Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Goldman Sachs Group Inc (GS), JPMorgan Chase & Co. (JPM): The Unheard Defense of Wall Street

Long-term greedy
From an investor’s point of view (Full disclosure: I own shares of Goldman Sachs and JPMorgan), these stories about Goldman Sachs and Wall Street’s involvement in the mostly unknown aluminum storage market (Full disclosure: I am not an expert in aluminum storage) has actually increased my confidence that these two companies are superior long-term investments. Warren Buffett may have said it best when questioned about his investment in Goldman Sachs, saying that he likes to “bet on brains.”

Despite the presence of these brainiacs, shares of Goldman Sachs and JPMorgan Chase & Co. (NYSE:JPM) are both trading at price-to-tangible book value per share multiples, a common bank valuation metric, significantly below historical norms. One driver behind these depressed valuations is the expectation that regulation will ultimately crush many of Wall Street’s most profitable endeavors.

Source: S&P Capital IQ.

However, if there is one thing bank investors learned from the financial crisis, it’s that banks are almost always one step of ahead of regulators.

The other half
For investors or potential investors, the trading multiples (P/TBV) are only one half of the equation. The other half lies with the firm’s ability to generate sufficient returns on its equity, and thus create value for shareholders. Despite regulatory headwinds and muted merger and acquisition activity, both JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs have continued to post double-digit returns on equity — JPMorgan still posted a return on tangible common equity of 15% in 2012 despite the London Whale trading fiasco.

Wall Street is seldom a warm and huggable entity, but casting these companies and their stocks off to an investor-deserted island without looking beyond the salacious headlines could prove costly in the long run.

LeBron James photo credit: Steve Jurvetson.

Few investment banks, business-people, or investors can do what Goldman Sachs Group Inc (NYSE:GS) or JPMorgan Chase & Co. (NYSE:JPM) can do, but getting upset at these companies when they play by the rules and regulations established out of their control is a little like getting angry at LeBron James for dominating because he is just too strong and too fast to be stopped.

The article The Unheard Defense of Wall Street originally appeared on Fool.com and is written by David Hanson.

You can follow David Twitter. David Hanson owns shares of Goldman Sachs and JPMorgan Chase. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.