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Warren Buffet Massively Reduces Stakes in Banks

(Noted News) The “Oracle From Omaha” has effectively dumped the majority of his stake in the American banking industry, appearing to reverse his perspective on the inevitable growth and prosperity of the American banking system.

Back in August, Berkshire Hathaway (BRK-B) announced it had dumped 85.6 million shares of Wells Fargo (WFC), 35.5 million shares of JP Morgan (JPM), and undergone a complete divestment of Goldman Sachs (GS).

Last Friday, Berkshire announced a further 3.3% divestment from Wells Fargo, who continues to struggle in recovering from a series of scandals involving the treatment of their customers. The only bank which Berkshire has increased its stake in is Bank Of America (BAC), which is their 2nd largest stock holding after Apple (AAPL).

On Wednesday, Moody’s Investors Service lowered Wells Fargo’s rating from “stable” to “negative”, citing the bank’s inability to fix it’s governance and oversight issues from prior years.

Berkshire’s bank stock sell-off comes following their massive divestment in airline stocks in March, a dump that was criticized by many as a ‘panic sell’, which contributed to a first-quarter loss of nearly $50 billion in 2020.

Emphasizing his divestment from the banking industry and his U-turn from his previous investment strategy, Buffett also took out a $536 million position in Toronto based gold miner, Barrick. Still true to Buffett’s style, Berkshire went for a cash producing business in the gold mining industry, rather than the commodity itself.

Speculation around why Buffett has changed his investment tune revolves mostly around the economic effects of COVD-19, the trillions in fed printing and the assumed high levels of inflation that will follow, and the general consensus that gold is a good inflation hedge asset for a portfolio.

However, some may point to Berkshire’s poor performance on their top ten holdings being the reasoning behind the U-turn, with seven of the 10 resulting in negative performances. As of August 10, 2020, according to Morningstar.com, these include: Bank of America (-23.6%), Coca-Cola (-12.3%), American Express (-17.3%), Wells Fargo (-52.0%), JPMorgan (-25.9%), U.S. Bancorp (-35.4%) and Bank of New York Mellon (-22.8%)

It is interesting to note that following all the volatility in the markets, and all the big moves in the Berkshire portfolio, the position in Barrick gold was actually the only new stock added to their holdings, meaning that if their other positions don’t improve, the bulk of Berkshire’s future performance will be at the mercy of the price of gold.

Forbes included Buffett on its list of billionaires who got hurt the most in 2020, placing him as the number one loser in dollars. ($7.3 billion of his $73.5 billion net worth)

In an interview with CNBC in February, Buffett was asked by Becky Quick if he was ‘ticked off’ by those who believed he had lost his touch.

“I’m sure I’ve lost some of it, I can tell you all kinds of things I’ve lost! [laughs] But we haven’t lost Geico or the railroads… Berkshire without me is worth essentially the same as Berkshire with me. My value added is not high… The big thing is how our businesses do, and what we get to add in the way of businesses over time and we can add them through marketable securities I mean, we own 5.5% of Apple. It’s probably the best business I know in the world and we own 5.5% of it, and that is a bigger commitment than we have in anything except insurance and the railroads.” 

Berkshire Hathaway continues to hold large American companies like GEICO, Duracell, Dairy Queen, Fruit of the Loom, and Helzberg Diamonds.

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