Jamie Dimon, the CEO of JPMorgan Chase (JPM 1.93%), is one of the most listened-to voices in finance. His words, which often reveal to everyday investors how the royalty of Wall Street views the world, can move markets.
What’s on Dimon’s mind these days? Inflated asset prices. And in his view, right now, the category of assets that have become inflated includes the shares of the company he leads.
JPMorgan Chase has performed well with a surprising strategy
JPMorgan Chase stock has done remarkably well in recent years. Over the past decade, for instance, its shares have increased in value by 403%. Goldman Sachs, another banking giant, saw its share price rise by just 259% over the same period. The S&P 500, for comparison, rose in value by 239%.
Today, JPMorgan is one of the biggest banks in the world, with around $4 trillion in assets. Last quarter, it brought in $41.9 billion in revenue and turned a profit of $13.4 billion.
Why has JPMorgan done so well over the past decade? Dimon is a huge reason. He took on the role of CEO at the start of 2006. Since that point, the bank has focused on two pillars of success: growth and efficiency. Early during his tenure, Dimon oversaw the integration of two difficult acquisitions, Bear Stearns and Washington Mutual. He then chose a growth path that few competitors were opting for at the time: slow and steady.
Goldman Sachs, for instance, attempted to rapidly grow its Main Street savings, lending, and credit card division, only to write off billions in value years down the road. Due to failed expansion efforts like this, that firm’s return on equity is lower today than it was 10 years ago. JPMorgan’s return on equity levels, meanwhile, have more than doubled.
In a highly competitive industry, Dimon has specialized in being boring. Other banks are catching on to the merits of that approach. Wells Fargo, for example, pressured its employees for years to energetically cross-sell financial products to customers in pursuit of more growth. After the company agreed to settle with the U.S. government over charges, the bank hired Charlie Scharf to right the ship — one of Dimon’s former lieutenants at JPMorgan.
Dimon has repeatedly shown the banking industry that when it comes to profits, slow and steady wins the race.
JPM Revenue (TTM) data by YCharts
What does Dimon think about JPMorgan’s stock price right now?
Dimon hasn’t just turned JPMorgan into one of the most successful banks in the world. He has also doubled down by betting billions of dollars in shareholder capital on the company’s own stock.
Lately, the company has been buying back between $2 billion and $3 billion of stock per quarter. But in the past, it’s spent north of $6 billion in quarterly share repurchases. The company currently has an $8 billion stock buyback program authorized, but Dimon recently revealed his hesitancy at boosting that figure much further. His explanation was fairly surprising.
JPM Stock Buybacks (Quarterly) data by YCharts
“We’re not going to buy back a lot of stock at these prices,” Dimon told the crowd at a recent investor event, according to news reports. It’s not hard to read between the lines here. JPMorgan stock is up 41% over the past year. On a price-to-book basis, shares are more expensive today than they have been in years. “We’ve been very, very consistent,” Dimon quickly clarified. “When the stock goes up, we’ll buy less and when it comes down, we’ll buy more.”
Does this mean you should avoid JPMorgan stock? Not necessarily. As Dimon mentions, the company will still be buying back shares, just not at the previous pace. In his eyes, the stock isn’t the bargain it used to be, but it’s attractive enough to bet additional shareholder capital on. Investors should also note that buyback activity isn’t a perfect indicator of future success. When JPMorgan reduced its buyback activity to zero for a period in 2020, for instance, it proved to be the best buying opportunity in years.
Over the short term, stock prices can gyrate wildly. Dimon knows this better than anybody. His words this week are simply a reflection of that reality. He’s likely still very bullish on JPMorgan Chase stock over the long run. But with finite resources, he’s opting to decrease the firm’s buyback activity for the time being. The company won’t be selling new stock, mind you. It just won’t be repurchasing its outstanding shares as quickly as it has in the recent past.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and JPMorgan Chase. The Motley Fool has a disclosure policy.