks are near the most expensive they’ve been in 16 years.

Returns from here will be more challenging, and far from this being a bear call it is a reminder that forward returns are impacted by current starting price and valuation, and valuations are high. Very high, friends.

Why are they expensive? Let me count the ways.

One, the GFC was “the big purge” in credit. Which was followed by a European crisis and low rates, which let everyone clean themselves up. And now we find ourselves in a bit of a global Goldilocks period, where things are not too hot nor too cold, and governments have been all too willing to flood the system with both Monetary and Fiscal stimulus in the trillions. It is very hard to have credit deteriorate materially in the face of this.

10 Things That Make Me Go Hmmmm

1. 60 out of the 105 banks I ran sit at their 90th percentile or higher since the GFC. Only 14 are “cheap” meaning they sit below their 25th percentile. These include Indian banks, Saudi banks, Brazilian banks, and US names like Synchrony (yes some “not banks” are included) and WAL. SYF and WAL are credit scars, or fears. And others like India or Brazil are currency related.

   

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American Express and Charter.

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If you don’t know, this player is Mike Piazza, who ended his career with 427 home runs and was a perennial All-Star.

Turns out the MLB draft is tough. Scouts are paid to travel the country, and now the globe, trying to find the diamond in the rough. Teams pre-calculate odds of MLB success, thoughts on costs to sign players, and every other metric Moneyball taught us. And yet at best it’s still a crapshoot. Most first rounders never carve out a real MLB career, and the hit rate falls off a cliff from there.

What you may ask does this have anything to do with Momentum investing?

Everything.

Sacerdote and Whale Rock

I recently listened to a podcast with the head of Whale Rock, Alex Sacerdote, that was eye opening. Like most quant work, a good amount was well over my head, but the concept I took away the most was surrounding S-curves. Mainly that the Street (and all humans) model straight lines, because compounding curves are hard for our little brains to fathom. The reality is that some companies bend. Far from linear, companies like Micron, Sandisk, or Nvidia experience accelerating results in what looks like the classic inflecting parabolic up and to the right function. The key is to find them before inflection, or early in inflection, and before multiples expand. This is far easier said than done.

By the afternoon that day I (thanks Claude) had a far from one-shotted screen with the goal of looking for two things. One, companies with inflecting or accelerating top lines. Two, accelerating top line companies that weren’t priced like it.

The machine worked, and it’s built into the Terminal, but the lesson it taught wasn’t the one I wanted.

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Mean, Median, and Power Law

First, in keeping with the baseball theme, the screen gave me BATRA as the #18 accelerator in America. That company? The Atlanta Braves. And while it’s not impossible, I quickly realized this was a data issue. FMP (the same data engine Perplexity uses for financials) had mis-reported a quarter’s revenue, roughly adding a zero, and creating an S-curve where none existed. So check your data.

The acceleration screen reads mostly like a hype based X account pumping the last thing that went up 300%, but there are certainly gems in there too. The question always though is price, namely am I paying for acceleration nobody sees or pipe dreams?

Before taking this as gospel, I did some backtesting. I took the top 30 accelerators, in quarterly cohorts from 2022 to 2025. I wanted to see if S-curves produced excess alpha at least using revenue acceleration as a factor.

What did I find?

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If you’ve dealt with a salesperson at the top of their field, you’ve been worked on by this and probably never noticed. But what you may not know is that you and I are hardwired to …

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Cards and payments sit in the 11th percentile of valuation going back six years, one of the cheapest corners of financials, or of anything really. Why? Part stablecoin fear, part agentic commerce, part software de-rating, and part …

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When you invest, most brokerages that I know of will show you the scoreboard of your investing prowess. How have you performed relative to the index of your choosing: the S&P 500, Nasdaq…

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I’d know. I paid all three.

I’ve fired an advisor after underperformance. I’ve over-concentrated into binary-risk stocks that blew up. And I…

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