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No. of Recommendations: 30
Debating time!

Resolved: Wells Fargo is a better investment than Berkshire.
In terms of rate of growth of observable value, and in terms of price/value today.

Using the technique from Brooklyninvestor, a simple proxy for ROE-like return
each year is ((BookPerShareEndYear2-BookPerShareEndyear1)+DividendsPaidDuringYear2)/BookPerShareEndYear1
i.e., the main destination of earnings is the increase in book value
per share plus the dividends paid, expressed as a function of shareholders' equity.
This is a bit better than simple EPS/startingbook because it avoids
oddities like other-than-temporary-impairments which don't add up.

I calculated this for the last 14 full years for both WFC and BRK, and first quarter 2013 annualized, for a total of 15 numbers.
In 15 years, the WFC number never once failed to beat the BRK number.
The simple average year-on-year "ROE" was 8.6% at Berkshire, 17.8% at Wells Fargo.
And that's with a period including a once-or-twice-in-a-century (we hope) financial crisis.

What have they done for me lately?
Since a year ago, say end March 2012 to most recent statements and today's price.

WFC book/share up 11.2%, BRK up 7.2%
WFC price up 9.1%, BRK price up 31.1%
Then: WFC price/book 1.34x, BRK 1.14x
Now: WFC price/book 1.32x, BRK 1.40x

So, BRK might have been the better pick a year ago because of the
very attractive valuation multiple, but that has evaporated.
The growth rate at Wells really seems likely to continue to outperform
that at Berkshire, AND it's at a lower multiple of book.

Sure, there are other factors to consider. Berkshire is more unkillable.
But one might argue that it takes a huge desire for that "economic Kevlar" to
overcome the prima facie numbers on which seems to favour WFC.

Currently my allocation to Berkshire is several times that of WFC.
Perhaps I have that a bit backwards?

Jim
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No. of Recommendations: 6
I read the Brooklyn Investor about how Book value of WFC has grown very nicely and faster than BRK. Then I heard Buffett on CNBC saying that Book value is not key to valuing banks - earnings are

This is what he said in response to a question on BAC

Well, a bank that earns 1.3% or 1.4% on assets is going to end up selling above tangible book value. If it's earning 0.6% or 0.5% on asset it's not going to sell. Book value is not key to valuing banks. Earnings are key to valuing banks. Now, it translates to book value to some extent because you're required to hold a certain amount of tangible equity compared to the assets you have. But you've got banks like Wells Fargo and USB that earn very high returns on assets, and they at a good price to tangible book. You've got other banks ... that are earning lower returns on tangible assets, and they're going to sell -- they're going to sell [for less].

http://www.fool.com/investing/general/2013/04/08/buffetts-ke...

This is not necessarily an argument for or against your point - just another piece of important information.
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No. of Recommendations: 7
It's certainly true that book value is not enough information--in general.
In this case we're just using it as a roundabout way of calculating ROE,
which is certainly the most important single number for spotting a good business.
(I'm including in that the returns on both old and newly invested capital)

In the cast of Wells, the book and its trajectory still give quite a good insight
because it makes visible their very high return on equity, which in
turn is a result of their high earning power.
Current value is a function of current earning power, and future value
is a function of return on newly invested capital (and average capital base).
Wells does very well on both of those, it seems.

Unusually high return on assets for the industry, plus leverage at unusually low cost of funding.
So long as they don't blow up (they did survive the crunch at least), they're a money spinner.
Plus, very cheap at barely over 10x current on-trend EPS of that earning power.
Very slowly I begin to appreciate Mr Buffett's fondness for them.
To paraphrase, if you simply manage mostly to avoid doing really dumb things, banking is a great business.

Jim
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No. of Recommendations: 19
Mungo,

I for one am glad that you have nothing better to do than what you do.
Another interesting perspective on something I would not have thought about. What does you wife do while you are in your sunny Study overlooking the Harbor? Glad you enjoy what you do. I do enjoy what you do.
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No. of Recommendations: 23
This is the table I used.
Similar to what Brooklyninvestor did.

  Period     WFC     BRK    Diff
"ROE" "ROE"
1998-1999 15.4% 0.5% 14.9%
1999-2000 19.9% 6.5% 13.5%
2000-2001 8.7% -6.2% 14.9%
2001-2002 18.7% 10.0% 8.6%
2002-2003 22.4% 21.0% 1.4%
2003-2004 19.3% 10.5% 8.7%
2004-2005 16.4% 6.4% 10.1%
2005-2006 25.3% 18.4% 7.0%
2006-2007 15.0% 11.0% 4.0%
2007-2008 21.0% -9.6% 30.6%
2008-2009 27.5% 19.8% 7.7%
2009-2010 13.0% 13.0% 0.01%
2010-2011 9.8% 4.6% 5.2%
2011-2012 17.8% 14.4% 3.5%

Geomean 17.8% 8.2% 9.5%
Simple avg 17.9% 8.6% 9.3%

The "ROE" shown for a given year is the increase in book value per share plus
dividends paid in the one year period shown, divided by start-of-period book value per share.

This is a relatively sensible starting point, as both firms had fairly
transformative mergers in 1998. Norwest for WFC, Gen Re for Berkshire.

Both firms have had substantial compression in valuation multiples.
Average price/book, higher figure in bold:
  Period     WFC     BRK
1996-1999 2.97x 2.06x
2000-2007 2.66x 1.63x
2008- 1.33x 1.25x
Now 1.35x 1.40x For both firms this is 2012-12-31 book and 2013-04-24 price
(These are not calculated exactly the same way, so there is a small error margin.)

The data are interesting, but drawing solid conclusions from them is not so simple.
Yes, Berkshire has a lot of value which is not evident in book value per share,
but on the other hand that value does show up as earnings power, which in
turn shows up as the rate of increase of book value per share as above.
It's a second order effect, but the value all shows up in book value, some just after a lag.
Thus the obvious inferences from first table are much more solid than those from the second.

Going out on a limb, the first table strongly suggests that Wells Fargo might deserve
a higher multiple, and that's what we see historically, but not right now.
A naive interpretation would be that this would be a good time to move money from BRK to WFC.
Though Berkshire might be very cheap right now, Wells Fargo might well be even cheaper.
Check back in a decade. Wells Fargo at $37.34, Berkshire Hathaway at $159,950.

One might well ask: what's the biggest hole in this avenue of approach?
One fairly obvious one is that Berkshire has always held a lot of
publicly listed stocks whose current market value is fed into
the measurement of Berkshire's book value. The US stock market has not
done very well in this era, so Berkshire's rate of growth of book value
per share might well be substantially below trend. Berkshire's book
growth has held at an astonishingly constant rate equal to the total
return increase in the S&P plus about 7%/year through thick and thin.
To the optimist this means that Berkshire's book value might have a
surge in rate of growth when the S&P does. To the pessimist this isn't
good for the medium term since big surges in growth start when the
market is at 2/3 fair value, not at 3/2 fair value as it is today.
It may get worse for a few years before it gets better.

Jim
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No. of Recommendations: 4
What does you wife do while you are in your sunny Study overlooking the Harbor?

Mostly
1. Cook. (Cordon Blue trained pastry chef, among other things)
2. Write about food related things. e.g., her foodie blog gustia.net
I had a lot of fun doing the things that led to the October 2012 posts.

Jim
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No. of Recommendations: 6
One might well ask: what's the biggest hole in this avenue of approach?
One fairly obvious one is that Berkshire has always held a lot of
publicly listed stocks whose current market value is fed into
the measurement of Berkshire's book value. The US stock market has not
done very well in this era, so Berkshire's rate of growth of book value
per share might well be substantially below trend.



Jim,

You have taken Brooklyn Investor's elegant idea and gotten a lot of mileage out of it. Looking at book value has lots of problems, but looking at CHANGE in book value really deals with most of the problems, and is a nice way of comparing apples with apples when our object of interest is Berkshire, with its equity holdings that do not generate earnings on Berkshire's income statement beyond the dividends they spin off.

As for Wells, I don't know enough about banking to judge whether this metric is a good one for banks, but I don't see why not. As a matter of comparison, and to see whether the very impressive performance at Wells is due to Wells or whether it might be due to favourable economics of the whole banking sector, it would be interesting to do the same analysis with other banks, say BAC, Citibank, HSBC, Santander, whatever. Maybe I'll try one of these, the method doesn't seem particularly complicated.

As for your final point, wondering whether Berkshire might have encountered some headwinds with the poor performance of the general equity markets in the period examined, it is certainly true that a 25% return in 15 years is not very conducive to getting a good return, when you're a conglomerate heavily invested in equities. However, the almost 10% absolute annual outperformance that Wells has achieved in that period seems far higher than what could be explained by just a drag on Berkshire's equity portfolio. After all, only a third of Berkshire's current book value comes from equities. And while this may have slowed Berkshire a bit in the last 15 years, it is very likely to continue to do so, if equities are still overpriced, even if they are somewhat less overpriced than 15 years ago. As you say, it may get worse before it gets better.

Anyways, thanks for your very interesting thoughts about Wells. Buffett's high regard is one thing, but if you are starting to feel the same way, then it is high time I learned more about Wells.

Regards, DTM
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No. of Recommendations: 0
As for Wells, I don't know enough about banking to judge whether this metric is a good one for banks, but I don't see why not. ...

One cautionary note.
Value Line forecasts that Wells' book/share will grow at only 4.5%/year in the next 3-5 years.
I'm not sure why that's what they forecast, but it's certainly a possible outcome, among so many others.

A few interesting numbers.
The price of Wells common has been largely rangebound for several years.
The average price since the start of 2004 has been $30.20.
It was trading over $36 for a while in mid 2006.
Splitting those two baselines, since 2005:
Book/share up 2.36x
EPS up 1.55x
Note, I believe that EPS were roughly on trend at both the start and end
so there should not be too much distortion from the "random endpoint" effect.

Jim
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No. of Recommendations: 4
>One might well ask: what's the biggest hole in this avenue of approach?

Wells Fargo's ROE has been astonishing but one must have
conviction that this ROE is scalable into the future. In the
case of Berkshire the ROE is relatively scalable (with increased
size and variability in skill disadvantage) intrinsic to the
model in that they are just capital allocators. So Berkshire's
ROE might continue into the future (and will be higher than the
last 10 years owing to reduced valuation of the broad market
and thus Berkshire's portfolio). For Wells Fargo you have to
independently work out what the likely ROE will be by extending
their business conservatively forward, then compare that to
the ROE of Berkshire Hathaway of say 10% (normalized for valuation
change).

If the advantage to Wells Fargo then only becomes 3% or so,
factor in blow-up or substantial book value destruction
once every 30 years, and the case is harder but I'm not refuting.

- Manlobbi
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No. of Recommendations: 1
Wells Fargo's ROE has been astonishing but one must have
conviction that this ROE is scalable into the future. In the
case of Berkshire the ROE is relatively scalable (with increased
size and variability in skill disadvantage) intrinsic to the
model in that they are just capital allocators.


Maybe ROE will not be so scalable if legislation to increase capital requirements for megabanks passes as proposed in Congress.

Brown and Republican Senator David Vitter of Louisiana, whose plan is opposed by key lawmakers, are proposing a 15 percent capital requirement for so-called megabanks as a way to reduce risk and remove the perception that they would get bailouts in a crisis. Mid-size and regional banks, those between $500 billion and $50 billion in assets, would need to have 8 percent capital relative to assets.

http://www.bloomberg.com/news/2013-04-23/senate-too-big-to-f...

Some policymakers at the Fed and Federal Deposit Insurance Corporation, as well as legislators in Congress, want to break them up. Others wish to impose capital requirements that are so stringent that they would effectively force big banks to shrink. Some officials at the Treasury also favor forcible restructurings or shrinking large financial groups.

http://www.huffingtonpost.com/2013/04/17/capital-requirement...
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Jim,
do you have to make any adjustments for buybacks? Buybacks above the book value are going to hurt the book value.

Or is the theory that eventually they will show up as increased EPS anyway?
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No. of Recommendations: 2
"The "ROE" shown for a given year is the increase in book value per share plus
dividends paid in the one year period shown, divided by start-of-period book value per share."


I am really confused. Really confused, so don't take this as being confrontational and might be a bit dumb on my part.

Isn't ROE just a function of leverage?

Lever up a company and as the equity gets replaced by debt the returns on the remaining equity are going to go through the roof. Especially when the leverage is extremely low cost (like a bank).

So comparing a highly leveraged company (like fractional banks naturally are) to an extremely low leveraged company (like BRK) seems like an apples to oranges comparison.
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No. of Recommendations: 1
do you have to make any adjustments for buybacks? Buybacks above the book value are going to hurt the book value.

I didn't bother.
If you fiddle around with the math it's easy to show that you have to have
a LOT of buybacks well above book value to see any material difference in book/share.
The buybacks are a tiny fraction of the outstanding stock for most firms,
and the gap between book and purchase price is a fraction of that,
so it's a small number multiplied by a small factor.

But you're certainly right.
The gap between book value and purchase price of repurchased shares
should be added to the "effective income" of book/share increase +
dividends in the table as it's another place for the earnings to go.
But that's probably not a really big deal here.
Last year's $3.9bn of stock repurchases (2.25% of average market cap)
reduced book per share by about 12 cents or 0.43%.
The adjustment for 2012 repurchases would shift current price/book
ratio from 1.368x to 1.362x, not really enough to change the conclusions.

In any case, Wells hasn't historically been very big on buybacks.
The share count was essentially constant from 1998 through 2007.
In this case by far the bigger confounding issue has been net stock issuance in this period.
There were 3.30 billion shares in 2007 and there are about 5.29 billion now.
It's hard to determine the ratio of the value of Wachovia to the value of
the shares issued to acquire it. Nominally it was $15.1 billion at the time.
For the sake of simplicity I just assume it's all worth the book/share at which it's held.

Jim
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No. of Recommendations: 22
I am really confused. Really confused, so don't take this as being confrontational and might be a bit dumb on my part.
Isn't ROE just a function of leverage?
Lever up a company and as the equity gets replaced by debt the returns
on the remaining equity are going to go through the roof.
Especially when the leverage is extremely low cost (like a bank).
So comparing a highly leveraged company (like fractional banks naturally are) to an extremely low leveraged company (like BRK) seems like an apples to oranges comparison.


Well, yes and no.

You're absolutely correct in that the leverage issue is critical to understanding
HOW a company makes its money, and how much risk they are taking on to do so.

But it's all just a means to an end. People start companies by putting
money into them (equity, E) in order to get a return (R). Return on equity or ROE
is the reason a firm exists, period, and the most important metric of success.
The question is not whether a high ROE is "fake" because leverage is used.
The earnings generated by that leverage represent real take-it-home-and-spend-it money.
Rather, the issue of leverage in ROE has to be considered in two very separate parts:
(1) Is the leverage sustainable given the nature and earnings power of the underlying business?
(2) If so, is the ROE attractive? In particular, the return on incrementally allocated capital.
The "if not" case is easy: don't look at the company at all. If the leverage is too high, don't even calculate the ROE.

In the case of banks, they are the original leverage machines and a very special case.
If they earn (say) net 1.2% on total assets and use 12-to-1 leverage they will have an ROE of 14.4%.
This is leverage that would be unacceptable in a dry cleaning business,
but banks are special: there are all kinds of regulatory things that
are in place to make sure that they don't run into liquidity problems.
For anyone other than the person starting the bank with his own capital,
the purpose of banks is to solve the problem of term mismatch: they
borrow short term (deposits etc) and lend long term, a huge societal benefit.
That's why a lender of last resort exists: when the term mismatch
becomes an issue it tides them over by giving the bank short term loans
secured against the bank's mismatched long term assets (loans to clients)
to cover short term cash needs and preventing fatal runs on the bank.
What's left is that shareholders in effect take on only the solvency risk.
That's simply when the assets drop permanently enough in value so they don't cover the liabilities.
That risk comes principally in the form of making bad loans.
True, sometimes the risk comes from too high leverage or poorly chosen
funding models but regulators try their best to keep those from happening.
Almost always the root cause of a bank failure is lending to people who can't pay it back.
So, in a nutshell, a bank is a safe place to invest because the
regulating sovereign will take on the liquidity risk and you'll make tons of
money safely even with high leverage provided the assets (loans) are mostly good.
Wells Fargo has a very long history of not doing too much dumb lending.
Some, sure, everybody does, but never enough to sink the ship.
This, combined with an unusually low average cost of funding and therefore
above average net return on gross assets, is really their attraction.

So, the issue here is: is the leverage within Wells Fargo sustainable?
One has to decide on whether or not you're comfortable with investing
in banks in general, based on the reasoning above. If not, fuggedaboudit.
If you're OK with the idea of banks, then Wells Fargo is a pretty good one.

Then, once having passed that "leverage is OK" hurdle, you can forget there's a leverage difference.
Comparing Wells Fargo and Berkshire by comparing the trajectory of
their book per share and pseudo-ROE is fair and sensible.
Unlike most good plain-old product or service companies, both Berkshire
and Wells have book value per share as their best single static metric
of value as with most financial firms.
When you factor in the trajectory of book per share you are covering
the other key issue which is the earnings power value as well.
So in the end, yes, they have vastly different internal workings.
One is high-leverage low-return-on-assets, the other is low-leverage
high return on assets. But if the leverage is sustainable enough
to be safe
, that doesn't matter and the ROEs can be compared directly.
Return on gross assets, by contrast, is a meaningful/better metric only when
comparing firms in very similar businesses or other specialized situations
such as buyouts where the capital structure is going to get redone anyway.

Jim
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Wells Fargo's ROE has been astonishing but one must have
conviction that this ROE is scalable into the future


I would say that ROE does not need to grow but just hold at this level for WFC to be a decent investment. At 10x PE it is a pretty good buy for a large stable company. No wonder Buffett has been acquiring WFC for a while.
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>>Wells Fargo's ROE has been astonishing but one must have
>>conviction that this ROE is scalable into the future

>I would say that ROE does not need to grow but just hold at this level
>for WFC to be a decent investment. At 10x PE it is a pretty good buy
>for a large stable company. No wonder Buffett has been acquiring WFC
>for a while.

No-one could seriously ask for the ROE to grow (while keeping the
business safe). By scalable I meant that ROE continues near the
historical level rather than falling. We don't want to just look
at the historic record but need to consider how the change in
business from 10 years to the present can be scaled to the same
change over the next 10 years (ROE not declining significantly).

- Manlobbi
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No. of Recommendations: 2
We don't want to just look at the historic record but need to consider
how the change in business from 10 years to the present can be scaled to
the same change over the next 10 years (ROE not declining significantly).


It's certainly possible that we will see real change in the banking industry.
The ones most hit will be the high flyers, not the banks like WFC with
such a strong focus on actual lending, but they will get caught too.
The most likely outcome among the bad ones seems to be that Wells manages
to keep their excellent return on total assets but ROE falls as leverage falls.
At end 2007 it was 12.1x, at end 2012 it was 9.0x. Let's hope that trend doesn't continue.
That's simply total assets divided by shareholders' equity from page 32 of the 2012 annual report.
It was relatively steady average of 9.45x 2010-2012 with average ROE of 11.66%.
In this case I used a somewhat more conventional definition of ROE being
net income divided by average shareholders' equity (average of start and end period equity).
That leverage is certainly not high by banking standards.
The ROE is solid and I think probably sustainable but not really compelling.
Of course they might do better when it's a three year period not working off a banking crisis.

Another possible risk is that Wells Fargo gets crushed when the other
shoe drops with the agencies. There is essentially no private money
going to funding US mortgages, and that will have to end some day.
It might end with a whimper, or it might end with a bang.
If somebody wanted to borrow money from you in US dollars to fund
a bunch of mortgages at a fixed rate for 30 years and no government guarantee,
what would you charge? I wouldn't even dream of it under 7-8%, though others might do it for 5-6%.
Add the bank's margin to that.
Now picture what will happen to the US housing market and the
companies dependent on it if (when) rates go from here to there.

Jim
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Check back in a decade. Wells Fargo at $37.34, Berkshire Hathaway at $159,950.

Well, it's certainly not a decade since April 25, but so far so good.
WFC up 10.6% including the dividend
BRK up 5.2%

Either way, up is fine by me.

Jim
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Check back in a decade. Wells Fargo at $37.34, Berkshire Hathaway at $159,950.

Hi Jim,

It still hasn't been a decade but it's been roughly 2 full years.

WFC up 45.5% plus divy
BRK up 34.8%

Any thoughts on WFC vs BRK with two more years of experience under your belt and the outperformance in WFC to date?

WFC has had some P/E expansion. BRK has had some P/B expansion.

Both still seem reasonably priced to me.
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This is the table I used.
Similar to what Brooklyninvestor did.

Period WFC BRK Diff
"ROE" "ROE"
1998-1999 15.4% 0.5% 14.9%
1999-2000 19.9% 6.5% 13.5%
2000-2001 8.7% -6.2% 14.9%
2001-2002 18.7% 10.0% 8.6%
2002-2003 22.4% 21.0% 1.4%
2003-2004 19.3% 10.5% 8.7%
2004-2005 16.4% 6.4% 10.1%
2005-2006 25.3% 18.4% 7.0%
2006-2007 15.0% 11.0% 4.0%
2007-2008 21.0% -9.6% 30.6%
2008-2009 27.5% 19.8% 7.7%
2009-2010 13.0% 13.0% 0.01%
2010-2011 9.8% 4.6% 5.2%
2011-2012 17.8% 14.4% 3.5%

Geomean 17.8% 8.2% 9.5%
Simple avg 17.9% 8.6% 9.3%



Wondering if you keep this updated and are willing to share?
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It's certainly possible that we will see real change in the banking industry.
The ones most hit will be the high flyers, not the banks like WFC with
such a strong focus on actual lending, but they will get caught too.
The most likely outcome among the bad ones seems to be that Wells manages
to keep their excellent return on total assets but ROE falls as leverage falls.
At end 2007 it was 12.1x, at end 2012 it was 9.0x. Let's hope that trend doesn't continue.
That's simply total assets divided by shareholders' equity from page 32 of the 2012 annual report.
It was relatively steady average of 9.45x 2010-2012 with average ROE of 11.66%.
In this case I used a somewhat more conventional definition of ROE being
net income divided by average shareholders' equity (average of start and end period equity).
That leverage is certainly not high by banking standards.
The ROE is solid and I think probably sustainable but not really compelling.
Of course they might do better when it's a three year period not working off a banking crisis.

Another possible risk is that Wells Fargo gets crushed when the other
shoe drops with the agencies. There is essentially no private money
going to funding US mortgages, and that will have to end some day.
It might end with a whimper, or it might end with a bang.
If somebody wanted to borrow money from you in US dollars to fund
a bunch of mortgages at a fixed rate for 30 years and no government guarantee,
what would you charge? I wouldn't even dream of it under 7-8%, though others might do it for 5-6%.
Add the bank's margin to that.
Now picture what will happen to the US housing market and the
companies dependent on it if (when) rates go from here to there.


And most importantly I'm wondering how your thinking has evolved on these two paragraphs. Buffett has said banking isn't as good as it used to be but that it is still pretty good.
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Jim,

I’m trying to duplicate your numbers w/o success. I’m using the data in the annual reports for WFC.

For example:

year BV/sh div/sh BV growth + div/start BV = total "ROE"
end
2010 $22.49 $.20
2011 $24.64 $.48 2010-2011 = 9.56% BV + 2.13% divy = 11.69%
2012 $27.64 $.88 2012 = 12.17% bv + 3.57% divy = 15.74 % total
2013 $29.48 $1.15 2013 = 6.66 % bv + 4.16% divy = 10.82 % total
2014 $32.98 $1.35 2014 = 11.87% bv + 4.58% divy = 16.45 % total


To calculate the "ROE" from Dec 2010 to Dec 2011 I did,
((24.64-22.49)/22.49) plus (.48/22.49)
(9.56%) + (2.13%) = 11.69%

That 11.69% doesn't match your 9.8% number for 2010-2011. My 2012 number (15.74%) doesn't match your 2011-2012 number (17.8%) either and I'm wondering what inputs you used. My 11.69 + my 15.74 does come close to your 9.8 + 17.8. Both sums are very close to 27.5% though.

 

Period WFC BRK Diff
"ROE" "ROE"
1998-1999 15.4% 0.5% 14.9%
1999-2000 19.9% 6.5% 13.5%
2000-2001 8.7% -6.2% 14.9%
2001-2002 18.7% 10.0% 8.6%
2002-2003 22.4% 21.0% 1.4%
2003-2004 19.3% 10.5% 8.7%
2004-2005 16.4% 6.4% 10.1%
2005-2006 25.3% 18.4% 7.0%
2006-2007 15.0% 11.0% 4.0%
2007-2008 21.0% -9.6% 30.6%
2008-2009 27.5% 19.8% 7.7%
2009-2010 13.0% 13.0% 0.01%
2010-2011 9.8% 4.6% 5.2%
2011-2012 17.8% 14.4% 3.5%

Geomean 17.8% 8.2% 9.5%
Simple avg 17.9% 8.6% 9.3%



The other thing I am noticing is that this method gives a fairly significant "ROE" bump for the dividend (4.58% in 2014 when it was closer to 2.5% on shar price) since you're dividing by BV/share instead of share price. I see that that did increase book value but I'm not sure the WFC dividend amount is worth the same as BRK retaining an equal amount.


For the last two years I came up with

year WFC BRK
2013 10.82% 18.2%
2014 16.45% 8.3%


which would continue to give the advantage to WFC but I couldn't duplicate your numbers so I'm guessing I'm doing something wrong.
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