- John Malone talks fabulous FAANG influence (here)
- Liberty Global Vodafone deal cleared by European authorities (here)
- Charter CEO: Content Companies Hurt Pay TV Bundle With Free Programming Everywhere (here)
- Lawsuit challenges Barry Diller future control of Expedia (here)
We all know that Warren Buffett and Berkshire Hathaway have been bullish on banks in America. It looks like the fest is all set to continue. Berkshire Hathaway just filed a Form 3 with the SEC as a 10% owner of Bank of America (BAC). You can find the filing here
It looks like Berkshire has added over 54 Million shares in BAC since April 2019. What is even more interesting is that Warren Buffett and Berkshire have been actively selling down Wells Fargo every quarter for the last few years to keep its ownership interest below 10% (here) as it hampers their ability to do business with the bank (here)
It also looks like it is okay to own up to 25% of a bank as long the investor gets a permission from the federal reserve and assures them that they would remain a passive investor.
Whichever way you look at it, between WFC, BAC and the growing stake a JPM, Warren Buffett is owning a huge piece of the American banking system. And his actions are the strongest indicators on how Berkshire feels about the current valuation of American banks and areas where large amounts of capital can be deployed for Berkshire.
STFC announced their results last night. It has been a very tough quarter for the NBFC’s working through the liquidity crisis that has ravaged the sector. Considering the circumstances, I had braced myself for a blood bath from Shriram Transport this quarter. While the provisions and the NPA’s are sequentially up, they are only marginally so and could have been a lot more worse considering the circumstances.
Key metrics of ROA, ROE and provisioning continue to hold up pretty okay given the tough environment. Given the nature of the clientele that Shriram Transport caters go, which is the single owner trucking industry, it is not surprising to continue to see a large stage 3 asset book but very little seem to convert into actual write-offs.
What will be interesting to hear from the management will be the liability mismatches, liquidity and repayments during the conf call. Other than that, as an investor, I just have to sit and brace for another quarter of bad headlines and watch paint dry as the fundamentals continue to hold for STFC.
Wells Fargo has been a decisive name that has divided investors. While the fundamentals continue to hold steady, negative headlines and a rock bottom valuation continues to test the patience of investors. It has been interesting to look at what Charlie and Warren have been up to with Wells Fargo during this time.
Below is a look at the Daily Journal portfolio which is essentially managed by Charlie Munger. While the Daily Journal corporation is not the primary investment vehicle for Munger, it is hard to fathom Charlie not taking his fiduciary duty very seriously at Daily Journal on managing the portfolio.
Source: Dataroma (here)
The thing that caught my eye was just how big the Wells Fargo position is. It is over one half of the portfolio at this point. It is extremely interesting because Charlie has long preached assiduity and it looks like he is practicing it hard. Not a single trade on Wells Fargo since Q4 2013 (as far back as the database at Dataroma goes).
On the other hand at Berkshire, limited by an ownership limit of 10% that would force them to convert to a bank holding company, Warren Buffett has been selling just enough to keep it inside of the 10% ownership rule. While one can speculate on what would his actions if he was not loaded up to 10%, the act of keeping it just below 10% through this tough time for Wells Fargo is an indicator of the confidence that both Warren and Berkshire have on the bank.
Source: Dataroma (here)
Charlie Munger and Warren Buffett did weigh in on the Wells Fargo Issue a couple of months ago after the annual meeting at Omaha. It basically reinforces their faith in the bank while calling out the mistakes.
Some very interesting comments came from Saber Capital recently on Wells Fargo here
While it has been extremely interesting to watch the market react to the accounts scandal and politicians drum it up for headlines, what remains behind is a company that has $1.9 trillion in assets and $1.3 trillion in deposits that is buying back its shares and eating into itself. This year, an estimated 15% of the market cap of Wells Fargo will be distributed either in the form of a dividend or buybacks. Probably, it is not such a bad thing to be limited on growth but to allow the bank to buy itself back cheap on the back of negative headlines. While the headlines have been scary, the assets and the deposits are continuing to hold steady at Wells Fargo!
While time will tell how the next chapter unfolds but as an interested and a vested investor in Wells Fargo, it is tough to ignore the headlines and just watch the fundamentals. Probably time to practice some assiduity.
We are reading an interesting set of books on the American military and technological progress post world war II.
- Area 51 by Annie Jacobsen (amazon link here)
- Operation paperclip by Annie Jacobsen (amazon link here)
- American Moonshoot by Douglous Brinkley (amazon link here)
Very interesting set of reads. The connection among all the three books is the use of the German Nazi scientists who were allowed to settle in the USA after world war II that allowed America to hold and extend the technological advantage over the world.
While there are a lot of commentators out there commenting on Berkshire’s results, here is a short different take on it.
- In 2018, Berkshire took a pre-tax mark to market losses of $22.4B on investments and derivatives and $17.8B on a post tax basis
- Berkshire reinsurance group did not have a great year and lost $1.1B pre-tax driven by property casualty and retroactive reinsurance.
- Berkshire’s portion of the Kraft Heinz goodwill impairment was $2.7B in 2018
- $19.8B of Fixed Income securities compared to $172B of equities
- $109B in Cash and treasury bills
- Offset by strong earnings in the rest of the operating businesses and insurance companies resulting in a book value increase of 0.4% and net income of $4B for the year.
If on a year like this, Berkshire does not lose money, it talks a lot about the fortress balance sheet and the resiliency of the business model. I know that Buffett talks about not using BVPS any more. I look at it differently. It was an understated proxy for intrinsic value. Now, it is vastly understated for the intrinsic value.
It is often about return of capital before return on capital. There are a lot of commentary about Berkshire being an index fund. It might be but the risk profile is completely different.