Why Does Warren Buffett Love Bank Stocks So Much?!?!


Mac Greer: Speaking of nice performers,
there’s a guy named Warren Buffett who’s got a pretty good track record, is my
understanding, as an investor. His company, Berkshire Hathaway,
just reported its third quarter holdings. Boy, does Buffett, or someone
over at Berkshire, really like banks. Guys, let me give you the ten
holdings quickly. See if you notice a theme here. Apple is the biggest holding. Then we’ve got Bank of America, Wells Fargo,
Coke, Kraft Heinz, American Express, U.S.Bancorp, Moody’s, Goldman Sachs,
and JP Morgan Chase. Five of the ten are banks! Ron Gross: You look at this portfolio and
you say, a bunch of banks and a bunch of consumer staple-ish stocks. It doesn’t
seem to be a very exciting portfolio. Greer: The curmudgeonly trader,
there you go again! Andy Gross: [laughs] Mr. Buffett
doesn’t know what he’s doing. When I think of Buffett, I think of that folksy
guy who likes See’s Candy kind of businesses, old economy types of businesses. But we forget, he’s a student of financials,
whether it be insurance or financial services or the big banks. You’ll remember long ago, he was actually
interim chairman of Salomon Brothers. Subsequently, in various financial crises,
he’s helped bail out more than one large bank. He understands these companies where
I will say I tend to not, because they seem like a black box to me. He clearly does. And I think that makes him comfortable
investing big portions of his portfolio, especially in this type of environment, where interest
rates are going to start to rise, less regulation. He sees some good stuff on the horizon. And knowing what he knows about
how these banks run, he’s comfortable. Greer: Does this get you
more interested in banks, Ron? Gross: No. Cross: Warren Buffett has insights,
like Ron was saying, into the financial world from his 60 years of investing
in all types of businesses. He also has the Todd and Ted partnership,
helping him out in the investing landscape, as well. You look through his portfolio, you do see
companies like the airline investments they’ve made over the last year or so,
combined with a lot of financials. The financial investment doesn’t really surprise me.
Ron mentioned the rising interest rates. From a scale perspective, from competitive position,
the largest banks continue to widen those moats. Frankly, Mr. Buffett is not one that’s going to pay 10X
revenues, per se, for software-as-a-service companies. And he has a lot of capital to put the work.
They have $100 billion in cash on the balance sheet. They generate so much cash from
their operating businesses to be able to invest. Making investments like this — including
Oracle, which they bought last quarter, as well. These are the kinds of investments you expect
to see from Berkshire Hathaway. Given the size of the organization
and amount of capital they generate. and the traditional valuation bent and
thinking, these don’t really surprise me. These investments, he knows them well. Gross: Yeah. It’s good
to see the Ted and Todd influence. Buffett was notorious
for staying away from tech. He said it’s because
he couldn’t understand it. It’s not really about not understanding, it’s
about not being able to predict the future, which I completely understand. But it’s nice to at least see him in consumer
electronics like Apple; Oracle, a business where either he or Ted
or Todd can understand. We saw recent investments in fintech,
financial technology, companies. Good to see, because clearly, that’s going
to be a big place to put capital for the future. I like to see some of that in addition to
the old Kraft, Coke, AmEx kind of stocks that he’s owned forever. Cross: And, by the way,
let’s not forget, he’s also buying his own stock. They bought almost a billion dollars’ worth
of Berkshire Hathaway stock in the last quarter. That’s significant. He doesn’t really go out
there and aggressively buy his own stock. Instead, he changed his methodology for thinking
about when to buy that stock from a price to book value target to
“when we think the stock is undervalued.” And they bought a bunch last quarter. Greer: I’ll be curious to see
if he starts buying even more Apple. For perspective here, Apple, his largest position
by far, almost $57 billion worth of Apple stock. Bank of America, around $25 billion.
Wells Fargo, $23 billion. Apple, far away. Gross: I would imagine, with the Apple weakness
that we’ve seen lately, he’s in the market buying more. That’s just a guess. I don’t think he gets hung up as much as traditional
Wall Street does on the quarter to quarter iPhone unit sales numbers. I think he’s thinking longer-term about what
Apple will do, in terms of generating cash flow and buying back stock
over the next five or ten years. So, I would imagine he’s
increasing his position on this weakness. Greer: If I’m an investor, and I hear
about these ten holdings, and I’m like, “Buffett’s had an
incredible track record. One of the most successful
public market investors in history. Why not just mimic this portfolio?”
Why shouldn’t I just go out and buy these ten stocks? Cross: I think you’d be better
off buying Berkshire Hathaway. Gross: You could mimic
these stocks, but then what? He’s constantly changing the portfolio,
adding to other companies. But more important, you’re getting all the
operating businesses of Berkshire Hathaway, which are generating all those
billions of dollars of cash flow. Geico generating the float capital,
which you then can invest in stocks. Just buying these
publicly traded companies, you would not be getting all
those operating businesses, as well. Cross: I think if you want to go investing in some
of these businesses, they can be fine investments. But considering he was buying his own stock,
and he’s pretty particular about when they buy that stock … Berkshire Hathaway
is one of my largest personal positions. Gross: Me, too. Cross: I think the stock is undervalued now,
so if you wanted to put your money behind Mr. Buffett and that team, especially with
the insurance operations that Ron mentioned and the operating businesses,
buy Berkshire Hathaway.

4 Replies to “Why Does Warren Buffett Love Bank Stocks So Much?!?!”

  1. no meaningful insights… just some information. which you already know
    i'd like to hear more deep ,what's Buffett sees that everybody else misses

  2. GBC and Brad only taste great when they're fresh. I like the stocks you all suggest through being a member and am quite excited to see our returns!Thank you!
    After watching this video, I simply added more BRK.B to my portfolio. What can you suggest to buy to add more drone and robotics stocks? I have everything on the SA & RB buy and hold lists but I definitely want to get further into those avenues of tech along with AI. Thanks so much!

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