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Stocks B / Berkshire Hathaway


Subject:  Re: Maystery purchase Date:  11/4/2018  9:01 AM
Author:  mungofitch Number:  239428 of 240601

I think BoA has improved very substantially under Moynihan and could look a lot more like Wells in the future. Time will tell.

Certainly possible.
But I'll stick with my view that buying BAC these days it's *either* settling for a cash cow *or* a very optimistic wager on a turnaround.

Last I checked, BofA haven't had ROA as high as Wells' in even a single year in the last 30.
Value Line's recent figures for ten year rate of change of
Earnings/share: WFC +6%/year, BAC -10%/year
Book/share: WFC 11%/year, BAC -2%/year
Total assets: WFC 10%/year, BAC -5%/year
Dividends/share: WFC 4%/year, BAC -23%/year
Average ROE: WFC 10.5%/year, BAC 3.4%/year
Note, Value Line smooths their figures, so I believe these are not using a single outlier year as a determinant.
And the most important one, return on total assets: WFC 1.09%/year, BAC 0.42%/year.

That is a whole lot of gap to close, and remember that even WFC isn't as good as it used to be.
Leverage for both has been forced down for everybody, and return on assets down (other than the tax rate change), so ROE is down multiplicatively.
It would take an optimist of great fortitude to think that BofA can manage an interesting ROE when even WFC now struggles to do so.
For "interesting" read "reliably averaging double digits through the business cycle".
Yes, being a huge laggard means there is lots of room for improvement.
But when you're this bad for this long, there are two issues:
(1) why would you expect the improvement? (cf, "definition of insanity"), and
(2) are even the best really big bank franchises like WFC still truly interesting investments if they struggle to average 10% ROE?

I presume the recent tax change has been a factor in Mr Buffett's views.
What else has changed to explain why he might be a buyer now at over $30 when he wasn't during the first eight months of last year when the price was almost mostly $22-$25?
Their long run prospects aren't that much better.

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