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Berkshire Hathaway Inc. Message Board

  • strat58cat strat58cat Aug 22, 2011 1:05 PM Flag

    TF, Warren Buffett and WFC

    Warren's got more cost basis in WFC than any other BRK equity holding, bar none. I followed him again today. I'm back into WFC bigtime in the low 23s after selling in the 29s a few weeks ago. This time, I won't dump it near 30. This much fear can't be around this often, and the bank that can't go under due to Societe General's problems, if any, can't hang at 6x forward all that often. A big settlement's going to happen with a big charge, but I'm not counting on that to drive down the price below these levels. Paulson's been adding WFC like mad, and Buffett added quite a bit in the 2d Q. Now, one could say I don't know what I'm doing (bunk) since I've been in and out a few times on WFC, but actually it's worked out great. I don't know why I knew banks were going to tank and sold them a few weeks ago, but I did and escaped. Now I'm back in big-time. They can tank more. That's fine. I'm still diversified and have lots more that I can throw at it.

    TF, also I've decided you're totally right about sticking with WFC instead of BAC. WFC tracks the banks and as a result has been offering insane opportunities, based on earnings power. Yet, WFC has nothing like the liability overhang at BAC. As cheap as BAC looks based on book, it's actually not that much cheaper based on earnings, because WFC just does a lot better at generating earnings from assets. WFC also benefits from the ailments of their competitors, like Warren and Charlie always say.

    Sadly, I had to pare back higher p/e holdings to load up, inclusing without limitation eliminating MOS, cutting JNJ, cutting ADM, cutting Aapl and MSFT (with real regrets about MSFT, but imho WFC's fortunes are more certain). Selling cheap to buy cheaper is all I can do. The double-digit forward p/es of MOS, which also has litigation exposure and supply limitations with uncertain availability of competing supply, and JNJ which has great prospects imho, made the choice inevitable. If settlement charges push the 6 p/e off a year, that's fine. I'm patient.

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    • Udaman Strat,

      Your detractors here on this board, are for entertainment only...In short, They Got Nuthin. They're afraid to make a call or have a rational discussion cause it makes them vulnerable to look stupid.

      Maybe your right, but I'm not yet ready to sell MSFT to buy WFC. They're both cheap.

      • 3 Replies to davidyab
      • "They're afraid to make a call or have a rational discussion cause it makes them vulnerable to look stupid."

        I for one have made plenty of calls, some good, somenot so good. How is that call on Apple a couple years back working out for you, David? I noticed recently that you tried to deny it. You sounded very "vulnerable" in that post.

      • I'm afraid to have an irrational discussion.

      • I'm not sure I'm right. MSFT is still one of my larger holdings, although orders of magnitude smaller than WFC. The certainty of the outcome drove my decision to lighten up and add WFC. WFC can have a settlement of moderate size or two, but in no way does it have any kind of liability black hole. The forward p/e of WFC is 6. I just like saying it. The forward p/e of WFC is 6. The 6 can be 10 or 12 of course in a given year with a big settlement or some other untoward development, but banking's never going away. The 6 will be the next year down the line is all that will happen.

        MSFT's forward p/e is only about 7-8, but that's still a little higher. Also, because Apple is so tremendous and has really impacted the PC business with its untouchable ipad and enormous iphone business, I view Apple and MSFT as a tandem. What I mean is that in the unsettled situation about what will happen in the industry, and that's the fast-changing computer and software field that Buffett therefore avoids, I own both to hedge each. I like both, too. Together, they still account for about 9% of my equity portfolio, with MSFT about 2/3ds to Aapl's 1/3. Taken together, the p/es substantially higher than WFC, while the outcomes are less certain. That's my thinking for whatever it's worth. In no way would I suggest that anyone sell MSFT at current prices. Most of my sales were JNJ (15x trailing, 11x forward), and MOS (11x trailing and with supply constraints forward may be similar).

        WFC is in a swamp, and hence the low valuation, but they've got waders. I can hardly imagine a scenario where they fall prey to sovereign debt risk in Europe, for example. They're huge in CA and as I've mentioned on the moderated board despite statistics heavily populated areas like OC CA are gaining prosperous immigrants and foreign investors who are buying residential real estate for cash. WFC is well-reserved and their strong underwriting just got better over the past few years.

        The big problem is the securitization system facing legal challenges. I was worried about the impact of these court rulings on WFC and that's one reason I intuited my way out in January. However, looking at their role, they appear to have been basically leading the industry in quality. Securitizations aren't challenged when they aren't stuffed with fraud. So WFC is sitting pretty there. If WFC is just the trustee, as in the infamous Mass. case, it's just an additional expense in terms of how they have to do some processes. Actually, these litigation problems are what turned me off BK. BK is sort of at the epicenter of that confused legal scenario, since from what I can understand they were actually instrumental in the securitization process itself. BK is being sued by people who bought the bonds, saying BK effed up and therefore the bondholders got illusory collateral. So despite BK's very attractive valuation, I've steered clear. All-in-all, even though WFC has a big settlement with the states on the horizon at some point that will impact earnings, I can't pass up WFC at these prices.

    • Good call! It tanked immediately after I bought in a substantial way (for me, not the market) and so I know it's a good one! After hours, it went up substantially. Interestingly, WFC with only a great quarter and generally great company-specific news is close to the 52-week low that it set about a week ago for two minutes. A lot of traders want to knock this stock around a bit, and the blunderbuss ETF selling is knocking it down also. So I'm thinking these forces might combine to generate a huge, albeit brief, sell-off one day. I'm not banking on it, and WFC currently is such a huge value that I already bought a sizable position that would be fine. But I mean, if we get down into the 20s I am loading more onboard. If we get down to 18, I will load up again. If we hit 16 I'm going all-in aside from anything that's tanked to the same degree, which seems impossible. I'm just saying that with WFC down around 22.85 today on an up day for the market, if we get a huge market panic again it might be 2009-level prices. We're already at prices as low as anything since the brief panic in 2009, with substantially higher forward earnings. What's great is that with its industry-leading NIM as Buffett's highlighted, and its industry-leading underwriting standards, WFC makes money if any bank on Earth makes money. So in the slow but stable environment, and no excesses since the bubble, WFC makes money.

      I'm not predicting 18 or anything, but just highlighting that it could happen. I'm a radical and I'm perfectly willing to go all-in. The link between GE and WFC already broke today. Plus, my staples don't collapse. So I'm prepared to increase my holdings radically if we get even a day or two of teen prices.

      In the panic of 2009, Buffett said that anything below 20 was a steal for WFC and it was one stock on which, if he were an individual investor, he'd go all-in.

      Now, at that point when Buffett spoke, dilution was a certainty. As I've described elsewhere, Buffett had to know about the dilution, and in fact I believe he specifically said that even with some dilution pending WFC was a steal under 20. So at 23 are we below that point? Not at all, the dilution needed to finance the Wachovia acquisition, as I described last year, makes the post-dilution equivalent of Buffett's less-than-20 price . . . wait for it . . . 27.

      My point simply is this. Buffett said less than 20 was a steal. Dilution was foreseeable and Buffett knew it was going to happen. Someone who bought at 19.99 when Buffett named that price was then diluted and would need 27 to be at the same level. Therefore, in terms of the amount of WFC we own, we who buy now at 23 are getting more WFC per share than a party who bought WFC at 19.99 in 2009, simply because the 19.99 purchaser was foreseeably diluted.

      The bottomline is that at 23 WFC is cheaper than the price Buffett (knowing dilution was imminent and being uniquely able to predict dilution) said was a steal. That's the kind of guidance Buffett gives to his followers. He's the man. So I feel great about my 23.x cost basis in WFC.

    • You have sold out of jnj several times. How do you keep selling out something you have sold out 5 times?

      I love the bs here

      • 2 Replies to astralagist
      • That's a classic! So if you post that you sold some of a holding, it means you sold your entire position? ROFLMAO! Let me be clear again since I want credibility since I'm pumping my big holding WFC through this post. In January I sold WFC at about 31 after buying at 23.x last summer. I went into VHT and then JNJ, fleeing financials because I thought they ran too far and too fast with all the litigation. I posted about it at the time, prompting somebody a lot like Greensharts but with a different screen name to deride me for "panic selling." I then bought at 25 and sold at 29, along with making a run in V from 72 to 89. However, I lost an immaterial amount in a short holding of BAC before dumping it above 10 the day it began its dive. Now, with WFC at 23.x and at a 6x forward p/e, I've gone back in over the past week to build up WFC to about 1/3- 40 percent of my individual equities. Actually, I don't remember but being fried has helped me immensely as an investor, although not at "Jeopardy."

        I also have GE as one of my larger holdings and MSFT is still a larger holding. I also have BRK and a bunch of staples. So if WFC really craters - which would be great, the staples will hold up and provide ammunition. I'm not planning on paring back Aapl and MSFT, which I treat as a tandem since Aapl hedges MSFT and vice versa in my way of thinking. Also, they tend to tank with banks. My remaining JNJ and staples, however, are the ammo.

        This time I'm really planning to hold WFC. There's reason to doubt me, since I've been trading it, but I really don't want to sell it this time. I think housing will come back soon enough, since there's so little current construction, that I don't think I'll get many more bites at 23. Also people eventually will realize WFC's the last bank that's going to go down due to Greece, and Market eventually will pay attention to the lush NIM at WFC, the lack of litigation risk compared to other major players, and the superior underwriting. So in the meantime, I'll just hold on and ride it to my fair value estimate of 69. I don't plan to dump it at 31 this time. Anyway, I'm sick of paying my gains to Uncle Sam and the Golden State.

        There's still time to buy WFC today for less than I paid at 23.x. You're going to hate yourself in three years for slamming people who buy it low. I can't help but be helpful in response to ridicule and sarcasm. I've been blessed and I must pay it forward.

      • having strat give toad advice on buying a black box tbtf bank is the blind leading the blind.

        after you cut through their cut and paste analysis their entire investment premise really relies on only two weak foundations, both wrong and the markets are gradually reaching that same conclusion, 1. buffett bought shares, and 2. the govt will not dilute tbtf share holders because of 1...until they do.

    • There is so much unintentional comedy in Strat's post that it's hard to know where to begin. He "loaded up" on WFC, had to sell all or part of 5 other stocks he likes to buy it but if WFC tanks he "has lots more that I can throw at it." Berkieland, where being even when you back up the truck to buy it, there's always another truck to back up when it's time to average down.

      He tells Toddfraud he's "totally right"?

      And in a WORST CASE scenario, where WFC doesn't earn $4 next year but the year after, he's patient. He held BAC for what, a week?

      If I didn't know better I'd think that post was a parody.

      • 2 Replies to greensharts59
      • ROFLMAO. Yeah, I really blew it buying WFC at 23.x last summer and unloading it at about 31 last January, when you or somebody very much like you with a similar screen name derided me for "panic selling." I then loaded up on VHT. Then switched that into JNJ with a slight profit. Treating JNJ as currency, I was early rebuying WFC at 25, also bought V at 72, and bought BAC average cost about 10.60. I then felt the blitz coming somehow, and dumped all financials, BAC at 10.06 the very day it started to tank for like a .6% loss, WFC above 29 and V above 89. As I said at that time, I used the proceeds to retire a mortgage on a rental house, and from that income stream will purchase further real estate properties. Since I eliminated much of my non-JNJ holdings at that time, I was about 50% JNJ. Since then, as the market tanked, I diversified a lot. One position that I built in the low 23s was WFC, selling off JNJ in small bits primarily to do so. Today I made a much bigger move into WFC, in time for it to drop 1%. So you can feel good about that drop, and I'll feel good about all my major gains over the next few years.

        You're a pretender. Never seen you say a thing you've done, that I recall. Never seen you add any value, that I recall. Seen you slam a lot of other people who are successful investors. My guess is you're a short, or just a wannabe with nada. Bye.

      • "If I didn't know better I'd think that post was a parody."

        Welcome to the Yahoo BRK-A board. Where nobody owns any A shares; everybody buys six to twelve months after Buffy buys something (a tactic derided by Buffy); everyone unloads same either to pay taxes or short-term capital gains (or to buy something else)...and all while pretending to be Value Investors with a Long Term Outlook and a pic of Ben Graham over the mantle.


    • Incidentally, Khadaffy's regime is gone. President Carter? More like President Staggerlee, if Staggerlee were a good guy.

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