Subject: Re: BAC
I would caution anyone ever using returns on equity of any sort to understand this simply statistic is often meaningless.
It is meaningless for multitudes of reasons, buybacks can flush equity fast when the stock is selling well above book
for any number of reason, logical or not; write-downs of assets too can run up returns on equity.


Personally, I think you have reached a 100% incorrect conclusion here.
The ROE and ROA of a business are more important than perhaps all other possible metrics combined.

When you start a business, you're going to put in capital.
About the only thing that you're aiming for is the highest safe return on that capital put at risk: the return on your equity.

The "gotcha" is that the metrics have to be calculated and used correctly.
The correct conclusion from your observation of occasional pitfalls is that the equity figure has to be the correct one.
If it needs adjusting because of a historical event distorting the balance sheet, correct it.
The shareholders' equity figure should ideally be the replacement value of the assets used to generate the income, minus the debt.
For most firms, most of the time, GAAP book value is close to this, or close enough. But you have to give it a sanity check.
The three most common things needing adjustment are dud goodwill from bad purchases, off-balance-sheet liabilities, and assets like real estate carried far from current value.
Depressed equity from a history of share buybacks is surprisingly rare: the number of shares bought back has to be very large, AND done at prices far from book value, before it's a material issue.

And second, one should never even bother to look at ROE for a firm with a dangerous level of gearing.
Check the leverage first, and if it isn't safe, immediately move on to the next firm.
Since you don't want to calculate anything else, you don't have to worry about calculating it or using it correctly.

When done properly, there is nothing to compare with ROA and ROE in terms of measuring the effectiveness of both management and the business franchise.
Not all firms with a high ROE will be good businesses.
But all great "moated" businesses have a high ROE figures.
For very good ones, the equity will be rising over time and the ROE will be steady or rising on trend without rising leverage.
This is an indicator that they are likely able to deploy significant amounts of new capital at the same old high rates of return.
For the very best franchises, ROE may be infinite as they require no net equity at all to generate their profits.


As an aside, even when calculated and used badly, a high ROE number is still (AFAIK) the best single predictor of good stock returns.
S&P 500 proxy, last 26 years:

All 500 stocks equally weighted: 9.3%/year

30 of those with highest "naive" ROE: 12.3%/year
30 of those with lowest "naive" ROE: 3.7%/year

30 of those with highest "naive" ROA: 12.0%/year
30 of those with lowest "naive" ROA: 1.3%/year

Jim