Bank investors typically use the price-to-book ratio to value banks. But this can sometimes be a mistake. Many banks are either now, or soon will be, trading beyond the benchmark of one times book value that investors prefer. This shouldn't stop you from investing in banks, however, because it fails to adequately capture return. As Fool contributor John Maxfield discusses in the following video, going forward, the best returns from bank stocks will likely come in the form of dividends. Consequently, the thing to watch for is both current yield and its potential for growth.
Many investors are scared about investing in big banking stocks after the crash, but the sector has one notable stand out. In a sea of mismanaged and dangerous peers, it stands out as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.
The article 1 Huge Bank-Investing Mistake to Avoid in 2013 originally appeared on Fool.com.
John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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