Warren Buffett on

Bank Investments

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Executive Summary


Berkshire Hathaway owns 7% of the shares of Wells Fargo. Analysts say it is the best-run bank in America. Aside from Wells Fargo, Berkshire also owns Bank of America. Buffett salutes to Brian Moynihan on how he handles the terrible situations. He's solving the problems. It will take some time, but will eventually pass.


However, if Buffett were to choose between Wells Fargo and Bank of America, he'd probably own Wells Fargo.


It was a surprise that Buffett bought shares from IBM, because he was very vocal about not being into technology business. His rule still does apply for the most part. For Buffett, as long as he understands the future of the business enough, if he likes the management, and if the price is reasonable, and if the company is big, he would buy it.


If given the chance to go back to the past, Buffett would buy shares from Apple. He talked to Steve Jobs a couple of years ago about what to do with billions of dollars he has. It was amazing for Buffett. He wished he could have bought stocks.


When asked to choose between having all the gold ever mined or all the paper dollars ever printed, he gave an indefinite answer. He never let himself fall into the trap. He answered neither of the two. He made a stand to never invest on steady assets that does not produce anything except to literally grow money and increase in price over time.


He said he'd rather buy farm lands. The farm land he bought in the 1980's in now producing extravagant products. That farm is more productive now in terms of techniques and improvements. Prices are higher and fertilizers are good.


Buffett never purchased a fertilizer company simply, because no one has ever been offered to him. The supply growth is what determines the pricing. Fertilizer pricing has moved a lot for the past 10 years.


Buffett is confident not because he is buying the upper market, but because he has a different deal. Berkshire doesn't have something that they can turn around and sell tomorrow. They make money out of the fact that the business does well overtime.

Full Transcript


Warren Buffett has yet to share more insights and facts about his bank businesses and other new investments.


Berkshire Hathaway owns 7% of the shares of Wells Fargo. Most people say it is the best-run bank in America, and even analysts agree to that. Aside from Wells Fargo, Berkshire also owns Bank of America. What could be the strength if both banks were to connive?


Banks are not going on a return on equity in the future as they had 5 years ago. Their leverage is being restrained for good reasons. Banks earning on assets is a good business. The American banks are probably in many cases in the best shape they've ever been. Banks around the world are barely in good shape.


With regards to Brian Moynihan of Bank of America, Buffett salutes to him on how he handles the terrible situations. He's working for the problems they have inherited from the old management. It will take time; he has to weigh the cause of everything involved, but eventually, everything will be fine.


If Buffett were to choose between Wells Fargo and Bank of America, he'd probably own Wells Fargo. Wells Fargo has been in the news in Financial Times. The company is looking for acquisitions in terms of wealth management, because they want to get higher income gain. In Buffett's perspective, it's a good move as long as they execute well. Besides, Wells Fargo have done well to give a wide variety of services to a huge deposit base.


The biggest single asset that Wells Fargo has is its deposit base. As it's true with the bank of America, they have a consumer-based small business type days that are just huge; more so than will be the case with Morgan or Sydney group. It isn't as big value now. because you can't put money, but it's a terrific asset overtime. They sell other products to the group, and the more product they have that they can effectively deliver to the clients, the better.


Berkshire Hathaway owns 5.5% of the shares of IBM. They were willing to buy a lot, but the price move up. Anything they own is at the top of their mind in terms of when to buy something intentionally.


IBM management changed ever since Berkshire began buying that stock. The CEO is terrific; IBM is a very well-run organization. before Berkshire bought shares, Buffett didn't know the CEO, but after that, he found out how talented she is.


Many were surprised when Buffett bought shares from IBM, because he is very vocal about not being into technology business. His rule still does apply for the most part. For Buffett, as long as he understands the future of the business enough, if he likes the management, and if the price is reasonable, and if the company is big, he would buy it.


Buffett wishes he bought shares from Apple. Steve jobs called him a couple of years ago and asked what to do with the billions of dollars he had. Jobs said he would not have to change to make big acquisitions that requires lots of move, but that's exactly what they should be! Buffett would use it for acquisition if he knew his stock was undervalued. He'd use it for repurchase.


About the money, Jobs didn't do anything, because he thought he and Buffett both agreed to keep the cash. He didn't buy a repurchase stock, but he bought a stock that was underpriced at $200.


Buffett doesn't like gold or a lot of other places to put money. When asked to choose between having all the gold ever mined or all the paper dollars ever printed, he gave an indefinite answer. He doesn't like paper money ever. He likes physical assets, so he might probably choose gold, but in the end, he did not. He made a stand that he would never really buy gold, stamps, or paintings. He'd buy something productive like the farm land he bought in the mid-1980's. That farm is more productive now in terms of techniques and improvements. Prices are higher and fertilizers are good.


Buffett never purchased a fertilizer company simply, because no one has ever been offered to him. They can divide businesses that are offered to them. Fertilizers is a commodity business, but it takes a long time to bring out additional business. It is true that the supply will grow, but the demand will grow for corn, for soy beans, and for all kinds of crops. The supply growth is what determines the pricing. Fertilizer pricing has moved a lot for the past 10 years. though, but no one has ever offered to Berkshire, so they never bought one yet.


The CEO of Goldman Sachs performed excellently in bringing the company through a crisis. He's very smart, straight forward, and decent. However, the business model is not as good as it was 5 years ago, and that's actually true for all investment and commercial banks. They are subject to much more scrutiny in terms of leverage and activity they an engage in. that will reduce the profit and ability of the return on equity of what they earned 5 years ago.


Buffett he would never do buy backs, but he started it already. He made it clear that Berkshire would never buy a stock back. As a matter of fact in the 2000 annual report, they announced they bought stocks back. Buying back stocks makes great sense when buying at significant discounts.


However, there the ethical questions when buying it from partners. The first line Berkshire has in their economic principles is they want to be sure they're buying it back from their partner at a discount and what it's worth. Still, there's nothing like buying your stocks back at a great discount.


Buffett wantesd IBM, because they aggressively bought their stocks back overtime, which made their shareholders richer.


Nothing is wrong with IBM buying back their stocks. They'd laid out a roadmap and many backup plans. Their shareholders know what's happening, and if their shareholders like to share their stocks at a price that the company is attracted to buy it, there are no more second thoughts. They'd buy it.


Even though the book value as well as increment stock prices are increasing, Berkshire doesn't give dividends. Dividends essentially would have hurt Berkshire at any time. Every dollar reinvested in Berkshire has turned out to have a great value. What's the sense of paying out somebody a dollar that's worth $1.10 or more in the business?


Buffett does not worry on inflation, because according to him, he's great at some "crystal balls". Some businesses are getting better now compared to the last 3 years. However, some businesses aren't also getting better in the future. Nobody really knows what pace on where it has really started improving.


Buffett is confident not because he is buying the upper market, but because he has a different deal. Berkshire doesn't have something that they can turn around and sell tomorrow. They make money out of the fact that the business does well overtime.