BRK sold $9 BB in banks. Possibly all of WFC?
Suspect soSubstantial sale for so.
Yes, it is almost certain that he sold virtually all of it in Q2 after selling none in Q1.Berkshire's cost basis on the 345.7 million WFC shares owned at the beginning of the quarter was $7.04 Billion, or $20.365 / share on average.Page 11 of the Q has this passage on how unrealized losses from Q1 that passed through the income statement became realized losses in Q2:"The losses on securities sold in the first six months of 2020 ($11.2 billion) include losses of $10.7 billion from market value changes in the first quarter on securities that were sold in the second quarter."$9.68 Billion reduction in Banks, Ins. and Finance category Cost Basis means it has to be Wells when you consider the "big 5" mention becomes "big 4" all of a sudden.
BRK sold $9 BB in banks. Possibly all of WFC? If so, I'm a little surprised.Not surprised that they would sell it all, but that they would sell it so soon: before the price recovered a bit more.Even if Wells are wounded and permanently worth less than previously thought, to me they still seem cheap relative to even conservatively estimated remaining earning power.For an analogy I'm thinking back to the exits from other no-longer-desired positions like IBM, which were sold into the next rally.Much as the first big batch of WFC shares were, late last year.If I had WFC stock and had decided to abandon it, I'd probably wait for a bounce or at least ease out very very slowly.Even if there is a new normal, how much would they be earning in the next year if it were neither unusually good nor unusually bad?The $4.00 which they beat in all of the last five years? $3.50? $3.00?Even at only $2.50, today's price would be offering a 10% earnings yield.It takes a very large amount of pessimism to think that there isn't a margin of safety: basically that 40%+ of recent earning power is permanently gone.Maybe Mr Buffett is truly that pessimistic, or maybe he just dislikes waiting for something good to happen to the price when it's not certain it will happen any time soon.Maybe he wishes to be out before there is a chance for another shoe to drop...he wouldn't have to expect it, merely know it's an avoidable possibility.Jim
I assume he sold the position since the annual meeting date. Since then WFC has briefly traded above $30. I would assume is overall sales price should be above the current price.
<<Even if there is a new normal, how much would they be earning in the next year if it were neither unusually good nor unusually bad?The $4.00 which they beat in all of the last five years? $3.50? $3.00?Even at only $2.50, today's price would be offering a 10% earnings yield.>>It is behind the curve on write-downs. Wells more so than the other money center banks is in the business of selling something that has been going down in price: money to borrowers. I tried to steer you toward Jef which is up about as much as Wells is down from our last discussion.That is a situation where it is b buying sh-t tons of its own stock at large discount to tangible book. Its book is less exposed to distressed energy, retail, and mortgages. And, of course, they have been profiting from volatility, underwriting bond issuance, a wave of vaccine ipos, and now coming lots of M and A.In short. It was and is at a bigger discount to book. Book is more solid AND business is getting better. Also it is not squarely in the crosshairs of Liz Warren and Bernie the way Wells is. Wells sucks
I assume he sold the position since the annual meeting date. Since then WFC has briefly traded above $30. I would assume is overall sales price should be above the current price. I had the same thought, but it wasn't higher for very long. Above $30 for some or all of only five trading days in June. (another 5 in early April).Berkshire is generally hesitant to risk swamping market liquidity, which unloading that position might do.Wells Fargo stock is liquid, but not infinitely so.e.g, if he did a limit VWAP order to sell 5% of all trading volume over $28, it would have unloaded only 8% of the position.Jim
And another note: Berkshire did build cash. I know the arguments that the market bubble resembles the turn of the century. Value is the gutter and the go-go Teslas seem a lot like Cisco. But mind you the reckoning was eventually severe in that last go around, even though value way outperformed growth for years after the crash. In the age of index trading, all boats in indexes sink together in a panic. I am not saying it will happen, but I hope it does. Anyone who wants Berkshire to do well in terms of per share intrinsic value wants it to get a chance to buy itself as cheaply as possible. Buffett dying and market collapse are the two most likely candidates for that. I never want to see the former, so I am hoping for the latter. Good luck fools
One more thing, a large percentage of retirees not owning stocks is perfectly normal. Everyone enamored with that argument for why the party will never end should think twice. It is not like a 78 year old is gonna rush into the indexes to pay the HOA fees in an assisted living community
I remember Charlie commenting how stupid it was that the new CEO didn't move to Cali.Not sure they are so enamored with him.
<<BRK sold $9 BB in banks. Possibly all of WFC?>>Is there any news link? I couldn't find it on web.
Not sure Buffett wants to gamble on a bounce. Buffett is a big believer in the power and sanctity of franchises. Decades ago Buffett observed Coca Cola made people worldwide smile. The thought provoked images of happiness to Billions. He observed that’s a powerful non balance sheet asset. And at a penny a can profit —THAT is the ultimate impeneterable moat.Wells has become an almost modern day anti-Coke. It’s mention induces the image of vomit to millions. Perhaps its unfair but the franchise is tarnished. The average American associates the name Wells with cheating and fake counts. Not smiles. The damage to the Wells brand is massive and it’s sticky. And the brand is what matters. I believe this is paramount in Buffett’s thinking—with 2020 consumer exposure adding urgency.Buffett has always believed your reputation is EVERYTHING. He has advised his family & friends you spend a lifetime building a good reputation. It can be destroyed in minutes. Wells has been in slow, secular decline for several years since this scandal. Buffett’s not gonna hope for a bounce. He’s not in the hope business. Not in a macro environment that’s extraordinarily risky and not with Wells having such massive direct exposure to a troubled, leveraged consumer.IBM didn’t have a reputational issue. It was hobbled by a legacy business and a challenging transition to the Cloud but with nice service revenues bridging the gap. Buffett used a bounce to get out of an underperformer. It was really that simple. He could do better elsewhere. He did “OK”. You could ease out of it.Financial services is a business that can turn very ugly, very fast. Buffett has full faith in Brian Moynihan and America’s largest deposit base. He lost faith in Wells Fargo. And he’s being decisive.
In short. It was and is at a bigger discount to book. Book is more solid AND business is getting better. Also it is not squarely in the crosshairs of Liz Warren and Bernie the way Wells is. Wells sucks Turning to a tangential comment---Though Wells is certainly in the doghouse, perhaps deservedly so, I don't think book value is a useful metric for valuing any big bank these days.I think that's a mistake that the majority of bank investors make, tied with those who go by the dividend.It's earning power that matters, and in particular the average earning power for the next 10-20+ years.Other than the very few firms like funds that can be valued meaningfully on asset value, you want to estimate owner earnings.When I estimate that I get a number that makes today's price look good.I don't have high confidence in my estimate, but I have high confidence that it's the right place to look.Even a big pile of bad debts doesn't really matter, same as it didn't really matter in the credit crunch.LOTS of writers were convinced Wells Fargo was going to go bust because of that, but they didn't. They just kept making money, and in fact there was never a four quarter stretch they didn't have a GAAP profit.The reason is that pretty much any fixed size one-time loss is ultimately dwarfed by an indefinitely long stream of future earnings.And it's the long term stream that matters: the bulk of the value of any equity is past the ten year mark.So long as they are solvent and will remain so, which they clearly seem to be, neither book value nor tangible book value matter much.Like a bank building facade with imposing stone columns, those assets exist primarily as a public display of perceived permanenceto keep bondholders and regulators happy, not because the assets are actually needed to run the business.If the average EPS per share purchased today is over $2.50 in the stretch 5-10 years from now, a buyer today will probably do pretty well.They might not do wonderfully, though---for that, it might have to be a better quality business than I think it is.Jim(no position in WFC for a long time)
<<The reason is that pretty much any fixed size one-time loss is ultimately dwarfed by an indefinitely long stream of future earnings>>If you are a capped bank selling money and the price of money is going down, you are in a business that is going to be experiencing diminished future earnings streams... Also, to point to what happened in the credit crunch as an example of how one can "earn their way out" of balance sheet hit... You are not mentioning what happened. The Gov padded the balance sheets with fresh capital and took stakes... Apples to Oranges, my friend.The only reason I mention Jef (other than I own it) is that I know you used to follow. I feel like it is an example of a financial Institution that is actually improving its business trading a huge discountI love Warren and Charlie as much as the next guy, particularly grateful for what they taught me, but they make mistakes. And at some point you gotta start finding your own bargains. They aint gonna be around forever
I'm a bit surprised if BRK fully dumped WFC while buying BAC. It is a bit of an unusual situation for big banks right now. Rates, policy, lending and economic conditions are all very unusual. I could imagine figuring it is too difficult to see where things are headed for the big banks or Mr. Buffett understanding things better than me and figuring the conditions are going to be bad.I'm surprised that BRK may think there are significant enough WFC related problems to sell now at today's price. WFC has some problems, but that's been true for a few years. Is BAC so lovable? Has it been so long since they were constantly in the doghouse? Are the regulatory burdens on WFC that much of a differentiator?Trying to put it succinctly, how is it that the outlook for BAC could be so bright that you'd want to add significantly about the 10% limit while at the same time the outlook for WFC be so bad that you want to dump immediately? That surprises/would surprise me a bit. I'd expect their fortunes to be a little more similar.
You miss THE point.When the reputational nuclear bomb hit Wells Fargo, Buffett was STUCK. He couldn’t do a darn thing with $25 Billion in it. Sure he let management know how p—-d off he was... but he couldn’t do a thing with his investment. He had way too big a holding.So what did Buffett do? Crossed his fingers and sold some here—sold some there—EVERY year. And media would say “he trimmed SOME Wells this quarter” and Wall Street would say “no big deal, it’s a big holding” and Buffett would think “whew, glad they didn’t notice!”. And this would keep repeating over and over as Buffett continued to scale out of 1 of his top THREE original holdings. And everyone would note each regular sale “well, he didn’t sell THAT much”.Except NO ONE noticed—he doesn’t do this with permanent holdings he “KEEPS“. Ever. He still hasn’t sold 1 share of Coke—even though he bet the entire company on Coke 32 years ago.Buffett wanted OUT of Wells several years ago. He escaped with a substantial profit. It took patience and brilliance do so. The man is a genius.
You miss THE point.......Buffett wanted OUT of Wells several years ago. He escaped with a substantial profit. It took patience and brilliance do so. The man is a genius.Well, I certainly did lose your point at the end there.WFC is trading at multi-year lows. It has traded around $50ish for the last 5 years versus $25 today. If Buffett wanted out of WFC several years ago, I don't see how doing so now at multi-year lows is brilliant. It's some type of new math brilliance I guess.
Also, to point to what happened in the credit crunch as an example of how one can "earn their way out" of balance sheet hit... You are not mentioning what happened. The Gov padded the balance sheets with fresh capital and took stakes... Apples to Oranges, my friend.Well, to make a long story short, no, that's not what happened.Within rounding error, they earned their way out of it.The losses were just far smaller than a lot of people expected.If you make billions pretty much every year, it's surprising how easy it is to handle a spectacular one time loss.They did have about 11% dilution from the capital they raised to buy back the TARP preferreds, but the cost of that to continuing shareholders is a function of what you think the common shares were worth.Those shares were issued at almost precisely today's price, so if they weren't sold at a discount, the dilution cost nothing to the shareholders.There were confounding effects on book value (just one more reason never to value a bank on book value), namely the Wachovia deal and the shares issued to buy back the TARP paper.But it's the earnings that pulled them through, and it's still the earnings that matter.The $12.3bn they raised is far less than their annual earnings.The big "if" is whether you will in fact continue to make billions a year in future.Without that, my point holds no water.But I can't see any way that won't be true...they certainly count as too big to fail.Brand is important, but almost everybody picks a mortgage based on price: the best terms among institutions willing to lend to you.For that, scale matters more than almost anything else, which Wells Fargo has plenty of.This isn't to say I'm bullish on Wells Fargo's business, because I'm not fond of the US banking system in general as a business to invest in.But it seems to be an OK cash cow. They have weak growth prospects likely not exceeding GDP, and humdrum to poor prospects for ROE and ROIIC not much different from most big US banks.Buy at least they meet Rule #1: they won't go away, they'll keep earning long into the future, and today's price offers margin of safety relative to what seems to be the likely trajectory of future earnings.Jim
Not sure Buffett wants to gamble on a bounce. Buffett is a big believer in the power and sanctity of franchises. To be clear, I was talking about any kind of bounce in the business, which I agree he would never wait for.Just a bounce in the price, in the direction of a "normal" valuation based on the existing business.He has in the past given strong signs of being very willing to do that, and skilled too.By extension, one might bravely infer that he is bailing (if he is) for reasons somehow linked to the notion that things could get worse.In the business, the price, or both.Jim
>>WFC is trading at multi-year lows. It has traded around $50ish for the last 5 years versus $25 today. If Buffett wanted out of WFC several years ago, I don't see how doing so now at multi-year lows is brilliant. It's some type of new math brilliance I guess<<<The point is Buffett sold $Billions in the 50s...$Billions in the 40s...he sold what he COULD during a time of crisis when, as by far the largest shareholder, he had illiquidity, and would have crashed not only the stock but the institutions credibility in an industry where credibility equals viability.As for today’s price? That’s ancient history. He’s out. Yes, WFC is at multi year lows. Thanks for making my point!Like I said: Brilliant! He escaped with a fat profit AND years of far dividends. On an investment it took YEARS to scale out of.
What do you think of Santander now?Almost 12% dividend.
When the reputational nuclear bomb hit Wells Fargo, Buffett was STUCK. He couldn’t do a darn thing with $25 Billion in it. Sure he let management know how p—-d off he was... Not at all. If anything he was always supportive. The harshest comments were after the fact, they said the CEO and his predecessor didn't listen and the incentive was too tough.
Cost basis of investments in equity securities in the "banks, insurance, and finance" bucket:$40.419 billion as of December 31, 2019$40.845 billion as of March 31, 2020$31.164 billion as of June 30, 2020Difference between March 31 and June 30: $9.681 billionThe difference could be sales of any combination of the following cost bases as of December 31, 2019:$ 1.287 billion AmEx$12.560 billion BofA$ 3.696 billion Bank of NY Mellon$ 0.890 billion Goldman$ 6.556 billion JPMorgan$ 0.248 billion Moody's$ 5.709 billion USB$ 0.349 billion Visa$ 7.040 billion WFC$ 2.084 billion Globe Life, M&T, MasterCard, PNC, StoneCo, Store Capital, Synchrony Finl, Travelers$40.419 billion TOTALAccording to the Q1 Form 13F, looks like maybe about $0.75 billion cost basis of Goldman was sold in Q1, leaving $0.14 billion cost basis; and about $0.20 billion cost basis of JPMorgan was sold, leaving about $6.356 billion cost basis.According to some Q2 Forms 4, looks like about $0.04 billion cost basis of BNY was sold in Q2; and about $0.02 billion cost basis of USB was sold.Here's my guess as to what was sold during Q2 in the banks/insurance/finance bucket:--A large chunk, and possibly all, of the $7.04 billion cost basis of WFC--The last $0.14 billion cost basis of Goldman--Roughly $0.06 billion cost basis total of BNY and USB--Somewhere in the neighborhood of $2.441 billion cost basis (or more, if WFC was not sold out) of some combination of BNY and JPMorgan (or of the other little holdings at the bottom of the list above), which at less than 10% ownership stakes would not have required filings prior to the Q2 Form 13F, due out in a week.
Square is happening to big banks. You don't need exhaustive analysis.
WEB has owned WFC since 1990. WFS stock highest price between Jan 1, 1990 and Dec 31st, 1990 was $4.48/share. I’m not smart enough to know his average purchase price, as I’m certain he accumulated more shares over the years, but it would appear he’s made a little money on his WFC position (excluding dividends).Luck to All Fools!Silverlinin (long BRK.b)
What do you think of Santander now?Almost 12% dividend. Best house in a very bad neighbourhood?(the neighbourhood being "very large banks based in Europe")Their UK division has been fading and is now not a big factor, so they are more Latin American than they were.They have a terrible habit of ongoing dilution, including paying dividends with scrip, so the share count is up 91% in ten years.(6.69%/year compounded).So even if the firm is worth near what I used to believe, the shares aren't.So I'm not a fan.Besides, it's a bank, and the banking industry is a much tougher business than it used to be.As for the 12% dividend, the biggest observation is that the market clearly thinks it will get cut.And this rule of thumb is in fact true on average through the years.Maybe this time it's just a sign of a temporarily low price, and it will double from $2ish back to its more normal recent $4ish.Part of it is, again, that the dividend is largely paid by scrip for those who want it that way.This is the same as the firm selling shares every quarter, at low prices, to pay an otherwise unsupportable yield, gradually eroding the value of each share.If you really want a bank, a better one might be found looking at Handelsbanken.Their dividend (indicated 6.63%) is probably pretty secure.Their financials have softened somewhat in the last few years, so they're no longer twice as good as the second best bank, merely still the best.Common tier 1 equity ratio down to a "mere" 18.5% at end 2019.Jim
Perhaps Buffet thought Wells Fargo needs to raise capital? That was before WFC announced dividend cut.
Perhaps Buffet thought Wells Fargo needs to raise capital? That was before WFC announced dividend cut. Though I think that's spectacularly unlikely, I don't think he would even worry that much about anything so short term.I think his reasoning goes like this:* The business itself is no longer a great long term hold [for whatever his reasons are]* So, sell.Nothing much more complicated than that.We can only speculate why step 1 has arrived.I suspect the key issue is a halt to its ability to deploy new capital at decent rates of return.Not just due to the asset cap, which is presumably temporary, but the outlook for the main business.There is a big difference between the high ROE compounder it used to be, and the cash cow it has become.A lot of banks have transformed the same way, but I presume he sees it more at WFC than at others.I remain more than a little surprised that he'd be in a hurry to sell at these prices...a bit of patience would seem fine, since there is no need for the cash.But he has no need to explain his moves to me.Jim
Agree with Jim on the possible Wells trade. I'll put an emphasis on something kicking in Buffett's desire not to be associated with Wells anymore, his faith may be out the door completely.
If you really want a bank, a better one might be found looking at Handelsbanken.Their dividend (indicated 6.63%) is probably pretty secure.Darn, Jim. SVENSKA HANDELSBANKEN, right?Another stock to consider, when I already fully invested. Oh, wait, my CTV just got called on Friday, so now I have some unexpected cash looking for a home.In the US, trading OTC pink sheets. Wow, ex-dividend was a way long time ago, have they stopped paying??? No, they only pay dividend once a year.Which is better, SVNLF (shares) or SVNLY (ADR)? I've owned ADRs before, but never when it was an option to buy either shares or ADRs.Sigh, WFC has not done good these last few months. But WFC-L is doing gangbusters.
Maybe Buffett doesn’t like to deal with things or people he doesn’t like, regardless of ‘valuation’
Another thing to consider, Buffett didn't purchase BAC from 3/30 to 6/30 when average price was at least 10% lower than that in the past few weeks when he started purchase. Buffett probably was a little panic during 3/30 to 6/30, now he saw the light.
Maybe Buffett doesn’t like to deal with things or people he doesn’t like, regardless of ‘valuation’ Did not Mr. Buffett once say that one of the benefits of being rich was that he need not deal with people he did not like?
Square is happening to big banks. You don't need exhaustive analysis. I think you need more exhaustive than that.The big threats are* Yield curve slope is too flat, for now;* Regulations killing leverage; and * Quicken Loans as a mortgage competitor. Market share around 9.3% now, rising over 0.7%/year.Square is less than a sideshow compared to those.Jim
One question: For Berkshire, how does it use the realized long term capital loss? Can he use it 100% to offset income?I know for personal investors, we can only deduct $3000/year from income.
Jim. SVENSKA HANDELSBANKEN, right?Yup.Very interesting bank to read about.They do the oddest thing: they lend money only to people the local branch manager concludes will be able to pay it back.They have no central credit scoring system, not even one per country.Which is better, SVNLF (shares) or SVNLY (ADR)? I've owned ADRs before, but never when it was an option to buy either shares or ADRs.I can't really advise on the US ticker choices.But I've never had any problems with US listed ADRs.Probably just pick whichever has the narrowest bid/ask. (which may not be the one with the highest average volume)There might be more tax paperwork for you with one versus the other, I don't know.Jim
“Honesty is a very expensive gift. Don’t expect it from cheap people.”-WEBYes, I seem to recall that Warren and Charlie said they would not do a deal it involves people with questionable ethics. My impression is that they have been incredibly loyal to WFC for decades but the managements poor incentive structure and repetitive poor ethics (beyond their limited returns), have disappointed WEB and simply made them say “That’s enough.”They seem to be replacing it with BAC and the wisdom and ethics of Moynahan The reputation of the investees has somewhat of an influence on Berkshire as well. I will not miss WFC position although I do appreciate what it has done for Berkshire over the decades. I wonder if the Daily Journal is selling its position as well?
Another thing to consider, Buffett didn't purchase BAC from 3/30 to 6/30 when average price was at least 10% lower than that in the past few weeks when he started purchase.Buffett probably was a little panic during 3/30 to 6/30, now he saw the light. A digression, not related specifically to BAC---I think it unfair and (more importantly) unwise to use the words "panic" or "frozen" or "afraid" to describe Mr Buffett's inaction while prices were low.He is no fool, and no chicken, and has good information and judgment.I believe he made a very well informed decision that things could have gone south in a big way and a high level of conservatism might be called for.Absent some very large government and central bank moves and some animal spirits re-appearing, things could have become very ugly...great depression ugly.They are ugly anyway, in terms of the real economy. In many countries a quarter of smallish companies have already closed permanently.In most places those firms account for about half the workforce. (the US is unusual in the large fraction of all employees working at large firms)There is a great photo in the front of one of Mr Sortino's books, of (I believe) his wife petting a wild rhino.With a caption to the effect "Just because you didn't get hurt doesn't mean you didn't take an extreme risk".I think that's the better way to view things if Mr Buffett had deployed a lot of capital in the last half of March and into April.Just because the world didn't melt down doesn't mean there wasn't a very good chance it might have.I believe that playing it very conservatively was the smart decision.The worst outcomes didn't happen (or haven't yet), so the conservatism wasn't needed (or isn't yet).But we know that now only with perfect hindsight, and the outcome that arrived is perhaps not even the one that was most likely.If there's a forest fire headed for you and somebody is still selling fire insurance for a reasonable price, get it.That's a really sound decision even if your house doesn't burn down.Jim
<<I think it unfair and (more importantly) unwise to use the words "panic" or "frozen" or "afraid" to describe Mr Buffett's inaction while prices were low.He is no fool, and no chicken, and has good information and judgment.I believe he made a very well informed decision that things could have gone south in a big way and a high level of conservatism might be called for.>>Agree!
Darn, Jim. SVENSKA HANDELSBANKEN, right?I wouldn't get too excited, unless you are a dividend investor maybe ;-) (With all respect) Jim first mentioned it in March 2018:https://boards.fool.com/rbc-is-an-interesting-firm-musically...Since then the stock is down 25% in a steady trend. Maybe the trend is about to stop - maybe wait until it breaks through the 200DMA?For the last 10 years it has gone exactly nowhere, but yes, there is the dividend.[Disclosure: Never had a position in Handelsbanken]
I wouldn't get too excited, unless you are a dividend investor maybe ;-) (With all respect) Jim first mentioned it in March 2018:Bear in mind that my recent mention is in the category "if you really insist on investing in a bank...".I just avoid all banks these days, because it's not a very good business compared to what it used to be.I guess I do own a lot of bank stocks, indirectly via my Berkshire shares.In effect I outsource my bank valuation and investment to some folks in Omaha.It seems even they don't always get a simple answer.As for Handelsbanken, I don't know their future, and I can't say much about the stock price, but I like buying the best I can find.If you manage an entry at a good valuation, you should do fine.Latest news item that comes up (July 15):"Sweden’s Handelsbanken (SHBa.ST) reported a smaller-than-expected fall in quarterly net earnings on Wednesday as the bank’s loan portfolio continued to weather the impact of the coronavirus pandemic with ease.Second-quarter net profit fell to 3.96 billion Swedish crowns (£347 million) from 4.22 billion in the previous year, easily beating the mean forecast of 3.34 billion seen by analysts according to Refinitiv data.“The Bank’s credit quality remains good,” Handelsbanken said in its report, adding that loan losses in the quarter had been the lowest it had seen in years.“Household lending, household deposits and corporate deposits continued to exhibit stable growth during the quarter.”Loan losses, a figure closely watched due to a slump in the pandemic-hit wider economy, were 97 million crowns, better than a year-ago 435 million and much lower than the 1.02 billion loss expected by analysts.Like in its first-quarter report in April, the bank showcased resilience in the face of a pandemic expected to result in a jump in soured debt for banks, as the spread of the coronavirus has shut businesses around the world. "Some interesting info might be at this link, if you can read it.https://seekingalpha.com/article/4349250-handelsbanken-q1-20...If not, try thishttps://static3.seekingalpha.com/uploads/sa_presentations/68...Do remember that it's not based in the US, so don't expect the dividend to be constant or rising at all times.In Europe it's normal to vary the dividend year to year with business results.At Handelsbanken the dividends in the last four years were (in order) 6, 5, 7, 5.5.(secondary source...you might want to verify that)Earnings per share in the same four years were 8.43, 8.28, 8.93, 8.65, so the payout ratio has averaged about 68%.The average of those earnings figures divided by the current price represents an earnings yield of 10.3%.Apparently for 2020 they have decided to postpone the decision of how much to pay until after the summer,especially given that European regulators have in effect barred banks from paying anything for the time being.I guess that probably means they aren't ex-dividend yet.Jim
He is no fool, and no chicken, and has good information and judgment.There was 0% chance that AMZN was not going to perform well. The world turned to AMZN looking for help and the stock was down to ~$1600.WEB neither had good information nor displayed good judgement. He was not prepared. He panicked and it was apparent in the annual meeting when he was mostly talking nonsense.
If there's a forest fire headed for you and somebody is still selling fire insurance for a reasonable price, get it.It depends. Any insurance company still selling fire insurance in those conditions may find it is under-capitalized and you may find it will be unable to pay the claims.
"Cost basis of investments in equity securities in the "banks, insurance, and finance" bucket:"Nice thread. Thank you for listing the possibilities for how the cost basis of Banks, Insurance and Financial stocks could have decreased by $9.68B. Thanks, too, to Gator1984 for pointing out the decrease at the top of the thread, and to nala622 for presenting evidence that sale of WFC likely contributed $7.04B of the decrease in cost basis, and to others who have commented on why Buffett might have decided to sell.As to why Buffett might have sold, I like this statement by Charlie during a Q&A on why Berkshire sold Freddie Mac, "Financial Institutions tend to make us nervous when they're trying to do well."https://www.gurufocus.com/news/939752/buffetts-decision-to-s...Too often financial institutions try to goose earnings by increasing leverage or by other techniques, such as AIG selling Credit Default Obligations without taking reserves against loss, or Citigroup buying energy from Enron with the agreement to sell it back in order to help Enron disguise a loan as income. How nice it would be to find a financial company that didn't engage in such practices. Thankfully we have one, Berkshire Hathaway.
There was 0% chance that AMZN was not going to perform well.The world turned to AMZN looking for help and the stock was down to ~$1600.Out of curiosity, are you speaking of the stock results, the business results, or the ratio between the two?It's a great firm, mostly because of AWS, but I'd move to have Mr Buffett fired if he bought it at this year's valuation levels.Yes, it was probably forseeable that there was a nice trade to be had, but it's probably not the basis for a long marriage.Berkshire's portfolio is built on holding things which get their value increase from owner earnings during the holding period, not future optimistic market valuations.Anyone who wants a different style of investing can and will happily invest in something else, and many of them will do just fine.So, nice as the firm is, a share of Amazon doesn't offer the prospect of very much in the way of owner earnings, now or in future, simply because of the price.The more outstanding the share results in the past, the more subdued the share results in future.I imagine the business results will do very well, but it's not certain they'll be fine enough to give a very good result between now and the inevitable date they start normally trading at (say) 15-20 times usual earnings.If you pay 6-8 times the inevitable future multiple for anything, earnings have to rise by a factor of 6-8 before you merely break even.And that's just to break even, and might take 15-20 years.It's certainly possible Amazon's earnings will rise that much, maybe even probable, but not certain enough to allow a decent return with a margin of safety.Sample arithmetic starting from here:If Amazon's earnings keep growing at 15% on average indefinitely, but the market multiple shrinks 10% each year till it's in that range, and no dividends or dilution or successful government attacks, it's a constant 3.5%/year stock price return until the market multiples are low enough to count on, around 17-20 years.(obviously one would expect higher growth sooner and slower growth later, but it makes the example more complicated, and the end result is unchanged)That 15%/year earnings growth for 17-20 years is not something I'd count on for any firm, and it's a lot to swallow in return for only a 3.5%/year return.Those buying this year might well do fine, but they'll probably be the ones who sell before the exuberance falls off.Personally, I'm happy if head office continues to pick two foot hurdles.Sometimes they'll be wrong, but they won't fall from a great height.Jim
If there's a forest fire headed for you and somebody is still selling fire insurance for a reasonable price, get it....It depends. Any insurance company still selling fire insurance in those conditions may find it is under-capitalized and you may find it will be unable to pay the claims. It's only a metaphor.The premium that Berkshire paid was foregoing investments in return for holding no-return cash.So, your comment would translate back to reality as "short term T-bills might not be redeemed".US bills have defaulted in the past more than once (by a couple of days) and bonds (permanently) so it's not an inconceivable risk, but it's not what I'd call a material worry.Translating that risk back to the insurance metaphor, it's like worrying about the insurer being solvent until their headquarters are hit by a large meteorite.After having your house burn down.It would still have been a prudent decision to buy the insurance : )Jim
Berkshire's portfolio is built on holding things which get their value increase from owner earnings during the holding period, not future optimistic market valuations.AMZN is going to out innovate, out perform and build intrinsic value faster than BRK's old and stodgy holdings of Precision and KHC and NetJets and WFC and Jewelry and Candies and others. These FAANGT are large $T behemoths innovating at startup speed with talent and capital on hand and there is no stopping them other than govt. regulation. Educated investors are patient and value long term intrinsic value growth over fascination with short term "earnings"Mark this post and see two years from now SQs growth vs BACs.WEB needs to be replaced now in a respectful and dignified way. He is old and has displayed bad sign of judgement and buying BAC is yet another sign.
I might be wrong but I think for corporations the long term capital loss can’t be used against income and can only be carried forward for 3-5 years.So if WEB did sold ALL of his WFC he would need to sell some other stocks with enough profits to harvest the tax loss?
Yes, we need to replace the guy that made 75 billion on apple so far. Agreed.
Yes, we need to replace the guy that made 75 billion on apple so far. Agreed.Blind squirrel, meet nut :-)Once upon a time he was a great at stock picking and valuation if businesses. Then came IBM KHC PCP airlines, the changing goalposts against S&P 500, timid buybacks, ...Apple is not worth its current evaluation either, short term luck covers it. Would you heap this praise in some poor sap buying stocks on Robinhood if this was his record?
There is a great photo in the front of one of Mr Sortino's books, of (I believe) his wife petting a wild rhino.With a caption to the effect "Just because you didn't get hurt doesn't mean you didn't take an extreme risk".I think that's the better way to view things if Mr Buffett had deployed a lot of capital in the last half of March and into April.Just because the world didn't melt down doesn't mean there wasn't a very good chance it might have.I believe that playing it very conservatively was the smart decision.Thank you for the vignette, Jim. While I'm not even close to arrogant enough to compare anything I do to Buffett's, the conservative approach I used in March was driven by exactly that - the hope that maybe the rhino had tired itself out, but if it reared up again to run away.I put 20% back into large cap high momentum/growth equities based on a very bearish/potentially oversold dashboard of timing signals that had been tracking the damage of the rhino snorting through the camp. But no more than that, even when the market started turning up strongly.Those bets have paid off handsomely to repair the damage (and a little more), but I'm still not completely back to a full equity allocation because this run has been so driven by the moral hazard - necessary in this situation, but there. Different world now.
Even at only $2.50, today's price would be offering a 10% earnings yield sustainable long-term EPS is around $2.25 to $2.5 and certainly, for next year they will not be making anywhere near that.
"... such as AIG selling Credit Default Obligations"That should be Collateralized Debt Obligations.
<<The reason is that pretty much any fixed size one-time loss is ultimately dwarfed by an indefinitely long stream of future earnings>>Was that true for Wachovia??? How about Merril? Washington Mutual was a darling too? Got a write up every other week about how well it was doing with retail banking. I could fill a page doing this. <<Other than the very few firms like funds that can be valued meaningfully on asset value, you want to estimate owner earnings.>>You have possibly been given the illusion that this is true by focusing on a set of banks that survived collapse with government support. They did kind of "earn their way" out of it, but many would not exist if they had been allowed to fail. I really enjoy your posting but balance sheets absolutely matter in banking. And "earning power" is a direct offshoot of leverage ratios and the quality of assets on the books. Those assets give you a large chunk of your earnings. It matters to varying degrees depending on the institution. As such as I enjoy your thoughts, I don't want you to lead the newbies and young pups to a false understanding of how banking works. Moreover, I kind of agree with the argument that money center banks will likely rebound in the coming decade. But it is nowhere near as sweet of a situation for Wells as it was in the last crisis. WFC was my largest holding then. I own none of it now. I do like Jef for reasons mentioned. If I was gonna buy a money center bank it would be BAC...Good luck
AMZN is going to out innovate, out perform and build intrinsic value faster than BRK's old and stodgy holdings of Precision and KHC and NetJets and WFC and Jewelry and Candies and others....What you say is quite possibly true in an absolute sense, but price matters, as does predictability.Which would you pick for a hold of 10-20 years?Price $1bn, typical earnings $100m/year, forecast earnings growth rate next decade 6%/year, but maybe only 3% if things go badly.Price $1bn, typical earnings $8m/year, forecast earnings growth rate next decade 15%/year, but maybe only 7% if things go badly.Neither is a perfect pick, but given the choice I'd definitely go for the first one.It seems silly even to ask which one is the smart pick.A good investment doesn't necessarily have to have meaningful earnings today to have lots of value.But it does have to have solid owner earnings in the future, and whatever subset of the forecast earnings is highly certain has to be available today at a reasonable price.Without those, it's a bet on having good luck.Luck can work well, but it's not a viable investment plan.Jim
<<The reason is that pretty much any fixed size one-time loss is ultimately dwarfed by an indefinitely long stream of future earnings>>...Was that true for Wachovia??? How about Merril? Washington Mutual was a darling too? Got a write up every other week about how well it was doing with retail banking. I could fill a page doing this. My comments were about Wells Fargo and other going concerns.For the "big one time loss" rule to be true, the firm has to remain a going concern so they *have* the required stream of future earnings.Notice the big in my post you didn't quote: "So long as they are solvent and will remain so..."Wells Fargo, unnoticed by many observers then and now, did not have a solvency problem during the credit crunch.It's quite possible they had a liquidity problem, along with much of the world, but the main function of a central bank is to solve liquidity crises at solvent banks, which they did.On the solvency side they were forced to take capital, so they took it, not because they needed it and went cap in hand.Wachovia, by contrast, was taken over precisely because they were weak and made good prey.They were not in a position to remain a going concern.Weak firms frequently get sold off or fold, never having a chance to fill the hole they've dug for themselves using ongoing earnings.But think about the remarkable feat of Wells Fargo making a profit in every rolling four quarter stretch right through the crisis, without even faking the books.Their "one big loss" was Q4 2008 at $2.5bn, which still left them in a profit for the year.None of the above should be taken as a bullish view on Wells Fargo now, which I don't have.But hey, there is probably a price for everything, and a case to be made that the going price for WFC is not bad at all.Jim
What you say is quite possibly true in an absolute sense, but price matters, as does predictability. Those looking at "price and predictability" had been calling AMZN's demise since 15 years. I agree that Price and predictability does matter but is an educated assessment based on understanding of the business and vision of the future.
What you say is quite possibly true in an absolute sense, but price matters, as does predictability The award for "consistently broken clock" goes to ... The same was said at $200, $400, $800 ...
In Feb, WFC’s new chairman bought $1m worth of stock and CEO bought $10mThey are about 10% under water currently. At least we know they are in the same boat with us shareholders
<<For the "big one time loss" rule to be true, the firm has to remain a going concern so they *have* the required stream of future earnings.Notice the big in my post you didn't quote: "So long as they are solvent and will remain so...">>I can't really get into all the details of this, but please note in addition to taking capital injections that directly padded tier one capital for Wells and other money center banks, the Fed did huge QE buying MBS among other things. And then they did it again... That amounts to allowing banks to swap out potentially valueless securities for tier one capital. And there are many other surrealistic elements to the government support that make judgement an elaborate guessing game.As much as I despised Bush, he got the point that without the intervention, the whole system was going down, Wells included...Anyway, now we have a situation that is unique in history in that the market is trying to assess a raging virus' impact on the economy and the erratic machinations of a narcissistic clown trying to figure out how to score political points rather solve the issue. How many mortgages will go from non performing to valueless? How many main stream restaurants will permanently fail? How many of the millions of unemployed will not be able to pay their credit cards and car payments??? How much of Well's energy loans will become worth nothing? These are balance sheet issues that absolutely effect earning power. Questions like this do effect the earning power of Wells, mores than the other money center banks, because it does not really do investment banking and trading to the extent of the other banks... This is an elaborate guessing game that you are recommending. And your prescription is to know something before you don't know it: the state of solvency in a bank during an unprecedented historical moment in US economy. I prefer to acknowledge that I know that I do not know... Not as sexy, but it keeps me out of trouble in times like these.
Frankly, I enjoy your posting. Especially the time and effort you put into it. And I like that take on all comers. But you are just wrong about this. And it is really strange that when you are wrong (which is perfectly normal because everyone is wrong at least some of the time), it seems to be very popular with readers... The truth has never really been a popularity match, though it seems like it on the playground. Until later amigo. Something new. An earnings report. Hopefully a market crash. If people don't understand that lower share price is good for Berkshire with 150 billion cash on the balance sheet, they don't understand Berkshire or value investing and should consider another pastime.
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