Nearly half of Warren Buffett's stock portfolio belongs to this industry



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<p class = "canvas-canvas-text canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Warren Buffett pulled the investment chains to & nbsp;Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) for half a century. Even with Todd Combs and Ted Weschler now managing billions of equity, Buffett's stamp on the company's stock portfolio will be felt for many more years. & Nbsp; In addition, with Buffett's own wealth consisting of Berkshire shares, it's really hard to consider Berkshire's portfolio as Buffett's portfolio also. & nbsp; "data-reactid =" 11 "> Warren Buffett pulls the strings of the investment of Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) for half a century. Even with Todd Combs and Ted Weschler now managing billions of the company's capital, Buffett's stamp on the company's stock portfolio will be felt for many years. Moreover, with Buffett's wealth of Berkshire stock, it is no exaggeration to think that Berkshire's portfolio is also Buffett's.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "And if there is a big thing to remember from the latest company 13-F, the quarterly publication of its holdings in shares, is that Warren Buffett does not hesitate to invest in a sector that he knows well and that he is in good position to make big profits.According to his most recent 13-F, Berkshire Hathaway has massively invested $ 94.9 billion in financial services companies, close to & nbsp;half & nbsp;"data-reactid =" 12 "> And if there is one thing to remember from the company's last 13-F filing, the quarterly publication of its holdings in shares, it's that Warren Buffett n & # 39; He does not hesitate to invest in an industry he knows well and sees himself as well positioned to make big profits, according to his most recent 13-F, Berkshire Hathaway has invested $ 94.9 billion in financial services companies, or almost. half of the $ 199 billion equity portfolio.

Source of the image: Getty Images.

Banks dominate Berkshire portfolio

At the end of the first quarter, there were 16 businesses in the financial services sector. Here's the size of Berkshire's stake at the end of the quarter:

Business stock Market value
Bank of America (NYSE: BAC) 896 167 600 $ 25,451,159,840
Wells Fargo (NYSE: WFC) 409 803 773 $ 18,723,934,388
American Express (NYSE: AXP) 151,610,700 $ 18,041,673,300
WE Bancorp 129,308,831 $ 6,672,335,680
JPMorgan Chase 59 514 932 $ 6,590,088,420
Moody & # 39; s 24,669,778 $ 4,585,124,939
Bank of New York Mellon 80,937,250 $ 3,729,588,480
Goldman Sachs 18,353,635 $ 3,623,191,085
Visa 10,562,460 $ 1,731,504,068
MasterCard 4934756 $ 1,244,545,463
PNC Financial Services 8,671,054 $ 1,128,797,810
M & T Bank 5382040 $ 881,093,768
The travellers 5,958,391 $ 878,683,921
Synchrony Financial 20,803,000 $ 726,440,760
StoneCo 14,166,748 $ 366,635,438
Torch 6,353,727 $ 555,252,203
Total market value $ 94,930,049,563

Data Source: Berkshire Hathaway Ranking 13-F. Berkshire shares are recorded as at March 31, 2019. Market value at closing prices on May 17, 2019.

Of the $ 95 billion that Berkshire invested in financial services, the vast majority of that – $ 85.6 billion at recent prices – was held in banks. In addition, three of Berkshire's five largest investments and six of its ten largest individual holdings are banks.

Why does Berkshire have so many bank stocks?

Buffett has had an interesting relationship with the banking sector over the decades. On one side, he pointed out the inherent risk of banks – they are highly indebted, generally lending about 90% of their capital, potentially exposing them to the slightest risk of financial problems.

The global financial crisis of 2009-2010 was an example of how much bank debt could escape terribly. It was by far the worst banking crisis in nearly a century, but history tells us that banks tend to experience a kind of crisis almost every decade. a bad actor becomes, well, creative with their practices and a handful of others will follow soon. However, the best managed and capitalized banks can also make excellent long-term investments. Wells Fargo and American Express, two of the largest holdings in Berkshire, are proof of this.

Buffett launched a call for heavy investment in both cities more than 20 years ago, spending less than $ 10 billion to buy his stake in Wells and $ 1.29 billion for American Express. At the time of writing these lines, the $ 11 billion and the change that Buffett spent on these investments represent nearly $ 37 billion, while Berkshire has paid more than $ 1 billion in dividends. Last year.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Similarly, its stake in Bank of America – a much more recent investment from the financial crisis – & nbsp; cost $ 11.7 billion, but its value now exceeds $ 25 billion and has generated dividends of $ 551 million in 2018. "data-reactid =" 44 "> Similarly, its stake in Bank of America – a Much more recent investment from the Financial Crisis cost $ 11.7 billion, but its value now exceeds $ 25 billion and has generated $ 551 million in dividends in 2018.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Moreover, these big banks have a lot in their After having spent most of the last decade at unprecedented levels, interest rates began to rise two years ago, which is already an advantage.increase the profits of the largest US banks. "data-reactid =" 45 "> Moreover, these big banks have a lot to their advantage in the coming years.After spending most of the last decade at unprecedented levels, interest rates started to to increase a few years ago already increases the profits of the largest American banks.

Diluted BAC EPS Chart (TTM)

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Diluted EPS BAC (TTM) given by YCharts"data-reactid =" 63 "> YCharts diluted BAC EPS Data (TTM)

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Federal Reserve should not raise rates Again this year, the regulatory downturn in recent years and the anticipation of a further rate hike in 2020 are two key factors driving banks to continue to post strong earnings growth in the coming years. . "data -reactid =" 64 "> The Federal Reserve will probably not increase its rates this year, but the combination of reduced regulation in recent years and forecasts of a further rate hike in 2020 are two key factors in favor of banks continue their strong earnings growth in the coming years.

Buffett's aggressive decision to invest tens of billions of dollars in the largest US banks over the past decade indicates that the Oracle of Omaha is also very optimistic about banks in as a category.

Do you have to follow Buffett in the banks?

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "I tend to be d & # 39; okay with Buffett's expectation that banks should be fine in the future, but having said that, it's important to remember – & nbsp;you are not Warren Buffett. & nbsp; And by that, I mean, do not take the Berkshire portfolio model and put half of your equity allocation in banks. & nbsp; "data-reactid =" 67 "> That said, it's important to remember – you are not Warren Buffett. And by that, I mean, do not take the Berkshire portfolio model and allocate half of your equity allocation to banks.

In addition to holding nearly $ 200 billion in stocks, Berkshire has about $ 115 billion in cash. Subtract liquidities and stocks from its market capitalization of $ 500 billion. You thus get a value of about $ 185 billion related to the Berkshire cash cow's operating activities, including Geico and BNSF Railways. This significantly changes the place of the banks in Berkshire's asset allocation.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "That said, yes, banks must be a key element portfolio of most investors, especially high quality companies such as & nbsp;Wells Fargo and Bank of America. & nbsp; Even though they have been very successful in Berkshire over the years, they still represent considerable value. Do not overdo it and risk more capital than you can afford to lose. & Nbsp; However, banks should be a key part of the portfolio of most investors, especially high-quality companies like Wells Fargo and Bank of America, although they both very successful for Berkshire over the years, they still represent great value today.Do not overdo it and do not risk more capital than you can afford to lose.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 70 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Jason Hall holds shares of American Express, Bank of America and Mastercard. Motley Fool owns shares and recommends Berkshire Hathaway (B shares), Mastercard, Moody's and Visa. The Motley Fool has a disclosure policy."data-reactid =" 78 ">Jason Hall owns shares in American Express, Bank of America and Mastercard. Motley Fool owns shares and recommends Berkshire Hathaway (B shares), Mastercard, Moody's and Visa. Motley Fool has a disclosure policy.

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