Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 3
No. of Recommendations: 1
Interesting. Avg. BAC daily volume is 35M shares so BRK’s volume is 18% or so of avg. daily volume. Will be interesting to see where WEB feels the “right” size position will be with current pricing and conditions. More trimming to come based on WEB’s past behavior.
I saw on BAC website they will increase their dividend 8% and authorized $25B in buybacks (7.6% of current market cap) of course now at a higher prices. Authorized buybacks would have been better last summer when BAC was priced in the mid 20s!
No. of Recommendations: 2
With the increased BAC share buyback what if WEB is just getting ahead of the holding company limit on bank stocks?
No. of Recommendations: 13
With the increased BAC share buyback what if WEB is just getting ahead of the holding company limit on bank stocks?
That's not what is going on. Berkshire has approval to own as much as 25% of BAC. The approval allowed them to go above 10% without triggering bank holding company restrictions.
No. of Recommendations: 1
No. of Recommendations: 11
Though there do seem to be exceptions, Mr Buffett has a known and stated preference for not simply "trimming" positions. Unless perhaps he needs the money for something, which clearly isn't the case today.
Given the rate of sales, especially relative to trading volume, it appears to me that he intends to close the entire position as soon as practicable, assuming the market price holds up. A WFC "I'm out" moment but at a better price?
Jim
No. of Recommendations: 0
Also I wonder if legacy positions are being wound down to give Greg more degrees of freedom
I doubt KO and AXP will be sold
No. of Recommendations: 2
I certainly hope he doesn’t sell AXP. CEO Sequeri has done a brilliant job after it stumbled under Chenault. The latter is on BRK board. I doubt Buffett can find such a high ROE compounder to replace it And Berkshire doesn’t need the cash.
https://seekingalpha.com/article/4707885-american-...
No. of Recommendations: 9
Also I wonder if legacy positions are being wound down to give Greg more degrees of freedom
I think that extremely unlikely.
I'm sure current management won't mind if future management restructures things (just as Mr Buffett promptly and unemotionally ditched the entire portfolio of Lou Simpson on his departure), but the decision will be up to new management.
No...if Berkshire is selling something now, it's because Mr B thinks it's a good idea to sell it, for whatever reason.
On that, we can only speculate. I suspect it isn't simply the current high-ish price level, as the price was higher two years ago and no move was made, and in any case a temporarily high price normally isn't nearly enough to get Mr Buffett to change a position that he still likes for the long haul. I would therefore speculate further than think he smells a risk in the air, but of what type I can't imagine.
Jim
No. of Recommendations: 2
I would therefore speculate further [and] think he smells a risk in the air, but of what type I can't imagine.
Is it the recession that's been coming for what, two years now?
You see headlines about the weakening consumer. Car repossessions up, consumer debt up, McDonald's sales down, blah, blah, blah.
Yet things keep humming along.
Reminds me of that turkey living the good life, but Thanksgiving is always around the corner.
I don't know.
No. of Recommendations: 21
I would therefore speculate further [and] think he smells a risk in the air, but of what type I can't imagine.
...
Is it the recession that's been coming for what, two years now?
I don't think a mere recession would be a cause for Mr Buffett to sell some bank shares. It would be like selling a farm because winter is coming soon...there is always another winter coming, and the value is spread over many future seasons, both good and bad.
It would make sense only if he saw a risk specific to the year in question. Mr Buffett's summary is that banking is a very good business over time, provided you merely avoid doing dumb things. By extension, maybe he is seeing them doing some dumb things?
A famous saying about banks is that the worst of loans are made at the best of times. That's usually the first place to look: loans that won't get paid back. Or it could be management doing something dodgy.
Most really bad recessions involve banking crises. Almost all banking crises result from making way too many loans that won't be paid back. They are almost always overwhelmingly real estate loans. This almost always happens simply because the loan to value calculations used current, rather than cyclically adjusted, real estate prices, allowing loan balances to exceed true values. I look forward to the day that regulators notice this chain of reasoning and require a cyclical adjustment on real estate valuations used by banks, based on historically average price-to-income or price-to-rent or price-to-construction-cost ratios. I think more than half of banking crises would be prevented.
Jim
No. of Recommendations: 19
I think it's quite possible he just doesn't think large banks are as good a business as they used to be. Look at what he is purchasing vs. what he is buying. Purchasing Chubb with large and stable negative funding costs (impressive and consistent underwriting gains) and selling BAC with funding costs above 4%, earning low returns on equity, trading at a premium to equity, highly regulated. He already has a nice utility operation, he doesn't need exposure to every economic calamity through banking to earn utility-like returns.
No matter what the next industry to blow up the economy ends up being, it's a safe bet they bank with BAC.
No. of Recommendations: 4
No...if Berkshire is selling something now, it's because Mr B thinks it's a good idea to sell it, for whatever reason.
I think this is true. However, I wouldn't be at all surprised if Buffett is transitioning to shared decision-making between now and the full handover (and there is a distinct possibility that he might decide to do the full handover before his death, though it isn't likely unless there is some sort of debilitating disease involved). Maybe the shared decision-making means that "big" changes only happen if they both agree.
I would therefore speculate further than think he smells a risk in the air, but of what type I can't imagine.
The one thing I can think of is the resolution of bad bank debt. It won't be huge, but it'll still be substantial. All those CRE deals that we see having to eat a few hundred million add up over time. Over the next 5 years, it could amount to a few hundred billion, maybe $500B or so. Maybe Buffett believes that this time around, the fed won't issue $500B extra bonds to fund it, maybe instead he thinks that because the banks are so well capitalized right now, that the government will force the big banks to merge the smaller regional banks with their bad loans into themselves and eat the losses using their excess capital (instead of allowing the excess capital to accrue to the shareholders).
Citi is a MUCH smaller part of the Berkshire portfolio, but with this thesis, they might discard that one as well at some point.
No. of Recommendations: 13
<No matter what the next industry to blow up the economy ends up being, it's a safe bet they bank with BAC.
And no matter which banks do something really dumb leading up to the next banking difficulties, it's a safe bet that Bank of America will have been at the forefront.
Historically they have the knack of stepping in every pile of poop that is on offer, and taking a bigger and more lasting hit in every banking downturn that most of the other biggies. Current profits per continuing share are still lower than they were in (say) 2004 even in nominal terms, and I think still lower than their 2002 tech bust lowest level in real terms.
Jim
No. of Recommendations: 9
In the last three days he sold 18,899,518 shares for $802,486,391. Average price $42.46/share...I was curious about something, so I looked it up.
It's kind of interesting to see that Wells Fargo stock has considerably outperformed Bank of America since Mr Buffett sold WFC. The proceeds from the Wells sale were not used to buy BofA stock, but BofA certainly took over the position of "favourite bank".
The WFC sales were mainly in two batches, 2020-Q4 probably at prices around $26, and 2021-Q3 probably at prices around $43. Rough estimate, that would be like selling at a weighted average date and price of end-March 2021 at about $33. Current price is $60, plus the foregone dividends since then. BAC has gone from $33 to $41 in about the same stretch, rise about 15% smaller.
WFC stock has outperformed BAC pretty steadily since Berkshire sold the first big whack of WFC in late 2020, right until roughly early May this year.
A graph of the ratio of the two, both using total return including dividends
https://stockcharts.com/h-sc/ui?s=WFC%3ABAC&p=D&st...I'm not saying that I'm a fan of Wells Fargo. But I do still think it odd that Mr Buffett sold when he did, since it seemed pretty plain for the first tranche that they could certainly still make $4 a share most of the time and therefore that $26 was a temporarily very low price. It seemed pretty clear that about a billion (pre tax) was left on the table as a result. Oh well, stuff happens.
Jim
No. of Recommendations: 5
I remember Charlie saying something like Warren got pissed off. Charlie said he had lower expectations of WFC management. 😂
No. of Recommendations: 2
It is possible that Buffet BAC sales will be more like Boyd. A short period of heavy sales and then nothing for months?
I keep hoping that at some lower price that Buffet will stop selling.
I still have 60% of my peak BAC position. I have been selling covered calls since Buffet started selling to blunt the decline.
From a buyback perspective the selling pressure is good news.
No. of Recommendations: 14
It is possible that Buffet BAC sales will be more like Boyd. A short period of heavy sales and then nothing for months?
I keep hoping that at some lower price that Buffet will stop selling.
I still have 60% of my peak BAC position. I have been selling covered calls since Buffet started selling to blunt the decline.
From a buyback perspective the selling pressure is good news.
Once BRK's ownership passes below 10% (we are at 12.39% as of 7/29), Warren will have privacy on any selling until quarterly disclosures roll around. So it may seem like he stopped - out of sight, out of mind - but we won't really know what he is up to until the highly delayed quarterly disclosures and Annual Reports come out.
If he stops before hitting 10% (which I feel is very unlikely), we would be able to see that.
Like someone here mentioned - Warren is not typically a "trim around the edges of a position" guy - but we don't know the reasons he is selling.
He doesn't strike me as a big stock market Bull at the moment.
No. of Recommendations: 2
Buffett made it clear that he wouldn’t own banks anymore. The only reason for the BAC position was that he initiated the deal. I think it was 2023 AM discussion.
No. of Recommendations: 1
"Buffett made it clear that he wouldn’t own banks anymore"
I think he still owns JPM in his personal port.
No. of Recommendations: 7
Buffett made it clear that he wouldn’t own banks anymore. The only reason for the BAC position was that he initiated the deal. I think it was 2023 AM discussion.
Maybe somewhere else? I'm not seeing that in the 2023 AM. Here is one quote:
Q27. Quick: What do you think of the business models for the big banks as compared to the regional banks?
Buffett: If you follow sound banking methods, a bank can be a perfectly decent investment. We were going to buy banks until the Bank Holding Company Act of 1970 forced us to divest the one bank we had bought. Banking was more attractive to us than insurance. I’ve got my own money with a local bank probably above the FDIC limit. I don’t worry about it in the least. We do have a large investment in Bank of America. I like the management. I proposed the deal with them.
dtb
No. of Recommendations: 1
No. of Recommendations: 2
He’s now up to $3.8 Billion in BAC sales.
This is a major disadvantage Buffett has in disposing (and acquiring) very large holdings.
He wanted to—and began selling shares at $44. Now he’s not even getting within 10% of his sell price. The rest of us could have sold our entire position at $44 and barely moved a penny.
